Business Leaders Welcome Budget Commitments on Prudence, Taxation and Canada’s Role in the World

February 24, 2005

While expressing concern about the overall rate of spending growth in the federal budget tabled yesterday by Finance Minister Ralph Goodale, the Canadian Council of Chief Executives (CCCE) welcomes its bedrock commitment to fiscal prudence, its recognition of the importance of more competitive tax rates and its allocation of significant new resources to Canada’s military and international presence.

“Sound fiscal policy, debt repayment and tax cuts have been key drivers of the strong economy that has enabled the government to make so many commitments to improving the quality of life of Canadians.  We need to keep reinvesting in our economy in order to sustain these commitments, and the budget takes some important steps in the right direction,” said CCCE President and Chief Executive Thomas d’Aquino.  Key elements of the budget include:

Competitive taxation

Competitive corporate tax rates are the most cost-efficient way for governments to attract business investment and create jobs.  The budget notes that falling corporate income tax rates in the United States threaten to erode Canada’s modest advantage in this area, and responds with the elimination of the corporate surtax, imposed to fight deficits that have not been seen in eight years, and with a further reduction of two percentage points in the corporate income tax rate.

“I am encouraged that the government has recognized the importance of a competitive tax regime and in particular of keeping Canadian corporate tax rates significantly below those in the United States.  As the smaller of the two economies, Canada has to provide compelling reasons for companies serving the North American market to invest on our side of the border,” Mr. d’Aquino said.

The first of the new tax reductions, however, will not kick in until 2008.  The government did accelerate capital cost allowance rates for certain energy- and telecommunications-related investments. However, there was no immediate action to help hard-pressed manufacturers who are coping with a rapid rise in the value of the Canadian dollar and who need to make major investments now in order to stay competitive in the United States market.

Tax relief for individual Canadians also is welcome.  In particular, the increase in the contribution limits for Registered Retirement Savings Plans and Registered Pension Plans provides additional incentives for saving, and the elimination of the 30 percent foreign content limit will enable investors more room to reduce risk by diversifying their portfolios globally.

Spending review

The budget’s extensive new spending commitments pushed overall program spending up by a staggering 12 percent this fiscal year alone, and means that spending has grown by 44 percent over the past five years.  Future spending growth, however, will be constrained to some extent by the government’s efforts to review and reallocate existing spending.

The review process launched in 2004 had a target of finding $12 billion in savings over the next five years from greater efficiencies and elimination of less effective programs, and $11 billion worth already have been identified and reallocated to higher priority areas.

“Revenue Minister John McCallum and Public Works Minister Scott Brison have done some impressive work in finding real savings and better ways for the government to deliver services,” Mr. d’Aquino said.  “The next step is to follow through on Minister Goodale’s commitment to make expenditure review an ongoing exercise, one that should be an integral part of the annual budget cycle.”

Debt repayment

In promising to deliver balanced budgets or better for the next five years, Minister Goodale is laying the most solid possible foundation for improving the standard of living and quality of life of Canadians in the decade ahead, Mr. d’Aquino said.

The budget confirms that the federal debt-to-GDP ratio will fall below 40 percent this year, and that it remains on track to reach 25 percent by 2015.  This continuing process of reducing public debt in both absolute terms and in relation to the size of the economy pays real dividends to Canadians.

“Surely no form of spending produces less value than paying interest on debt.  The repayments that already have been made will allow more than $15 billion that would have been paid in interest over the next five years to be reallocated to more useful purposes,” Mr. d’Aquino said.  “That is more money than has been generated by the very difficult government-wide spending review.”

Rebuilding the military

While the federal government has yet to complete its long-awaited international policy review, the CCCE welcomes the major funding commitments in this week’s budget that establish security and prosperity as key principles of Canadian foreign policy.

In particular, the allocation of more than $12 billion in new funding for the military marks an overdue but critical investment in rebuilding Canada’s role in the world.  The CCCE has argued for many years that an effective military is essential to protect Canada’s sovereignty, do our share in defending North America and make a meaningful contribution to global peace and security.

“This money means that Canada’s military will finally be able to expand its ranks, increase the level of training and buy urgently needed new equipment, all of which is essential if our country is to live up to the proud tradition of our armed forces and the expectations of Canadians and of our friends and allies around the world,” said Mr. d’Aquino.

Strengthening Canada’s role in the world

In addition to the major injection of new funds for the military, the budget included a significant increase in Canada’s international development assistance and funding to strengthen the capacity of Canada’s foreign service and to expand representation abroad.

“An effective international presence is critical to Canada’s competitiveness and its influence.  We need more people pursuing our country’s interests in every corner of the globe,” Mr. d’Aquino said.

“In the wake of the recent defeat of two bills creating separate departments for Foreign Affairs and International Trade, I also would urge parliamentarians to agree quickly on the best way to organize the work of our diplomats and trade commissioners abroad so that they can focus on delivering the best possible value for Canadians.”

Environmental policy

The CCCE is pleased that the government has put a priority on the development of new technology that could improve Canada’s environmental performance.  Canadian industry has long recognized that investment in cleaner and more energy efficient technology is the best way to improve competitiveness and reduce emissions, while also allowing it to do its share in stemming the growth of greenhouse gas emissions worldwide.

“We remain deeply concerned, however, with the government’s public commitment to the costly and unattainable target set by the Kyoto Protocol, and this budget contains many elements that could lead to a more innovative, made-in-Canada approach,” Mr. d’Aquino said.  “Such an approach would leverage both public and private sector investments to contribute to longer-term and sustainable progress in reducing emissions, as well as positioning Canada to secure greater global participation in addressing climate change.”

Regulatory reform

In addition to its welcome but modest reductions in corporate taxation, the budget launches some important initiatives to improve the business environment through better regulation.

In its first significant response to the 2004 report of the External Advisory Committee on Smart Regulation, the government has recognized the critical role of the telecommunications sector in enhancing Canadian productivity and competitiveness, and will appoint a panel of eminent persons with a mandate to make recommendations by year end on how to move Canada to a modern policy framework that will benefit both Canadian industry and consumers. “This initiative should be matched in other key sectors to ensure that Canada can meet the juggernaut of global competition,” Mr. d’Aquino said.

He added, “I also am delighted that while recognizing the progress that is being made toward more harmonized regulation of Canada’s securities markets, the government has stated firmly that all parties involved must go further and move faster to attain the best possible securities regulatory system for Canada.”

The challenge of sustaining growth

The 2005 federal budget takes advantage of the robust economic growth Canada has been enjoying to address a wide variety of important social and economic issues.  “Moving forward, the key policy challenge will be to ensure that Canadian businesses are able to invest and grow from a Canadian base in an increasingly volatile and dangerous world,” Mr. d’Aquino said.  “Only if our economy grows stronger will the government be able to follow through on the many commitments it has made in this budget and to build on them. To this end, the government and all parliamentarians must give a much higher priority on a sustained basis to policies that will enhance Canadian innovation and productivity.”

Founded in 1976, the CCCE is composed of the chief executives of 150 leading Canadian enterprises. Member chief executives head companies that collectively administer close to $2.5 trillion in assets, have annual revenues of more than $600 billion and account for a significant majority of Canada’s private sector investment, exports, training and research and development.

In addition to Mr. d’Aquino, the members of the CCCE’s Executive Committee are: Chairman Richard L. George, President and Chief Executive Officer of Suncor Energy Inc.; Honorary Chairman A. Charles Baillie; and Vice-Chairmen Dominic D’Alessandro, Paul Desmarais, Jr., Jacques Lamarre, Gwyn Morgan and Gordon Nixon, the chief executives respectively of Manulife Financial, Power Corporation of Canada, SNC-LAVALIN Group Inc., EnCana Corporation and Royal Bank of Canada.