Press Room

"Restoring the Fiscal Balance"

Speaking notes
by the Honourable Michael D. Chong,
President of the Queen's Privy Council for Canada,
Minister of Intergovernmental Affairs and,
Minister of Sport

National Club
Toronto, Ontario

October 11, 2006

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As a new Minister in Canada’s new government, let me tell you a bit about my Canadian story. My story is like your stories, and the stories of your parents and grandparents.

I’m a small town boy from Fergus, Ontario with the last name of Chong. My father was a Chinese immigrant who came to this country in 1952. My mother was a Dutch immigrant who came to this country in the 1960’s. They met in the 1960’s in Kingston and together they got married, and had four children, of which I am one.

There is no doubt they faced barriers and challenges but they overcame them and built for themselves, their children and their grandchildren, a life of opportunity and hope in this great country.

It is the story of my family, that led to my decision to stand for Parliament and why I am proud to be a Minister in the government of Prime Minister Stephen Harper. I wanted to give back to the country that has given me and my family so much.

While I live in Fergus, I love returning to Toronto, one of the greatest cities in the world. As many of you may or may not know, I lived and worked in Toronto for 15 years before I was elected to Parliament. I started as a student at U of T. After university, I worked downtown at Barclay’s Bank, the NHLPA, and the Greater Toronto Airport Authority.

While my experiences were varied, they gave me insights into the challenges you face – the challenges businesses in Canada are facing – everyday as they compete both here at home and around the world.

Challenges such as:

• Acquiring skills from an increasingly mobile pool of labour 
• Raising funds from an increasingly mobile pool of capital, and 
• Moving goods and services through an increasingly complex web of infrastructure

I try to keep in mind these challenges as I sit around the federal Cabinet table discussing the plans and priorities of the federal government. You will already have heard about our fall priorities: democratic reform, the environment, and tackling crime.

Today, however, I’d like to talk to you about our plan to restore fiscal balance in Canada which is inextricably linked to improving economic opportunity in Canada. The link between the two is what my speech is about today.

I'd like to talk to you about our government's plans to restore the fiscal balance and renew federalism in Canada, a debate on what has come in recent years to be called the fiscal imbalance. This is a complex issue, and it's easy to get bogged down in details and numbers. So I'll address it in clear, simple language.

Allow me to take you through the problem, how we are addressing it, and the action we’ve taken – or will soon take – to put Canada’s economic union on a stronger, sounder footing. To start with, I would like to provide a brief definition of the fiscal imbalance. There are three imbalances.

The first imbalance is the vertical one between Ottawa and its citizens. Quite simply, we believe Canadians and Canadian companies pay too much in tax.

The second imbalance is between Ottawa and the provinces, also a vertical one, where, over the last number of years, the federal government has had more money than it needs to fulfill its responsibilities while provinces struggled to deliver services they were responsible for.

The third imbalance is the horizontal imbalance amongst provinces, where some have special agreements with the federal government that others are not privy to.

There are a number of causes of these imbalances. I’ll just briefly highlight a few.

The first cause is the large, unplanned and unanticipated federal surpluses of recent years. While balancing the federal budget has been a positive development in Canada, federal surpluses over the last eight years have generally been larger than anticipated.

These unplanned federal surpluses led to the second cause of the imbalance which is spending in areas of provincial jurisdiction, with little to no consultation with provinces and territories and often at odds with their priorities and policies.

A third cause of the fiscal imbalance were the cuts in federal transfers to the provinces and territories in the mid-1990s. At the time, these were necessary since the federal government was running massive deficits. But, while overall federal transfers have now been restored to their pre-1995 levels, federal funding in support of other areas, such as post-secondary education and training have not been put on a long-term, predictable track.

A fourth cause - and a major cause of the horizontal imbalance - was the one-off deals signed between the previous government and various provinces and territories. The confidence of Canadians in the overall fairness of federal programs was undermined through these one-off efforts, as federal actions were seen to be moving away from the principle of equity among provinces and territories.

The final cause of the imbalance within the federation has been the wrangling that has, at times, characterized the way the different orders of government dealt with each other, especially on matters of fiscal federalism.

Canadians have told us that they want governments to put aside their jurisdictional arguments and move forward on resolving the issues that affect them most. Provinces have told us they want a new relationship that is open, honest and transparent.

Canada’s new government, in turn, has recognized these problems, is seized with the unsustainability of the current situation, and has adopted an approach based on 5 guiding principles to address it.

• Greater accountability through clarity of roles and responsibilities between the orders of government – this to ensure that the right level of government has the money it needs to deliver the services for which it is constitutionally responsible. 
• Responsibility and transparency in budget planning – to avoid surprises 
• Predictable, long-term fiscal arrangements – to allow us all to plan. 
• Greater competitiveness and efficiency of the economic union - to ensure Canada remains a leader in the world. 
• Effective, collaborative management of the federation – to keep our federation strong.

Based on these principles, our government has already taken action to restore fiscal balance in Canada.

Budget 2006 invested in core federal responsibilities, like border security, Aboriginal peoples, emergency and pandemic preparedness, and the RCMP. Since we’ve assumed power we’ve also focused on rebuilding our military.

We invested new money in the military in Budget 2006, we’re investing over $17 billion in new equipment, and we’ve introduced our defence policy called Canada First.

We’ve also cut taxes including the GST. There were more tax cuts for individuals in Budget 2006 than in the previous four federal budgets combined.

While we feel like we’ve accomplished a lot so far to restore fiscal balance (and fiscal sanity) we acknowledge more remains to be done. That’s why we will be delivering proposals in 4 key areas in the coming months.

• First, a new approach to long-term funding support for post-secondary education and training, 
• Second, a new framework for long-term funding support for infrastructure program, 
• Third, a renewed, principle-based Equalization program, and, 
• Fourth, a new approach for allocating unplanned federal surpluses.

Allow me to elaborate on each of these just briefly – because I believe that as business people, this is where the fiscal balance debate will touch close to home.

With respect to post-secondary education, like the rest of the developed world, we have recognized that a skilled workforce is vital for a strong economy in Canada. We need to do everything we can to support an education system that turns out well-trained, well-educated, adaptable workers. A good education is the key to a great future for our young Canadians, and we want to ensure we have a workforce ready to work hard and get ahead.

In Budget 2006, we invested an additional $370 million in post-secondary education and we’re going to do more by introducing a new approach to long-term funding support for post-secondary education and training.

Another proposal we will be bringing forward is a new framework for long-term funding for infrastructure. Budget 2006 allocated $16.5 billion for infrastructure over the next four years. But we need to decide how to spend this money and that is why we are coming forward with a long-term framework for funding infrastructure.

For Canada to continue to have a modern, productive, competitive economy, we must invest in modern infrastructure to ensure the efficient movement of goods and services both within Canada and abroad. Without it, our economy would grind to a halt.

You may know that 30% of our economy crosses the Detroit-Windsor border, so it is crucial that we continue invest in border infrastructure. Just north of here, the 401 near highway 400 is the busiest section of the busiest highway in the world according to the World Bank. We need to invest in our highways and public transit systems if we are to have an efficient and effective national transportation system.

We also need to invest in our ports, especially the Pacific Gateway, to take advantage of the opportunities in Asia. The fact is, in today’s interdependent world of trade and security, modern, smart infrastructure is not a luxury, it is a necessity. That’s why we’ve set aside this $16.5 billion and why we are coming forward with a long-term framework for infrastructure to decide how we are going to allocate this money.

That’s two of our proposals. The third is around equalization.

Given recent commentary on the topic, it is worth reminding ourselves of what Equalization is and what it is not.

Equalization is provided for, by the Constitution, section 36(2), which clearly articulates the purpose of Equalization:

"Parliament and the government of Canada are committed to the principles of making Equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation."

Equalization is a constitutional responsibility of the federal government. Equalization ensures that every Canadian, regardless of where they live or how much money they make, have access to high quality, public education and healthcare. This is crucial if Canada as a whole is going to be competitive. This part of our plan will come forward in due time, and the solution will be consistent, fair, and equitable.

Our last proposal deals with unanticipated federal budget surpluses. Our government firmly believes that unanticipated surpluses should be used primarily to reduce the debt and reduce federal taxes.

Extra revenues should not launch new policies in areas where the federal government is not best placed to design or deliver programs.

And we’re practicing what we’re preaching.

Just two weeks ago, we applied last year’s budget surplus of $13.2 billion dollars directly against the federal debt. As you can see, by restoring fiscal balance we are improving our productivity and competitiveness and strengthening our economy as well.

By investing in our human and physical capital, ensuring each part of Canada is competitive, and using any extra federal funds to pay down debt and cut taxes, Canada will continue to be competitive on the world stage.

However, in addition to the four key areas, we are doing more. We want to work with the provinces to strengthen our economic union. Which, as I mentioned earlier, is one of the principles that is guiding us as we move forward to restore fiscal balance.

It is simply unacceptable that there are fewer international barriers to trade and mobility in the European Union then there are here in Canada. Progress is being made though with the terrific agreement struck between the province of British Columbia and the province of Alberta with respect to labour mobility.

Additional measures include building consensus toward adopting a common securities regulator, encouraging harmonization of federal and provincial taxes, and establishing a new foreign credentials recognition agency and provincial territorial agencies responsible for accreditation.

Our actions are being guided, informed, and inspired on this issue and many others, by consultations with provinces.

This summer, I completed a second round of bilateral discussions with my counterparts across the country. I attempted to glean the nuance in their provincial positions, and while they obviously fought for the interests of their provinces, they also recognized the role of the federal government to promote and protect the national interest.

As you can see, the issues of restoring fiscal balance and strengthening the economic union are complex and necessitate the mutual willingness by all governments to work together to find tangible, effective solutions, for the well-being of all Canadians.

We must always bear in mind that the enviable quality of life all Canadians enjoy is closely linked to the smooth functioning of our federation. This is why the debate on these issues is not just a matter of numbers, structures or funding mechanisms, but ultimately has a human face. And our plan to restore fiscal balance will result in a stronger economy and a stronger Canada.

You know, I mentioned earlier that I’ve spent 15 years in Toronto. But my roots are in Fergus, Ontario, and I am very proud of my roots in small-town Ontario. It gives me an enormous sense of pride to know that in a matter of mere months, our new government has started to build a stronger Canada.

A prosperous, secure, and clean Canada that is united at home and respected abroad.

A country where what you've done and where you're going matters more than where you're from or who you know.

A Canada that offers everyone a fair shot and helps those who need a hand up.

A country with safe streets and secure borders. A Canada that leads, not follows, on the world stage.

This is the Canada that our government is committed to building and together, with you, we will.

Thank you.