Prosperity Policies to Confront Daunting Issues Facing Canada

Article excerpt

President and Chief Executive, Canadian Council of Chief Executives

Policies, innovations and reforms to confront a host of daunting issues facing Canada are explored. The big issues include constraints on government revenues in the face of mounting pressures for increased spending; growing health care costs; climate change; integration of North American security and economies; proposals for a common North American currency; the revitalization of Canada's military capacity; Canada's global challenges and opportunities at a time when efforts are focused on counter-terrorism and on increasing trade liberalization. Speech to the annual general meeting, Canadian Council of Chief Executives, formerly the Business Council on National Issues, Toronto, January 15,2002. Edited for publication.

I wish to share with you this morning what I see as the key issues and challenges that we must be prepared to address in the months ahead...

Let me begin with the current policy environment. All of you would agree, I am sure, that it is particularly difficult, both within Canada and abroad. For the past several months, we have been understandably preoccupied by the search for security in the wake of the terrible events of September 11. Even as we struggle to ensure the physical security of Canadians and of people around the world, we also have been grappling with our first economic downturn in a decade -- a slowdown that was made worse, at least temporarily, by the terrorist attacks. As a senior official at the Department of Finance in Ottawa put it recently, the last federal budget was planned during the first American recession in eleven years, the first synchronized global downturn in a quarter century and the first security shock in the United States in more then 50 years...

Is the worst over? ...Certainly the current recession, like all downturns, will pass eventually. But while many economists are convinced that this recession will be both relatively shallow and short-lived, I would suggest that the degree of economic risk remains high, a point of view echoed by Federal Reserve Board Chairman Alan Greenspan in an address in San Francisco last Friday.

The combination of ongoing security concerns and economic uncertainty poses a daunting fiscal challenge to governments. In his December budget, for instance, federal Finance Minister Paul Martin easily avoided going into deficit in the current fiscal year's huge surplus. But his projections for the next fiscal year lie on much shakier foundations. While he has committed to a balanced budget for the next three years, he has cut his margin for error in half. The modest contingency funds that remain for 2002-2003 were made possible only by a deferral of tax installments for small businesses that shifts $2 billion in revenue from this year into next.

The federal government has been able to deal with the immediate imperatives of the war on terrorism without going back into deficit, and for this we commended the finance minister following the December budget. To do so, however, the government has given up any pretense of continuing to pay down public debt. Even if the economy does recover quickly, any surplus funds will flow into contingent spending on infrastructure and African development rather than to debt reduction. And Mr. Martin has left himself little room to maneuver if the economy does not resume growth as quickly as expected.

Spending pressures, meanwhile, remain intense. In the next two years alone, the budget projects an increase in spending of 14.5%. Expensive plans for new programs linked to the vaunted innovation and skills agenda were put on hold last autumn, but the government will not want to stand still -- a sentiment that will be reinforced as the candidates for the next generation of leadership of the Liberal Party jockey for profile through new initiatives. Still more spending pressure will flow from provincial governments as they struggle to cope with the relentlessly rising cost of public health care. …