Beyond September 11: A Time for Prudence, Creativity and Unity of Purpose

September 25, 2001

The work of the Standing Committee on Finance has always been about more than money. Debates over revenues and expenditures are no mere accounting exercises. The choices that are made have a real and enduring impact on the lives of Canadians. There often are disagreements about the best means of making progress toward the goals we share as a society. But for all the resulting discord, we are privileged as a nation and we must never take for granted the foundations of our shared prosperity.

Two weeks ago, we all watched in horror as thousands of people engaged in the day-to-day struggles of building better lives were crushed and incinerated by those whose only goal was to destroy. This was an assault not just on powerful symbols of private enterprise and military might, but on the core values for which we in Canada stand. It was an attack on freedom, openness and optimism; on decency, tolerance and trust.

On the surface, the terrorists might seem to have succeeded. Thousands of people lie entombed in rubble in New York and Washington. Millions more now fear for their safety, wherever they go and whatever they do. The instinctive and necessary responses to aggression sap our energies by inhibiting travel and commerce. Shaken financial markets reflect expectations of falling profits and a rising toll of layoffs. The possibility of a deep and global recession looms large.

No matter how successful we are in fighting back against the global scourge of terrorism, more pain and sacrifice lie ahead. As Prime Minister Jean Chrétien stated in the House last week, Canada is now at war, and it is a war against an elusive enemy who moves from place to place, making diabolical use of the very freedom and openness that Canadians cherish and must protect.

The process of waging war against such an enemy is filled with uncertainty and ambiguity, but our duty as Canadians is crystal clear. As Opposition Leader Stockwell Day said in the House: "It is not a matter of shades of grey when it comes to these barbarous acts of evil. This is not a time for moral ambiguity. It is a moment of moral clarity." And as Minister of Foreign Affairs John Manley observed, this also is a defining moment, for Canada and for the kind of world we live in. Responding effectively will require, as he put it so well, "steady judgment, unerring conviction and extraordinary courage".

I am confident that our values will prevail, and not by force of arms alone. Rather, we will win by ensuring that hope vanquishes fear, that optimism triumphs over despair. It is always easier to destroy than to build, but the fact remains that the vast majority of human beings are relentless builders. Progress can be interrupted by the designs of a few evil men, but human ingenuity and determination can never be defeated in the end. Our economy may slow for a while, but the medium to long-term fundamentals have not changed. Canadians have been shaken, but we have not lost and will not surrender our quintessential qualities of tolerance and diversity, of openness and shared prosperity.

The determination not to surrender our core values does have practical consequences. In the short term, at least, we face new restrictions on our ability to move freely, and new intrusions into the privacy of our business and personal affairs. More lives will be lost. More jobs will be lost. We must do all we can to minimize both kinds of losses — and that will require a single-minded focus on our core goal. We face hard choices between what we want and what we need. In the public and private sectors alike, there is no more room for frills.

This brings me back more specifically to the role of the House of Commons and of this Committee. There are many divisions between parties on matters of policy. Indeed, a healthy representative democracy requires such disagreements even within parties. But we have entered a period in which unity of purpose as a country is essential. This does not mean that everyone must agree on every detail. Elected governments here and in provincial capitals must in the end make the choices and bear the responsibility. What all of us must do, however, is set aside partisanship and ideological rhetoric. We must work together as a nation and as a society to defend the principles and values that we all hold dear.

In the face of great crises and national challenges over the past century, business leaders have worked closely with governments to ensure that our country makes the most of our collective resources. We are ready to do so once again. We also are committed to keeping our economy strong, for it is the engine that must sustain our country’s efforts through the protracted struggle that lies ahead. Many individual companies face daunting challenges in the months ahead. Some will have to retrench and restructure; some may fail. But I want to remind everyone that free markets are amazingly resilient.

We may indeed be entering a global recession as well as a global conflict. But we must not let ourselves be blinded by today’s fog of economic uncertainty. However grave the short-term challenges may become, we must keep our sense of perspective. Markets always find a bottom and then grow to new heights. Even a global recession would only be a pause in the longer-term march of human progress.

It is in this spirit that I would like to talk briefly about our views as the Minister of Finance prepares for the next federal budget. The Business Council on National Issues (BCNI) has been consistent in its support of policies that will drive innovation, competitiveness, economic growth and incomes. The members of this Committee in turn have been a powerful force in shaping and putting in place the policies that helped to build Canadian prosperity so dramatically over the past decade. The BCNI has focused on two themes in recent years.

First, we have called for aggressive action to eliminate the federal deficit and then to begin paying down the accumulated mountain of debt. In revealing that debt was reduced last year by a record $17.1 billion, Finance Minister Paul Martin noted that in just four years, the government has freed up $2.5 billion a year that is no longer needed to pay interest. This represents important progress in reducing Canada’s exposure to external shocks and in ensuring the sustainability of core social programs.

Second, the BCNI has been a vigorous proponent of policies to improve the competitiveness of the business environment, ones that will attract greater investment, spur innovation and productivity, create new jobs and raise the incomes of Canadians. The single-most effective vehicle for encouraging such progress continues to lie in reducing the burden of taxation, and Canada has made important progress in this respect.

As the member chief executives of the BCNI indicated in a memorandum for the Prime Minister on September 7, last October’s decision to accelerate tax cuts was not only good policy, but superbly timed from a cyclical point of view. The personal tax cuts in particular helped to sustain consumer confidence by putting more money into the pockets of Canadians just as equity markets tumbled and business investment slumped. The BCNI therefore suggested a threefold approach going forward:

• A high degree of prudence in fiscal planning combined with continued aggressive reductions in public debt;
  
• Revival of program review as a continuing and rigorous feature of fiscal management, including reviews of each program and tax expenditure at least once every five years; and
  
• Highly selective tax reductions to the extent revenues permit combined with creative changes to the tax mix that would improve competitiveness without reducing overall revenue.

These remain our priorities today. The fiscal outlook has changed since September 11. So have the nation’s immediate needs. But the principles of sound fiscal management have not.

The terrorist attacks have had an impact on short-term economic prospects globally. One result has been a spurt of calls in both Canada and the United States for massive fiscal stimulus, a wave of tax cuts and new spending to chase away consumer and business gloom even at the expense of going back into deficit. We think such suggestions are ill-advised.

It is certainly far too early to make such a decision. As United States Federal Reserve Chairman Alan Greenspan has noted, the long-term prospects for the economy have "not been significantly diminished" by the short-term disruptions caused by the terrorist attacks. The reductions in interest rates already announced by central banks around the world will have a powerful impact. While further monetary or fiscal stimulus may indeed be required at some point, we agree with Mr. Greenspan’s view that "it’s far more important to be right than quick."

Prudence in fiscal planning is more important than ever. In the past, the Minister of Finance has built prudent assumptions and contingency funds into every budget. To the extent that these contingencies proved to be unnecessary, the government was able to balance its books faster than expected and to make an encouraging dent in the mountain of accumulated debt. But let there be no doubt. Even when planning prudently, surpluses have never been assured. There always has been a possibility that a severe slowdown could have driven the government into deficit in a given year.

Today, the risks are greater than ever. It is therefore vital to continue setting aside more resources than the government thinks will be needed. A deficit in any given year remains a possibility, but it is not one for which we should deliberately plan. If we do our best to work within the means we have, a small deficit will do no lasting damage. If, on the other hand, we intentionally budget even for a modest deficit, we could easily find ourselves saddled with a major shortfall that would spill into succeeding years.

We concur with Bank of Canada Governor David Dodge, who stated on Friday that monetary policy, supported by the automatic stabilizers already built into our social safety net, remains the best tool for coping with the short-term impact of the events of September 11. As the Governor added, it would be "absolutely foolhardy" to rush to put ourselves back into the box of spiraling deficits and rising taxes from which Canadians struggled for a decade to emerge. If we truly care about the long-term health of the public programs and infrastructure that support Canada’s way of life, we must not let short-term panic become an excuse for renewing that cycle of fiscal despair. To paraphrase a former Canadian Prime Minister and wartime leader: a deficit if necessary, but not necessarily a deficit.

There can be no doubt that the war against terrorism will require some additional spending. Such new costs, however, should not simply be loaded on top of a business-as-usual approach to all other government activities. Finding the money needed to ensure the security of Canadians will require determined efforts to chop less essential spending and to defer other proposals for new initiatives. Even so, it is possible that total spending may rise at the same time as a slowing economy reduces federal revenue.

In choosing among priorities in the weeks ahead, we must remember that any net increase in current consumption driven by Canada’s security needs will reduce public investment in future growth. Perhaps these costs will crowd out important longer-term initiatives such as increased investment in research or infrastructure. Perhaps they will prevent progress toward more competitive tax rates. The BCNI believes, however, that further tax cuts that are deep and comprehensive in nature, and new proposals for non-essential spending must take a back seat to national security in the next federal budget.

The BCNI is not suggesting that the government reverse or delay any of the tax reduction measures already announced by Finance Minister Martin. That would be both unnecessary and counterproductive. Despite the significant tax cuts of recent years, the competitiveness of our tax regime remains a serious concern. In due course, Canada will have to resume progress toward lower personal and corporate tax rates, especially as planned American tax cuts take effect in the years ahead.

Deferring new tax cuts will have consequences. In particular, delay in eliminating taxes on capital and in further reducing taxes on corporate income and on capital gains also will delay badly needed business investment, job creation and economic growth. In that sense, all Canadians will pay a price, just as all Canadians have benefited from the growth encouraged by previous tax reductions. But wars require sacrifices, and in the conflict we face today, the security of Canadians and the survival of our values must take precedence over short-term improvements in our standard of living and quality of life.

Deferring further cuts in the overall burden of taxation does not mean that we should ignore the potential for improvements to the tax system. Especially when money is tight, we must make the most of what we have. It is unlikely that the government can afford to give up any significant revenue in the short term, but there remains plenty of room for trade-offs within the tax system. We put forward a number of such options in our September 7 memorandum for the Prime Minister and would be happy to discuss them in more detail at your convenience.

Just because there is no money to spare does not mean that there is nothing we can do. There are creative ways to improve our tax system. There also are opportunities for innovation in spending. For instance, many commissions, committees and organizations — including the BCNI — are looking for ways to get better value for the money Canada spends on public health care. The government could renew efforts to reform the Employment Insurance system. And it is vital to make the huge sums invested in Aboriginal people more effective in improving economic and social outcomes.

Regulatory reform provides another powerful tool for improving the business environment without the need for increased public spending. For instance, it would cost governments nothing to stop quibbling and embrace the full spirit and letter of the Agreement on Internal Trade. What makes us strong as a country is the ability of all Canadians to live, work, trade and invest wherever they find opportunity within our borders. In time of war, the continued existence of barriers that sap our energies and diminish our potential is no better than sabotage. It is time to put Canada first.

We must be equally vigilant in avoiding regulatory or legislative action that discourages investment or adds to business costs. In particular, Canada should not make any decision on ratification of the Kyoto Protocol on climate change without a clear understanding of what additional costs consumers, industry and governments would have to bear. Especially at a time of falling prices for many of Canada’s energy-intensive exports, we must be careful not to impose new burdens on Canadian companies that would not be faced by competitors abroad.

This brings me to what may be our most urgent national challenge today, the future of our relationship with the United States. The BCNI was an early proponent and strong supporter of the original free trade agreement with the United States, and the resulting integration of our economies has brought huge benefits to all Canadians. On the other hand, major disputes such as that over softwood lumber continue, and the very degree of integration has encouraged complacency. The huge line-ups at the border following the attacks of September 11 highlighted the folly of such complacency.

The BCNI began work more than two years ago on what we saw as the next big step forward in the Canada-United States relationship. Even then it was clear that the growing list of trade disputes was becoming inextricably intertwined with important non-trade issues such as defence and security, illegal immigration and drug trafficking. The key question in our minds was this: should Canada simply proceed incrementally, tackling each issue on its own merits as it came to the fore, or would we do better to take a more comprehensive approach? More fundamentally, the strategic questions that we posed were whether Canada should attempt to position itself inside the American tent or outside it and to what extent we could pursue a strategy of distinct advantage while maintaining uninhibited access to the United States market.

These questions have become immediate and central. In the global war that was unleashed by the attacks of September 11, there will be no neutrals. This does not mean that allies must always march in lockstep, but the fact remains that Canada faces real and pressing demands for action. In particular, as United States Ambassador Paul Cellucci suggested last week, we may be unable to ensure an open southern border unless we are able to convince our American allies of the integrity of our external perimeter.

How Canada chooses to handle issues such as defence, policing, customs and immigration will have a powerful impact on our relationship with the United States and on Canada’s economy. But action to improve the integrity of our borders would not be a surrender of sovereignty. It would represent a powerful commitment to protecting the security of Canadians and of our way of life. In developing Canada’s strategy, we will need to consider where the security of Canadians can best be enhanced through greater cooperation and collaboration with the United States, and where we should engage in more fundamental harmonization and integration.

Canadians have chosen freely to join Americans and other civilized countries in waging war on those who would tear down in an instant what generations have struggled to build. Last week, a participant in a televised town hall discussion on CBC argued against Canada’s involvement, suggesting that "this is their war, not ours." I and my colleagues at the BCNI disagree profoundly. This is not a war between a group of terrorists and the United States of America. This is, as President George W. Bush put it in his address to Congress, a war between freedom and fear. Canadians have fought for freedom before — in Flanders’ fields, on the beaches of Normandy, on the merciless waves of the North Atlantic, on frozen hilltops in Korea, in the skies over Kosovo. Here and in other places and times, Canadians have stood proudly between their loved ones and war’s desolation, and many have paid the ultimate price.

Two weeks ago, terrorists attacked people, airplanes and buildings in the United States. But Canada’s freedom, Canada’s liberties, Canada’s democracy, Canada’s prosperity, Canada’s openness, Canada’s diversity, Canada’s tolerance: these are every bit as much a target of these terrorists as were the World Trade Center and the Pentagon. This is Canada’s war too, not because the Americans say so, but because we dare not betray our own heritage and values.

We should have no illusions about the odds of a quick and decisive end to this struggle. Indeed, it is far from clear that we will ever be able to declare unequivocal victory. But the measure of our victory will be the extent to which we remain a society based on openness and optimism, on tolerance and diversity, on building and sharing prosperity.

Today, Canada faces urgent new priorities. There are real fears about the prospects for our economy. There are hard choices to be made. To recover and forge ahead as rapidly as possible, we must be prudent; we must be creative; we must be determined; and above all, we must work together. The road ahead will not be easy for anyone. But just as the human spirit has triumphed relentlessly over adversity in the past, Canadians and other freedom-loving people will overcome this latest challenge. On behalf of all of the members of the Business Council on National Issues, let me assure you that we, our country’s business leaders, will do our part in ensuring that Canada and Canadian values emerge stronger than ever.