|
"Fiscal Balance in Canada"
Notes for an address
by the Honourable Stéphane Dion,
President of the Privy Council and
Minister of Intergovernmental Affairs
Speech delivered to the
Teamsters Canada
Conference on Government and Legislative Affairs
Ottawa, Ontario
October 30, 2002
Check against delivery
Presentation
(PDF)
The federal budget surpluses of the past five years are not proof of the
existence of a structural fiscal imbalance, of which the provinces are the
victims. Rather, they are the fruits of an economic turnaround that Canadians
have worked too hard to achieve to take for granted [Table 1].
The Government of Canada is not awash in money. It must be borne in mind that
the federal debt load of $536 billion is over twice as high as the provinces’
[Table 2]. The Government of Canada’s surplus, which stood at $8.9
billion for the last completed budget year, may seem substantial, but it would
melt away like snow in summer if we eased up on our budgetary prudence.
We would not have had such a surplus if Canada had experienced the economic
downturn projected by private-sector economists at the time of the last federal
budget in December 2001. Whereas they forecast 1.1% GDP growth for Canada
in 2002, it will actually be 3.4% according to the International Monetary Fund (IMF)
[Table 3]. That unexpected performance by the Canadian economy is nothing
less than exceptional under the circumstances. Average growth will be only 1.4%
for G7 countries in 2002, again according to the IMF [Table 4].
Pendulum effects on budgets are considerable and dictate the greatest
prudence. Let us look at the situation in other countries. The US Congressionnal
Budget Office projected, in January 2001, a US$313 billion surplus for the
federal government in 2002; it is now projecting a US$165 billion deficit [Table
5]. In Europe – France, Italy, Germany and Portugal are experiencing
serious financial problems.
Canada would be abandoning the budgetary prudence that has served it so well
if the federal and provincial governments were to base their budgetary policies
in the coming years on as unreliable a methodology as that used in the report by
the Séguin Commission. If you had tried five years ago to make budget
projections for this year using the Séguin formula, you would have come up with
a $60 billion surplus for the Government of Canada and a $12 billion surplus for
the Government of Quebec [Table 6]! The conclusions of the Séguin report
are unrealistic [Table 7].
Under these circumstances, the Government of Canada supports the provincial
governments as best as it can. Federal transfers will increase by 6% a year in
the coming years, whereas federal revenues are expected to grow by only 2% a
year [Table 8]. The Government of Canada has said, and continues to say,
that if it can find the flexibility to do more in the next budget, it will [Table
9]. Rather than a question of fiscal imbalance, it is a question of federal
responsibility.
While federal transfers to the provinces have been restored to 1995 levels,
tax cuts by the provinces have given them a shortfall of over $22 billion [Table
10]. The Government of Canada is not criticizing them for lowering their
taxes, no more than it is suggesting they increase them. It is merely saying
that the fact the provinces feel they are in a position to cut their taxes is
one proof that a fiscal imbalance does not exist.
The Government of Canada supports the provinces partly through transfers, but
mainly by fostering the good economic health of the country [Table 11].
If Canada has been able to avoid the economic downturn of the past couple of
years, it is in large part because the Bank of Canada was able to lower interest
rates when the time was right. It was able to do so notably because public
finances, both federal and provincial, were in the best shape they had been in
for 10 or 20 years. At the end of the day, the federal surplus is
great news for all Canadians. Such a financial situation is the envy of citizens
in other countries.
In short, the Government of Canada supports its provincial partners as much
as it can, and it hopes to be able to free up additional funding for health, for
Kyoto, for infrastructure, for official languages etc. But it will do so while
maintaining the budgetary prudence that gives our country the healthiest public
finances in the G-7, according to a recent report by the International Monetary
Fund [Table 12].
There is no fiscal imbalance in Canada; there is rather a duty to help one
another out [Table 13].
|
