Doug Peters

[Borrowing Authority Act, 1996-97, March 21st, 1996]

Madam Chair, the hon. member asked a number of questions. I remind him that in 1991 unemployment insurance had a deficit of $4.2 billion. The previous year the cumulative surplus was $2 billion, so that left the deficit at $2 billion. The next year, 1992, there was a deficit of $2.6 billion, cumulative deficit, $4.7 billion. The following year there was another deficit of $1.2 billion, leaving a cumulative deficit of almost $6 billion in those three years alone.

Surely the hon. member realizes that is not the way a prudent fiscal house should be run and is not a way to help the unemployed. At the same time there were increases in unemployment insurance premiums which again hurt the job efforts at those times.

We are running the surplus in the UI fund to prevent that sort of thing from happening again.

The hon. member also asked about duplication. At times there have been questions of duplication. We have done an enormous job over the last two and half years to eliminate duplication in government services in helping the provinces.

In my field we are working right now on a Canadian securities commission. We are trying with the provinces to get their co-operation. Do we get that co-operation from Quebec? Not yet but we hope to. Do we have the Bloc telling us it is a good idea to put a Canadian securities commission in? Is it a good idea to reduce the overlap and duplication in the securities business? Does the Bloc come out strongly in favour of that? No. From the questions I have heard it is quite the reverse.

I do not see why the hon. member is asking me what the government has done about overlap and duplication when they are the ones who have not come out in favour of reducing overlap and duplication in an area which could obviously be made into a much easier and simpler system at the federal level.

[Borrowing Authority Act, 1996-97, March 21st, 1996]

Madam Chair, I believe there is a difficulty of understanding.

There is no reason we could not set up a fund within the UI fund to look after a future problem. It is not being used for current daily operations of government. If the member looks at the budget papers he will find there is an operating surplus.

All of the revenues of the government must go into the calculation of the total revenues, including premiums from unemployment. That is the auditor general's rule as to how government accounts are handled. All of the expenditures, including the expenditures for unemployment insurance payments, go on the payment side. The net difference is the operating numbers. For the last few years there has been an operating surplus.

As I said, if the hon. member does not like that system or does not understand it, I cannot go beyond that. All I can tell him is we do have an unemployment insurance fund looking after the unemployed. If a future recession happens we will have the ability to handle that recession without raising premiums in the unemployment insurance fund to the severe detriment of workers and business when a recession hits.

[Borrowing Authority Act, 1996-97, March 21st, 1996]

Madam Chair, the hon. member has made a little error. We have been reducing the rate on unemployment insurance premiums for several years. That means employed workers and businesses are paying a lower rate.

There is an unemployment insurance fund which forms part of the public accounts of Canada. I suggest the hon. member check with the auditor general. We follow the rules of the auditor general. If the hon. member does not like the rules which have been set out to handle the public accounts of Canada, he should make suggestions in the appropriate committee when the matter comes up.

We will not know the exact numbers in the unemployment insurance account until we know how many people will be applying for and receiving unemployment insurance and until the Minister of Finance and the Minister of Human Resources Development set the new rate for this year, which will be done sometime this fall.

In the meantime, we have a planning number. The planning number will reach by the end of 1997, if the planning assumptions are correct, approximately $10 billion. That is a sum which can be used in the future. It can be used to help the unemployed during a recession. It will prevent the very serious situation of having to raise premiums in the middle of a recession, the last thing any government wants to do.

That is the reason for the fund's being there. If the hon. member would like to follow the items through the government accounting procedures, he is welcome to do so. They are quite open and clear procedures.

[Borrowing Authority Act, 1996-97, March 21st, 1996]

Mr. Chairman, the hon. member is quite wrong. We have had an operating surplus since 1994. That means our expenditures on program spending have been lower than the revenue we have generated. It is not our debt that has been increasing the payment of interest; it is the debt we inherited that has increased it. The interest payments on that debt are the total amount.

I am sorry, but the hon. member is dead wrong on that. We have had an operating surplus since 1994.

[Borrowing Authority Act, 1996-97, March 21st, 1996]

Mr. Chairman, as a banker I have always felt that it was important to pay the interest on the debt. Unfortunately the Government of Canada has a very large debt and a very large portion of that debt bears interest. Some of it does not, but most of it does. A large part of that interest is paid and that is why a large part of the additional expenditures or the program spending has been down each year for a number of years. Since we have been in office it has been down.

The cost of carrying the public debt has increased because the public debt has increased.

A light has gone on in the hon. member's mind because he realizes there is interest paid on the public debt. I am sure it does not come as a surprise to the hon. member that there are interest payments on the debt. Unfortunately we have to pay interest.

Maybe the Reform Party has a better idea than paying interest. Maybe it does not want to pay interest on the public debt. Maybe that is the system which that party has. However, it is not the system of the government. It has obligations and believes that the interest payments on the public debt should be paid. That is where the additional expenditures will go.

Program spending has been down year after year and the public debt costs have increased. It is very simple. I think the hon. member knew that answer.

[Borrowing Authority Act, 1996-97, March 21st, 1996]

Mr. Chairman, I know that my good friend across the way will find this a very difficult thing to realize but the economy grew. The increased tax revenues were as a result of the

economy growing. The tax rates were not increased. Almost none of the total revenues were as a result of tax increases.

It is a funny thing. Does the hon. member not want the economy to grow? Would he be happier to see the economy not grow?

When the economy grows, corporations make profits, people become employed and they both pay taxes. Not only that, many people go off unemployment insurance and that cuts expenses. When that happens the deficit is reduced. That is the way it works. I did not think I would have to explain that to a fellow economist.

[Borrowing Authority Act, 1996-97, March 21st, 1996]

Mr. Chairman, that is interesting. We have lowered the premium rates twice now. Just for planning assumptions there is a premium rate in that number and that is a lower premium rate than there is now.

The cumulative surplus in the unemployment insurance fund will only be about $10 billion by the end of 1997. That number is subject to change because a different premium rate could be agreed on than the one that was used for planning assumptions in the budget. If the planning assumptions unfold that is the number that will be affected.

[Borrowing Authority Act, 1996-97, March 21st, 1996]

Mr. Chairman, the fund grows for two reasons. First, there are fewer payouts of the fund. In other words unemployment is down.

Second, it grows through contributions. The contribution rate is set each fall in conjunction with the Minister of Finance and with the Minister of Human Resources Development. It will be set this fall so I cannot tell the member how big the fund will be in the future without knowing how many payments out there are going to be.

I do know that we need a substantial cushion because last time premium rates had to be raised in the middle of a recession. That is the wrong thing to do and that must be prevented in the future.

[Borrowing Authority Act, 1996-97, March 21st, 1996]

Mr. Chairman, the hon. member did not give me a long question. I thought it was going to be a 55-minute lecture from the professor. I will be brief in my reply.

The unemployment insurance system is there to protect the unemployed. One of the methods used to protect the unemployed is to build a substantial surplus so that during the next recession, and there will be one some day as both the hon. member and I know, it will be unnecessary to raise the premium rates because there were insufficient funds. That is the reason for the cushion.

The hon. member mentioned revenues. On revenue increases I would refer to the fiscal plan, page 106. The total budget in revenues went up from $130.6 billion to $135 billion in 1995-96 and 1996-97; almost $4.6 billion. The unemployment insurance contributions went up 3 per cent. I would suggest to the hon. member that is considerably less than 10 per cent.

[Borrowing Authority Act, 1996-97, March 21st, 1996]

Mr. Chairman, I have a few words to say to the bill. I welcome this opportunity to speak to hon. members on Bill C-10, the borrowing authority bill for fiscal year 1996-97.

Our goal once again is to have the borrowing authority in place on April 1, the beginning of the government's new fiscal year. This will ensure continued regular financing operations for the government.

All borrowing authority granted by last year's borrowing authority act, including the $3 billion non-lapsing amount, will be depleted by the middle of April. If this legislation is not in effect on time, it means that the government's funding requirements would have to be met by using section 47 of the Financial Administration Act.

Section 47 restricts borrowing to short term funds, and having to resort to these could easily be costly for the government and to Canadian taxpayers. It would expose the government to the additional interest rate risk implied by increased short term funding.

That is why it is critical that borrowing authority be secured as soon as possible.

Before I comment on the various clauses of the bill, it is appropriate to review our economic and fiscal progress. The Canadian economy has shown a mixed performance over the past couple of years. Growth in 1994 was very strong at 4.6 per cent for the year as a whole, again reflecting both a strong U.S. recovery which fuelled a surge in Canadian exports and the positive response of domestic demand to declines in interest rates.

In 1995 however, U.S. interest rates rose sharply to contain possible U.S. inflationary pressures. Higher U.S. rates spilled over into Canada in the form of both higher Canadian rates and slowing growth in Canadian exports. Canadian GDP rose only 2.2 per cent, a number which masks really the extent of the slowing. From the end of 1994 to the end of 1995 the Canadian economy only expanded by .6 per cent.

The weakness in 1995 in both U.S. and Canada has set the stage for stronger growth in 1996. Inflation pressures in both the U.S. and Canada have declined. Inflation in Canada remains below the midpoint of the 1 to 3 per cent target band that we set with the Bank of Canada. It is lower than the U.S. rate and the best domestic numbers in 30 years.

Interest rates also fell sharply. Short term rates are down 3 percentage points from the 1995 budget and the spread with U.S. short term rates has been eliminated. Indeed this morning there was a negative spread. This decline in Canada was aided by growing evidence that the Canadian government is getting its fiscal deficits under control.

Signs of stronger growth in 1996 are now becoming evident, particularly the recent strength in job creation in both Canada and in the United States. Low cost pressures and good productivity growth have translated into a sharp improvement in Canada's competitive position.

The trade figures show the results: a record merchandise trade surplus of $28.3 billion in 1995 and a current account deficit that fell to only 1.7 per cent of GDP, its lowest level in 10 years and an improvement even greater than that in the last quarter of last year.

The 1996 budget is the third milepost on the government's journey to securing fiscal stability in a vibrant, dynamic and competitive economy for Canadians. The first two budgets implemented unprecedented reductions to program spending which are structural in nature and extend through the medium term planning horizon.

With these measures, our 1995-96 and 1996-97 deficit targets bringing our deficit down to 3 per cent of GDP are secure despite the lower GDP growth than we had originally assumed. Contributing to this progress is the fact that interest rates are also significantly lower than projected. This has neutralized the adverse effects of lower growth on the deficit.

The measures in the 1996 budget consolidate and extend those in our first two budgets and further contribute to our economic and financial objectives. We have maintained our focus on reducing program spending. There are no tax rate increases in the 1996 budget.

Expenditure cuts amount to $1.9 billion for 1998-99 and build on the reductions of the previous two budgets to keep program spending on a downward trend. Together the three budgets will contribute $26.1 billion in savings for 1997-98. This action together with the reform of the employment insurance program will ensure we hit our new deficit target to bring the deficit down to 2 per cent of GDP on the way to a balanced budget. Let me now turn to the various clauses in the bill.

Clause 2(1) requests borrowing authority in the amount of $18.7 billion for the fiscal year 1996-97. This amount is required to meet financial requirements of $13.7 billion, to cover exchange fund account earnings of $1 billion, and to provide a $4 billion non-lapsing amount.

The $4 billion non-lapsing amount represents a $1 billion increase from previous years. Since 1986 the non-lapsing amount has been $3 billion. It was raised in that year from $2 billion. This increase is a prudent measure which will provide the government with the ability to manage foreign exchange requirements more effectively in light of the increased market flows and volatility in recent years. It 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 year if the next year's borrowing authority is not passed before the beginning of the next fiscal year.

Clause 2(1) also ensures that the borrowing authority provided in this bill may only be used after the 1996-97 fiscal year begins.

Clause 2(2) ensures that any portion of the $3 billion non-lapsing amount granted by the Borrowing Authority Act, 1995-96 that is used in 1996-97, the next fiscal year, will be deducted from the 1996-97 borrowing authority. This prevents any use of the 1995-96 non-lapsing amount effectively adding to the borrowing authority for 1996-97.

Clause 3 states that all unused borrowing authority granted by this bill in excess of $4 billion will be cancelled on March 31, 1997. This allows the $4 billion non-lapsing amount to be carried forward into 1997-98.

Clause 4 stipulates that for the purposes of calculating borrowing authority usage, the effective date is April 1.

Clause 5 deals with the cancellation of unused borrowing authority from 1995-96. If this bill comes into force before April 1, any unused borrowing authority granted by the Borrowing Authority Act, 1995-96 is cancelled effective March 31. If the bill comes into force after April 1, the $3 billion non-lapsing amount granted by the Borrowing Authority Act, 1995-96 can be used in the period between March 31 and the date this bill comes into force.

Borrowing authority is a normal part of the operations of the government. It is important for the smooth functioning of the government borrowing program that authority be in place at the beginning of a new fiscal year.

I thank hon. members for their co-operation in agreeing that this bill pass so quickly. I am now open for questions.