Global Slowdown Requires Federal Spending Cap, Early Tax Cuts and Faster Debt Repayment, Business Leaders Advise Prime Minister

September 9, 1998

In light of slowing global growth and turbulent currency markets, any plans for new spending by Canada’s federal government must give way to accelerated debt reduction and early personal tax cuts. That was the advice delivered to Prime Minister Jean ChrǸtien by the Business Council on National Issues (BCNI), whose members are the chief executive officers of 150 leading Canadian corporations.

“In the current environment of uncertainty, increased attention to debt reduction is mandatory, and commitment to significant tax cuts is essential to preserve Canada’s competitiveness and ensure its prosperity. There is no room at all for new discretionary spending at this time,” the Council said in a memorandum entitled Confronting Global Economic Uncertainty — A Canadian Strategy.

The business leaders noted that Canada is in much better shape to withstand global turmoil than it was five years ago. “We face trying circumstances, but we are well positioned to endure and then overcome the difficulties that surround us if we move forward convincingly with the right policies.”

Currency turmoil and rising interest rates have reinforced the need for prudence in reducing the size of Canada’s huge public debt. “Rising interest rates would add to the interest payments that already consume more than one out of every four dollars Canadians pay in taxes. Paying down debt reduces that risk, and gives the government more room to cut taxes if interest rates stay flat or fall,” said BCNI President and Chief Executive Thomas d’Aquino.

At the same time, Canada can no longer afford to delay the process of cutting personal tax rates. The 1998 budget made a modest beginning, but Canada’s income tax rates are badly out of line with those of major competitors and especially the United States. High personal taxes, combined with the falling dollar, are becoming a critical problem for companies in all industries trying to recruit and retain skilled employees.

“When young graduates head south, we lose the huge investments we have made in their education. When experienced professionals and managers depart, we lose the skills we need most to stay competitive in a global, knowledge-based economy. Our high personal tax rates are threatening Canada’s future as a home for vibrant global enterprises,” said A. L. Flood, Chairman of the BCNI and Chairman and Chief Executive Officer of CIBC.

The Council acknowledged that the federal government cannot yet afford to make the deep, across-the-board tax cuts that are needed. What the government can and must do is make a firm commitment now to a credible framework of significant and sustainable tax cuts in the years ahead. The BCNI launched a Tax Reduction Initiative earlier this year, and will present detailed recommendations for such a framework within a few weeks.

The combined imperatives of debt and tax reduction mean that new spending, even on urgent national concerns such as health care, must be deferred for at least one year. The BCNI acknowledged that provincial governments have faced an unpopular and difficult task in making Canada’s health care system work more efficiently, and suggested that they should have first call on any new spending when fiscal circumstances permit. For now, though, any new initiatives should draw funding from existing budgets.

“The essence of our advice to the government has not changed,” said Mr. d’Aquino. “We always have urged restraint in public spending, discipline in reducing debt and commitment to sustainable tax cuts. What has changed is a global environment that no longer provides any margin for error.”

The memorandum, circulated to the chief executive officers of the BCNI’s member companies, was signed on behalf of the BCNI’s Board of Directors by members of the Executive Committee. In addition to Mr. Flood and Mr. d’Aquino, the Executive Committee includes Honorary Chairman J. Edward Newall and Vice-Chairmen Peter J. G. Bentley, Chairman, Canfor Corporation; Jacques Bougie, President and Chief Executive Officer, Alcan Aluminium Limited; Jean C. Monty, President and Chief Executive Officer, BCE Inc.; and David P. O’Brien, Chairman, President and Chief Executive Officer, Canadian Pacific Limited.

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 (Canadian) in assets, have a yearly turnover of more than $500 billion and are responsible for a significant majority of Canadian private sector investment, exports, research and development and training.