Economic Club of New York Luncheon

I am delighted to have the opportunity to address the Economic Club today. And to bring you up to date on the remarkable progress of the Canadian economy.

Speaking before you is an occasion I have looked forward to for a very long time. To be honest, it is also an occasion I had to put off for a very long time. Because we have been busy in Canada over the last four years. Busy rebuilding the economy; cleaning up a fiscal disaster; and most important, re-igniting a spark of hope and optimism among Canadians.

And our accomplishment together can only be truly understood in the context of where our country stood four years ago, and how far we have travelled.

When our government first took office a little more than four years ago, this was the state of the Canadian economy. Our deficit stood at $42 billion -- the highest in our history, and growing. Even worse, at 6 per cent of our GDP, we had the second highest deficit to GDP ratio of any G-7 nation. The federal debt to GDP ratio was over 70 percent and growing -- and we were heavily dependent on foreign borrowing to finance our debt.

Our national unemployment rate was 11.4 per cent at the beginning of 1994. We were coming through a recession twice as severe as the recession in your country. Our interest rates seemed to be permanently stuck above U.S. interest rates, even though our inflation rate was lower. In 1994, the World Economic Forum rated Canada 16th in terms of international competitiveness, down from 5thposition several years earlier. And to top it all off, the Wall Street Journal was referring to Canada as a "candidate for membership in the Third World".

So you can see why I didn't exactly rush to New York to address the Economic Club four years ago. But, Ladies and Gentlemen, as the expression goes, that was then, and this is now.

In four years, we've gone from being an honorary member of the Third World to being what Business Week recently referred to as the "Maple Leaf Miracle," and what the Economist referred to as the "fiscal virtuoso" of the G-7 countries.

One week ago today, our Finance Minister, Paul Martin, delivered a balanced budget -- our first in almost 30 years -- and the only balanced budget of any G-7 nation. And he announced that the next two budgets will be balanced -- the first time a Canadian government will have accomplished three consecutive balanced budgets in almost 50 years.

Our debt to GDP ratio is on a permanent downward track. And even more, we are going to pay down the debt -- year after year after year.

In 1997 economic growth in Canada matched that in the United States -- outstripping the rest of the G-7. But in 1998 Canada is expected to post the fastest growth in the G-7. More than a million net new jobs have been created in Canada since we took office. All of them in the private sector. Indeed, public sector employment in Canada has been reduced by 100,000. Relatively speaking, our economy is creating more jobs than any other G-7 country. Our unemployment rate, while still too high, is down to under 9 per cent from 11.4, and the downward trend is clear.

For the first time ever, both short and long term interest rates are lower than in the United States. A Canadian homeowner who takes out a five year term on a $100,000 mortgage will save more than $3, 000 per year on mortgage payments compared to three years ago.

In 1997, Canada was back up to 4th position in the World Economic Forum's rating of international competitiveness. The Economist Intelligence Unit recently rated the business environment of several countries using market potential, tax and labour market policies, infrastructure skills and political environment as indicators. From 1997-2001, Canada rates as the third best country in the world in which to do business.

It is an historic accomplishment. It's no wonder that Canada is being seen as the Comeback Kid of the Industrialized World.

Now, I don't want to sound like I'm bragging. After all, we all know how un-Canadian that would be. But, in any case, the bragging rights don't really belong to me. Or to our excellent Minister of Finance, Paul Martin. Or to our government. They belong to the Canadian people. They are the ones who demanded action. They are the ones who made the sacrifices. They are the ones who believed in the plan that we put forward -- and stuck with it.

But like so many Canadians, I cannot hide my sense of pride or accomplishment in putting Canada back in the black. And this accomplishment is even more impressive when you consider that our fiscal measurement is a very strict one. We operate on a public accounts basis which includes all of the liabilities that the government accrues during the year, not just what is paid out. This includes our public sector pension liabilities.

Now this is a very stringent requirement. No other G-7 country uses as tough a measurement -- including the U.S. In fact, I believe the only other country that measures its deficit and debt this way is New Zealand. The United States, Germany, France, the United Kingdom, Japan and other countries report their budget balance on the basis of their cash requirements or surplus resulting from government operations.

If we were to use the same measurements to calculate our budget balance, we already had a surplus last year. And this year we will have a surplus of $12 billion on financial requirements or 1.4 per cent of our GDP. To put it in more familiar terms, that would be roughly equivalent to the U.S. having a surplus over $110 billion in U.S. dollars this year.

But whatever yardstick you use, our success has come faster than we had dared to hope. It shows that just as the vicious circle of deficits and economic malaise can drive a country deeper into economic crisis, a virtuous cycle of fiscal discipline and economic growth can bring benefits greater and more rapidly than predicted.

You can see why I, and most Canadians, believe we have entered an exciting new era of optimism and hope. What I want to share with you is how we got to this moment, what lessons we have learned, and how we will build on this success.

Shortly after we took office and began coming to terms with the enormity and severity of the deficit we had inherited, we knew that nothing short of a fundamental re-thinking of government was necessary; not just to clean up the fiscal mess, but to ensure that the Government of Canada never again found itself in such a position.

We undertook what we called Program Review, where we reviewed department by department, program by program, line by line, the services that the government was providing. We asked the same simple but difficult questions of every single program: Is this an area that makes sense for the government to be in at all in the 1990s? If so, is the federal government the right level to be involved, or should it be a level of government that is more locally oriented, on the provincial or municipal level? And, if a program does remain federal, how can we improve the delivery of services, making it more efficient and effective?

This process made a key contribution to reducing the size of our government and our spending. Next year, federal program spending relative to the size of the economy will be lower than it has been for 50 years.

But Program Review has had even more important and long-lasting benefits. It has led us to create new and more modern forms of partnership with other levels of government and with the private and volunteer sectors. Services best delivered by the private sector were privatized or commercialized. And programs that could be best delivered by provincial governments were transferred, reducing overlap and duplication.

These changes have done more than help put us in the black. We want to ensure that our finances are sustainable not only today, but tomorrow and the day after.

That is why we have made major structural reforms to the programs that you would refer to as "entitlements". For example, we took the Unemployment Insurance Program and transformed it into a sustainable new Employment Insurance Program. As the name suggests, this program puts the accent on helping people get and keep jobs, by removing disincentives to employment.

An even bigger accomplishment has been our reform of our public pension system -- the Canada Pension Plan. This major overhaul makes us the first industrialized country to ensure the sustainability of its public pension system for future generations well into the next century.

I noted in President Clinton's State of the Union Address that one of his main goals is the overhaul of Social Security to ensure its sustainability. We have already done that in Canada. And we will legislate this year a new Seniors Benefit to take effect in time to ensure that the ageing of the population does not place impossible financial burdens on the government in the future.

Our commitment to ensuring a healthy fiscal environment for the long term is one of the top priorities of my government and is a key theme in our budget. Believe me, we did not -- as a nation -- go through all the pain and sacrifice just to wind up back in the red. We will not squander our hard-won gains as a nation on a bunch of political quick-fixes or spending sprees.

Those days in Canada are over for good. End of story.

Now we want to take the same approach we used to eliminate the deficit and put it to work on reducing the burden of our debt. We know that our debt to GDP ratio is too high. We are determined to bring it down in a sustained and permanent way. In 1996-97, our debt to GDP ratio fell -- the first meaningful decline since 1974-75.

We are forecasting a reduction in the debt to GDP ratio from 72 per cent in 1995-96 to less than 60 per cent in 1999-2000 -- the biggest percentage decline of any G-7 nation. And it will continue to decline steadily after that.

In last week's budget we announced a Debt Repayment Plan that will put our debt in decline -- not just as a proportion of our economy, but in absolute terms. We plan to pay down the debt each and every year. Indeed, during the first nine months of the current fiscal year, we paid down $12.9 billion in marketable debt.

But as we use unflinching discipline to bring down the debt, we also have to continue creating a climate for continued economic growth as we enter a new millennium.

That's why, for example, we will continue to make trade expansion a major priority. Exports account for forty percent of our GDP -- making us the most trade-dependent country in the G-7. In fact, our focus on trade and attracting investment has been a keystone of our government's economic approach.

In its own way trade is as important in the medium term to our economic recovery as our fiscal plan. That's why we have been so aggressive in promoting liberalized trade all over the world. Whether it is a Free Trade Area of the Americas, a Pacific Free Trade Zone, or a link between the NAFTA and the EU; or whether it is fighting wrong-headed and counter-productive legislation like Helms- Burton, our government is committed to free, expanding trade.

Make no mistake about it, our government is committed to fast tracking freer trade.

The whole purpose of getting our fiscal house in order is not so that I can come to New York to recite statistics. It is to be able to secure the resources necessary to invest in our future, to help those least able to help themselves, to put money back in the pockets of Canadians through lower taxes.

That is what last week's budget was all about.

We believe that the test of a government is not only how it deals with current problems, but how it prepares for the future. Our approach is very clear. It is to target specific areas of maximum impact; to focus on them with single-minded determination; and to act decisively where we can make a real difference for the long-term benefit of Canadians.

There can be no greater role for government than to prepare a country for the knowledge-based economy of the 21st century. That was the focus of our budget.

We announced a comprehensive strategy designed to give every Canadian who wants to learn the opportunity to learn.

We call it the Canadian Opportunities Strategy -- a strategy that will prepare Canadians for the new information-based economy of the 21st century. It's all about giving Canadians the access they need to gain the skills and knowledge that will help them compete and win in the new economy.

It includes everything from a new Canada Education Savings Grant to help parents save for their children's college and university education; to allowing Canadians to make tax-free withdrawals from their Registered Retirement Plans to upgrade their skills throughout their working career; to easing the debt burden on university and college graduates; to giving children in low income families a fair start in life.

Ladies and gentlemen, one of the most exciting elements of the Canadian Opportunities Strategy is the Canadian Millennium Scholarship Foundation. This Foundation will award scholarships to more than one hundred thousand students each year over the next ten years through an initial endowment of 2.5 billion dollars. This will be the single largest investment ever made by a federal government to support young Canadians going to universities, colleges and vocational schools.

Again let me put it in terms familiar to you. In your country, you remember the impact of the G.I. Bill on returning veterans. How it helped create the greatest sustained economic boom this continent, or for that matter, the world has ever known.

This is the same principle behind the Millennium Scholarship.

Picture the impact on our economy. Again, in American terms, it would be comparable to a $25 billion scholarship fund in your country, helping a million students a year. That can give you something of a sense of what this project can mean for Canada and our economy going into a new century.

Before I close, I want to speak for a moment about the globalized world we live in. It may be a cliché to talk about globalization, but it is not a cliché to talk about our responsibilities in that world. It is in everyone's interest to create the conditions to narrow the gap between rich and poor nations.

Last week, in our budget we restored part of the foreign aid cuts we made in difficult times. Believe me, there are no votes in foreign aid. But we insisted on doing more because we believe that wealthy countries -- as they get their books in order -- have a responsibility beyond their own borders.

New York is the home of the United Nations, an institution which plays a vital role in the world we live in. We saw that last week in the work of Secretary-General Kofi Annan. Ladies and gentlemen, Canada pays its dues in full on time. I hope your Congress will soon allow President Clinton to make the same boast.

Ladies and gentlemen, as you can see, the future, my country's future, is something that fills me with great enthusiasm and confidence. We have a success story to tell the world. And I am delighted to be here to tell it to you, even if it took me four years.

But this is not just the optimism of a Prime Minister boasting about his own country -- although I am proud to do so. The optimism I am describing is the optimism of a nation that has been through a long and deep valley. That worked hard, very, very hard to find its way out.

And that has emerged to a bright future full of hope and promise, with new confidence in its abilities and a new belief in its destiny.