Business Leaders say Budget too Quick to Spend, too Slow to cut Taxes, too Risky on Debt

February 17, 1999

By giving too much emphasis to new spending, Finance Minister Paul Martin’s 1999 budget missed an important opportunity to spur growth and to protect Canadians from an uncertain global economy, says the Business Council on National Issues (BCNI).

The Council, which is comprised of the chief executive officers of 150 leading Canadian enterprises, says the greatest disappointment in the 1999 federal budget is two-fold: the government’s failure to tackle more aggressively the country’s single greatest vulnerability — the still dangerously high public debt — and Mr. Martin’s decision to deny Canadian taxpayers a more equitable share of the federal surplus they have financed.

“Canada is far better off today than it was five years ago, but the economy is slowing, unemployment remains too high, our productivity growth has been weak and our debt load remains staggering at a time when the global outlook is very worrying,” says BCNI President and Chief Executive, Thomas d’Aquino.

Recently, Mr. d’Aquino and a number of his BCNI colleagues attended the World Economic Forum in Davos, Switzerland, where there was a strong consensus among world business leaders that global economic prospects were far from bright — an environment in which highly indebted and highly taxed countries are particularly at risk.

Last September, Prime Minister Jean ChrǸtien reacted to turmoil in world financial markets by promising that “whatever the surplus may be this year, we are not planning any new large expenditures beyond what has already been budgeted for this year. And that will enable us to pay down more on the debt this year than was provided for in the Debt Reduction Plan.”

“This budget not only ignores that promise by spending this year’s surplus, it still does not commit a single penny to unconditional debt reduction in any future year,” Mr. d’Aquino says. “Financial markets may have recovered somewhat since last summer, but Canada remains extremely vulnerable.”

The budget’s tax cuts closely reflect the priorities identified by the BCNI last autumn, but fall well short of what could have been delivered given the size of this year’s surplus. Because tax brackets and credits remain only partially protected against inflation, the tax cuts in this budget will quickly be eaten away.

“Canadians already pay more in personal income tax than residents of any other major industrialized country, and that burden continues to rise,” Mr. d’Aquino says. “By next year, personal income tax revenue is projected to be some $24 billion or 46 percent higher than it was when the current government took office and will account for more than half of all federal tax revenue.”

The BCNI suggests that the modest tax cuts in the 1999 budget will do little to stem the flow of highly-talented Canadians to the United States, nor will they provide any significant spur to greater productivity or job growth. The budget documents include a thorough review of potential tax cuts that could have made a difference, but make no promises about when such much-needed relief finally might arrive.

“Significant tax cuts are vital to improving productivity growth,” Mr. d’Aquino says. “If we want Canadians to invest in learning and to take risks as investors and entrepreneurs, we have to let people keep more of each extra dollar they earn.”

The BCNI continues to recognize health care and research and development as the two key priorities for greater spending. It also applauds the government’s decision to share health care funding fairly by restoring equal per capita health and social transfer payments to all provinces within three years.

The Council suggests, however, that spending plans should have been more carefully developed within a more prudent fiscal framework. “The government has simply opened the spending taps too wide and too quickly, and with too little attention to ensuring that all of the money will be well spent,” says Mr. d’Aquino.

Making Canada a global economic leader in the 21st century is an urgent priority, says the Business Council, a priority that Finance Minister Martin shares. In the weeks to come, the BCNI will launch a major initiative aimed at helping to build a consensus on how to reach that goal.

The Business Council on National Issues is a not-for-profit, non-partisan organization that is the vehicle for Canadian chief executive participation in national and global issues. The member companies of the BCNI administer close to $1.9 trillion in assets, have a yearly turnover of more than $500 billion, employ about one in ten working Canadians and are responsible for a majority of Canadian private sector investment, exports, research and development and training.