We Canadians have a grand plan for our country: we want to have both American dynamism and European quality of life. This dual objective prompts our governments to maintain a competitive tax regime while financing a broad range of public services. A competitive tax system, an extensive government role: this is a difficult combination that only iron discipline can achieve. We lacked this discipline during the 1970s and 1980s, so much so that our country found itself in a precarious economic and fiscal situation in the early 1990s.

However, we have recovered. Over the past 10 years Canada has seen a spectacular economic turnaround. Look at Table 1, which compares Canada’s budgetary situation in 1993 with that of today. In 1993 Canada recorded the largest deficit among the G-7 countries after Italy. Our governments’ deficits represented 8.7% of our economy. Today we are the only G-7 country with a surplus. Quite a contrast! This budgetary turnaround for our federation was accomplished by both levels of government (Table 2).

Of all the G-7 countries, Canada is the one that has achieved the greatest reduction in its debt load over the past few years (Table 3). There has been a very marked decline in the federal debt burden on our economy (Table 4) which has allowed us to significantly reduce the costs of servicing the federal debt (Table 5).

How were governments able to bring about this fiscal turnaround? Was it by increasing taxes, as we tend to believe? In fact, governments in Canada now levy less tax and income tax relative to the size of our economy than they did 10 years ago (Table 6).

Instead what has happened is that our governments have been on a slimming-down program. They have reduced the fiscal burden of their expenditures in relation to the size of the economy. Table 7 shows that this reduction was particularly significant in Canada relative to the other OECD countries.

Program expenditures by the federal government represented 16% of GDP in 1993. As Table 8 shows, these were brought down to about 12%, their lowest level since 1949! In fact, in relation to the size of the economy, total federal expenditures are now much lower than American federal government expenditures (Table 9).

The federal government reduced the burden of its expenditures while at the same time protecting the Canadian social fabric and investing in the skills of our labour force, in our knowledge economy and in the excellence of our universities. In particular, it made a huge investment in research and development and significantly increased its direct expenditures in postsecondary education. Since 1997 it has increased its budgetary effort by 40% in these two sectors (Table 10).

Of course, Mr. Chrétien’s government cannot take all the credit for Canada’s spectacular fiscal turnaround since 1993. This must be seen as the result of the tireless work put in by all Canadians. We got our economy back on its feet and we are now reaping the benefits. From 1984 to 1993, during those years when our governments were accumulating deficits, Canada had an average ranking among G-7 countries in terms of economic growth. In comparison, in the years from 1994 to 2003 we have become the best in this ordering (Table 11).

Similarly, Canada had an average ranking in terms of employment growth during the Mulroney years. During the Chrétien years we have become by far the best (Table 12). The situation has improved to such an extent that our employment rate is now similar to that of the United States (Table 13).

In fact, the Canadian economy really started to improve from 1996 onward. Table 14 shows the marked increase in Canadian household income over the past few years. Another positive result: the proportion of Canadians considered by Statistics Canada to have a low income has seen a sustained decline since 1996. As shown by Table 15, this proportion was 14% in 1996 and by 2001 it had dropped to 10.4%. The same encouraging trend is apparent for families with children, single parent families, and the elderly.

What happened in 1996 to explain this incredible improvement in our economy’s performance? Ah, yes, I know, I became Minister in 1996. That explains everything! Seriously, from 1996, our macroeconomic policy, based on budgetary discipline and targeted investments, started to produce dividends.

We must now maintain this necessary fiscal prudence. Admittedly, the latest economic and fiscal update forecasts a 6.5% increase in program expenditures this year (2003-2004), which amounts to $8.7 billion in additional expenditures. However, a much more modest increase is forecast for the following year (Table 16). You have heard the assurances of our next Prime Minister, the Honourable Paul Martin, indicating that repayment of the federal debt is one of his priorities. Furthermore, this is what the latest budget estimates indicate: we will continue to reduce the federal debt burden relative to the size of the economy (Table 17).

It is true that the budgetary situation of the provinces is not as strong as the federal government’s situation. In a federation such as ours, it is important that constitutional partners help each other. This is why, over the next few years, federal transfers to the provinces will grow more rapidly than provincial health expenditures or the Canadian economy (Table 18).

In conclusion, our country’s public finances have never been so healthy and Canadian household income has never been so high. This has been achieved through the efforts, skills and mutual co-operation exhibited by Canadians from all provinces and all territories. We now have to stay the course, while at the same time ensuring that our new initiatives fit in with the sound financial discipline that has brought us such success. This is the firm intention of our next Prime Minister, Paul Martin. This financial discipline is essential to further the solidarity of the Canadian federation and to make the Canadian economy ever more competitive.