November 13, 2012
Fredericton, New Brunswick
Check Against Delivery
Good afternoon, ladies and gentlemen. And thank you for the opportunity to be with you today.
I like Fredericton’s style.
Fredericton’s style includes:
For a city that great, you need a great MP—and you sure have one in Keith Ashfield, my colleague in Cabinet and Canada’s Fisheries Minister.
We wish him well, and await his return in Ottawa.
I also enjoy any opportunity to return to New Brunswick, which is almost like coming home. My ancestors were part of the Irish diaspora in the 19th century and landed at Partridge Island in Saint John.
Both my parents were born in this beautiful province—my mother in Campbellton, my father in Loggieville.
My three oldest siblings were born in Dalhousie where my father worked in the mill.
So it’s always good to be back.
Today, I want to spend my time breaking down some key financial and economic results.
More specifically, I want to focus on the key highlights from the Update of Economic and Fiscal Projections, which I am releasing with today’s presentation.
The Update brings some reassuring news to Canada at an uncertain time in the global economy: that, unlike many of Canada’s counterparts in the G-7
In today’s address I will review the results of the Update from three distinct perspectives:
Let me begin with where we stand today, and how we got here.
Compared with most advanced countries in the world today, we are in a relatively good position.
Since our Government introduced the stimulus phase of Canada’s Economic Action Plan to respond to the global recession, Canada has more than recovered both
Since July 2009, employment has increased by over 820,000 and is now more than 390,000 above its pre‑recession high—the strongest job growth among G-7 countries over the recovery.
Moreover, the private sector has been the primary driver of new job creation, with over 90 per cent of all new jobs in full-time positions and more than two-thirds in high‑wage industries.
Real GDP is now significantly above pre-recession levels—the best performance in the G-7.
In short, Canada has weathered the global economic storm well and the world has noticed:
As OECD Secretary General Angel Gurría recently observed: “(Canada is) well prepared. You have been better prepared and therefore you’ve weathered the storm a lot better. You are well prepared now. Your fiscal policy, your monetary policy, your financial system (is) in better shape. And therefore, you are doing better in…the world economy.”
While it is gratifying to hear Canada singled out for praise, we also know we cannot afford to be complacent.
And if we ever doubted that, the ongoing uncertainty in the European and American economies is all too real, and all too often a stark reminder.
Canada is still growing, and is among the strongest G-7 economies, but we are not immune to the economic uncertainty beyond our borders and the economic challenges faced by some of our largest trading partners.
In particular, Canada has clearly been affected by volatile and falling world commodity prices since the budget in late March. And the forecast of private sector economists is consistent with the view that world commodity prices will remain below the level anticipated at the time of the budget.
On that point, permit me to get a bit technical.
Lower current and projected world commodity prices have reduced the outlook for what we refer to as GDP inflation in 2012—the prices of goods and services produced by Canadian businesses and workers—and this, in turn, has reduced the expected level of nominal GDP in 2012 and over the next five years.
As nominal GDP is the broadest single indicator of the tax base, this development is dampening government revenue here at home. In other words, world prices have fallen for the commodities we produce, which reduces profits and incomes and, ultimately, revenues for the government.
This will have a direct and significant impact on the fiscal outlook I present to you today.
Most worrisome are two key international risks:
As Prime Minister Harper has observed, “The risks to the global economy stemming from the euro zone remain considerably elevated, with the capacity to affect all of us.”
Policy response options within the region are now much more limited than they were during the
Nevertheless, I am encouraged by the steps taken by European Leaders towards the establishment of a legislative framework for a Single Supervisor for European banks, and the European Central Bank announcement that it is prepared to support sovereign bond markets.
These are steps in the right direction, and as I recently discussed with my G-20 counterparts, we look forward to further and timely progress on a fiscal and banking union and fiscal and structural reforms in vulnerable countries.
Another serious issue for the world economy, with the U.S. election now behind us, is the fiscal challenges in the U.S.
First, of course, I would like to congratulate President Obama on his victory last week.
I am hopeful that further political stability will enable the administration to find measures to avoid the fiscal cliff and put their finances on a sustainable track.
Without a political agreement, a number of tax increases and spending reduction measures—representing about 4 per cent of U.S. GDP—are scheduled to come into force automatically at the beginning of 2013. This has been labelled the “fiscal cliff”.
We strongly encourage:
In the meantime, I wish my friend and colleague Secretary Geithner well as we have always had a good relationship, and I look forward to working with the next Secretary of the Treasury to further strengthen the bonds between our two countries.
Let me turn now to the final issue I want to address today: the road ahead and some of its potential potholes and detours.
As today’s Update demonstrates, we have reason for guarded optimism, though for the reasons I just described we remain very mindful of the risks beyond our borders.
The Department of Finance bases its economic forecast for budget-planning purposes on the average of independent private sector economic forecasts. This approach introduces an element of independence into the fiscal forecast and is supported by organizations such as the International Monetary Fund.
Two weeks ago, I met with leading private sector economists to discuss the average private sector economic outlook, on which our fiscal projections are based. I do this twice a year—once before the budget and once before the fiscal update.
During our meeting last month, economists highlighted a number of global risks, most notably the ones I’ve just described.
On the domestic front, the main risk continues to be the exposure of Canadian households to elevated levels of debt.
However, the economists I consulted noted that our recent measures to tighten taxpayer-backed insured mortgage standards would help to prevent households from becoming overextended.
On the upside, those economists saw the potential for stronger-than-expected growth in the U.S., particularly given recent encouraging housing market data.
More importantly, growth in Canada could be significantly stronger than expected if the United States policy makers are able to reach an agreement to avoid the fiscal cliff in 2013, while implementing a medium-term plan to reduce their debt and deficit.
All in all, the economists agreed that the average private sector forecast presented in the Update is a reasonable basis for fiscal planning.
Real economic growth in Canada is expected to continue to be positive, although modest, going forward.
However, as I mentioned, weak global demand has translated into lower-than-expected world commodity prices and this, in turn, has lowered the level of nominal GDP and government revenues in our forecast.
Nevertheless, we remain on track to meet our goal to return to balanced budgets over the medium term.
This reflects our Government’s strong commitment to control growth in government program spending, as we work to return to balanced budgets. And, today’s Update of Economic and Fiscal Projections shows that government program spending is on a fiscally responsible, sustainable track as it is well below the growth rate of government revenues for this and the next five years.
In fact, I am pleased to report that direct program expenses are not expected to increase over the next four years. Overall government program spending as a share of GDP is projected to steadily decline, gradually returning to pre-recession and pre-stimulus levels.
But let me be clear.
While we are committed to controlling government program spending by eliminating waste and inefficiencies, we have made a deliberate choice to protect what we consider to be important government spending.
Unlike governments past, to balance the budget we have not and will not reduce transfers to persons—including seniors and children—or transfers to other levels of government in support of services that Canadian families rely on like health care and social services.
For example, we have increased funding for health care to record levels from $20 billion a year when we first formed Government to almost $29 billion this year, and it will increase to about $38 billion in 2017–18. Funding to social programs through the Canada Social Transfer will increase to almost $12 billion this year and funding for children’s benefits such as the Universal Child Care Benefit will increase to about $13 billion this year.
As I said earlier, we remain on track to return to balanced budgets in the medium term.
Through our Government’s continuing efforts to eliminate the deficit, the federal debt, measured in relation to the size of the economy, is projected to fall to 28.1 per cent in 2017–18, in line with the recent low in 2008–09. This will help ensure that Canada’s total net debt-to-GDP ratio will remain the lowest among all other G-7 countries by far.
Indeed, we have already cut the deficit in half from where it was a few years ago, and are on track to eliminate it altogether in the medium term.
In achieving this result, I firmly believe that our Government is striking the right balance between returning to balanced budgets over the medium term and continuing to invest in the key drivers of economic growth and job creation.
As I have said on many occasions, balanced budgets are not an end in themselves. They are a means to an end and that end is a better, more prosperous future for all Canadians—the less we pay to finance our debt, the more freedom we have to make investments to support the Canadian economy and keep taxes low.
Indeed, the commitment to manage public finances in a responsible manner has been a key element of our Government’s comprehensive long-term agenda, launched in 2006, to foster strong, sustainable long-term economic growth and to create the high-quality, value-added jobs of tomorrow.
In addition to paying down debt prior to the global recession, we have followed through on this agenda by implementing broad-based tax reductions and investing in knowledge and infrastructure.
Economic Action Plan 2012 advanced this agenda by announcing a set of measures to:
Our Budget Bills—the Jobs, Growth and Long-term Prosperity Act and the Jobs and Growth Act, 2012—are fundamental to advancing this agenda. An important measure in this regard is extending the EI Hiring Credit for Small Business for one year. This important job creating measure provides a credit of up to $1,000 against a small employer’s increase in its 2012 EI premiums over those paid in 2011. In its first year, it helped approximately 534,000 small business owners across Canada.
Another key component is investing in the infrastructure needed to keep Canada at the forefront of the global economy.
Our Government has made major investments in our infrastructure, including right here in New Brunswick, where these funds have supported jobs and economic growth. Since our Government took office in 2006, we have invested hundreds of millions of dollars in this province for critical infrastructure such as harbours, bridges, highways and water and sewer systems.
These investments are targeted to where they are needed most and where they will deliver the most for this province’s economy.
To take just a few examples, we are investing:
Right here in Fredericton, these investments include:
The actions taken by our Government since 2006 have been reflected in a strong economic performance over the past six years, with almost 1.4 million new jobs created since the beginning of 2006—the best job creation record in the entire G‑7.
Our Government’s actions to improve the investment climate have also been reflected more recently in the strength of business investment growth, with Canada being the only country in the G-7 to more than fully recover all of the business investment that was lost during the global recession.
Given that business investment today creates the engines of growth for the future, this result bodes well for a sustained recovery and strong economic growth and job creation over the longer term.
Over the coming months, we will take action in a number of areas.
We will provide details on the $400 million in funding for venture capital announced in Economic Action Plan 2012. This funding is an important step in kick-starting new ventures that will lead to immediate job creation and the successful businesses of tomorrow.
We will continue to make investments in training to make sure Canadians have the skills necessary to compete in today’s economy.
We will continue to invest in infrastructure projects through the Building Canada Plan, the Gas Tax Fund and we expect to shortly start giving approval to hundreds of projects as part of the Community Infrastructure Improvement Fund announced in Economic Action Plan 2012. These projects will create jobs and growth, while continuing to benefit communities for years to come.
We will also continue to invest in innovative Canadian businesses by doubling support for companies through the Industrial Research Assistance Program (IRAP). Through this important program, our Government has funded innovative projects such as projects at Green Imaging Technologies Inc. and Marwood Ltd, based here in Fredericton, which has helped increase their competitiveness and create jobs and growth.
The Economic and Fiscal Update I present to you today is full of charts, numbers and projections.
So why is it important to Canadians? Because it spells out precisely where we are on our path back to balanced budgets and it reminds us why this journey is so important.
The benefits of balanced budgets include:
They are benefits we are already seeing right now—a proud country that most others can only envy, reflecting the extraordinary actions taken during the stimulus phase of Canada’s Economic Action Plan and Canada’s strong economic, financial and fiscal fundamentals.
In the end, this Update recognizes that our country is not immune to global forces. Nor can we control the economic shocks that ripple outwards from other nations.
Instead, as today’s Update demonstrates, we must—and we will—remain focused on the things that we can control.
We will not lose this focus.
Our Government’s top priority is jobs, growth and long-term prosperity.
To build a stronger Canada, we will continue to take the necessary steps to reinforce our fundamental strengths and the potential of this great nation.