Bravo Mr. Martin! Business Leaders Hail Balanced Budget Milestone, Urge Rapid Progress on Reducing Debt and Taxes

February 24, 1998

In 1993, the Business Council on National Issues (BCNI) recommended that the federal government balance its budget by the 1998/99 fiscal year at the very latest. “At the time, this goal was termed audacious and unrealistic. Today, it is reality,” said BCNI President and Chief Executive Thomas d’Aquino. “Canadians deserve the credit for supporting in great numbers the return to fiscal responsibility.”

The BCNI also congratulated Finance Minister Paul Martin for his leadership in finally eliminating the federal deficit, but warned that the government must not be complacent. “Two decades of deficits have built up a mortgage of more than $580 billion that must be cut back significantly before Canadians can truly enjoy a new era of lower tax rates and a secure social safety net. Reducing that legacy of past deficits is also a moral debt Canada’s parents owe to their children,” Mr. d’Aquino said.

The BCNI, composed of the chief executive officers of 150 leading Canadian corporations, said the continuing crisis in Asian economies highlights the urgency of dealing with the debt. Canada’s extremely high level of debt leaves both government finances and consumers vulnerable to any sharp spike upward in interest rates.

“The turmoil in Asia shows that even successful, fast-growing economies can be devastated in short order if international financial markets lose confidence for any reason,” Mr. d’Aquino added.

Now that federal finances are moving into surplus, the BCNI called on Mr. Martin to adopt a goal of reducing federal debt from a high of 72 percent of Gross Domestic Product to 50 percent by the end of the government’s mandate. “It is time to move from concrete and achievable deficit targets to concrete and achievable debt targets,” Mr. d’Aquino said. “We believe that 50 percent of GDP is achievable, and the Standing Committee on Finance of the House of Commons agrees.”

The BCNI expressed concern with the amount of new spending included in the budget presented by the finance minister today, reversing the trend toward leaner government. While cuts in program spending have helped to improve the government’s fiscal posture, most of the burden continues to be carried by taxpayers.

The government’s take from personal income taxes has jumped about 30 percent in the past four years, due in no small part to “bracket creep”. The failure to index tax brackets and credits forces more low-income Canadians to pay tax every year and leaves middle-class families facing steadily higher tax bills.

Revenue from the Goods and Service Tax has risen almost as fast, and corporate income taxes have more than doubled over the same period. And even as the deficit has been reduced and interest rates have dropped to historic lows, the government is spending $3.5 billion a year more in interest on its debt than it did just four years ago.

Much of the increased revenue flows derive from the rapid economic growth Canada is now enjoying. The economy generated 372,000 new jobs last year, and should create at least 300,000 more jobs in 1998. Lower tax rates, however, will be necessary to sustain a healthy pace of job creation over the long haul.

Canada also must ensure that its young people gain the knowledge and skills those jobs will require. “The new Millenium Scholarships make a valuable contribution to creating opportunities and opening access to learning,” Mr. d’Aquino said. “This is a responsibility shared by all governments, and indeed all sectors of society.”

At the same time, business leaders competing for skilled employees see lower personal tax rates in the United States encouraging young Canadians to take their knowledge and their energy elsewhere. “Yes, we must invest in our young people and give them the opportunity to prosper, but we also must ensure that Canada remains a country in which they want to live and work,” Mr. d’Aquino said.

The members of the BCNI represent every sector of the Canadian economy, and their companies account for the majority of Canada’s private sector investment, exports, research and development, and training. With 1.5 million employees, these corporations have annual revenues of about $500 billion and administer more than $1.7 trillion in assets.