Careful Budget Reinforces Competitiveness, Highlights Need for Spending Review

February 26, 2008

The 2008 federal budget takes modest but important steps to reinforce the competitiveness of the Canadian economy and highlights the need for prudent fiscal management at a time of growing global uncertainty, says the Canadian Council of Chief Executives (CCCE).

The projected budget surplus drops from a robust $10.2 billion in the current fiscal year to just $2.3 billion next year and $1.3 billion in 2009/10.  “There is now very little room for error,” said CCCE Executive Vice President David Stewart-Patterson.  “The forecast for economic growth in 2008 has fallen by 1.3 percentage points since the government’s October 2007 Economic Statement.  A further drop of even half a percentage point over the course of a full year might be enough to tip the government into deficit.”

Federal spending growth is beginning to slow, but total program spending will reach $218 billion by 2009/10, an increase of $30 billion or 16 percent from 2006/07.  “The government launched a new expenditure management system last year, and a continuing focus on the rigorous review and reallocation of existing spending is essential,” Mr. Stewart-Patterson said.

Given its tight fiscal constraints, the budget concentrates on measures that will produce real benefits at low cost.  The introduction of the Tax-Free Savings Account, for instance, reflects a long-standing recommendation of the CCCE.  “This kind of savings account does not allow deductions on contributions but enables people to earn tax-free returns on their investments,” Mr. Stewart-Patterson said.  “It creates a flexible new vehicle for encouraging savings and investment that has a minimal initial impact on the treasury.”

The CCCE welcomed several other budget measures that will enhance competitiveness in the short term.  These include: the extension of accelerated capital cost allowances for hard-pressed manufacturers; improvements to the Scientific Research and Experimental Development tax credit; modernizing and speeding up immigration procedures; increased investment in more efficient and secure borders; and the recent appointment of an expert panel on securities regulation with a mandate to develop a model common securities act.

The government’s decision to create a new Crown corporation to manage the Employment Insurance (EI) fund marks a turning point in labour market policy.  “Setting up a separate EI account and handing authority over rate-setting to an independent board is an essential first step, but it must be followed by a review of the EI system’s mandate,” Mr. Stewart-Patterson said.  “We must ensure that EI premiums cover the cost of insurance against job loss, and are not used as an alternative means of financing social programs.”

The CCCE strongly supported the government’s continued commitment to investment in education and innovation through support for university research, creation of additional research chairs and graduate scholarships and the expansion of student aid.  “As the Canada Millennium Scholarship Foundation winds down, it will be vital both to enhance the financial support it has provided to students across the country and to build on the impact it has had on policy innovation in improving access to post-secondary education,” Mr. Stewart-Patterson said.

The CCCE recognizes that Canada has made huge strides in improving its competitiveness and is now well-positioned to weather the current period of global economic uncertainty.  Repeated surpluses have brought the level of public debt down significantly and enabled major personal and corporate tax cuts.

The competitive challenges, however, are relentless.  At both the federal and provincial levels, governments must continue to focus on how to make Canada a more attractive place to invest and to do business.

“The federal government clearly has done everything it can to reduce tax rates within the boundaries of prudent fiscal management,” Mr. Stewart-Patterson concluded.  “The next major steps in forging a more competitive corporate tax system must come at the provincial level.  The single most important measure would be the replacement of remaining provincial sales taxes with value-added taxes, preferably harmonized with the Goods and Services Tax.”

Founded in 1976, the CCCE is a not-for-profit, non-partisan organization committed to making Canada “the best place in the world in which to live, to work, to invest and to grow.”  Its 150 member chief executives and leading entrepreneurs collectively administer $3.5 trillion in assets, have annual revenues of more than $800 billion, and are responsible for the vast majority of Canada’s exports, investment, research and development, and training.

The members of the CCCE’s Executive Committee are:  Chair, Gordon M. Nixon, President and Chief Executive Officer, Royal Bank of Canada; CCCE Chief Executive and President, Thomas d’Aquino; Honorary Chair Richard L. George, President and Chief Executive Officer of Suncor Energy Inc.; and Vice Chairs Dominic D’Alessandro, Paul Desmarais, Jr., Jacques Lamarre, Hartley T. Richardson and Annette Verschuren, the chief executives respectively of Manulife Financial, Power Corporation of Canada, SNC-Lavalin Group Inc., James Richardson & Sons, Limited and The Home Depot Canada.