Canada’s Business Leaders Urge Two-stage Assault on Debt and Taxes

March 25, 1998

The Business Council on National Issues (BCNI), representing the chief executives of 150 major Canadian corporations, says that after a quarter century of deficits, the federal government should speed up efforts to pay down debt over the next two years and then launch a program of accelerating tax cuts.

“The next few years should generate substantial budget surpluses, and we must use the first surpluses to make sure that future tax cuts can be sustained through good times and bad,” said BCNI President and Chief Executive Thomas d’Aquino. “Public debt remains a huge mortgage on our future, and as with any mortgage, higher payments in the early years have the greatest impact.”

In a memorandum to Prime Minister Jean ChrǸtien, the BCNI’s Policy Committee called on the government to adopt a short-term target of reducing its debt to 60 percent of GDP in the next two years and a medium-term goal of reaching 50 percent of GDP by the end of its mandate in 2002.

“These targets may appear difficult to reach, but few people believed us five years ago when we said the budget could be balanced by 1998,” Mr. d’Aquino said. Most forecasters think the economy will grow faster than projected in the 1998 federal budget, and rising tax revenues combined with continued spending restraint should allow significant reductions in debt quite quickly.

The memorandum marks a major policy evolution for the BCNI. Elimination of the deficit has been its most urgent fiscal priority since the Council was formed in 1976. Its long-term objective always has been and remains substantial reductions in tax levels, and deficits simply guaranteed that future taxes would go up. With the budget now in balance, the Council says the government has an opportunity to break the cycle of rising debt and taxes once and for all.

“We believe that a determined assault on the level of the national debt is required to ensure a steady reduction in the amount of tax revenue required for debt service. This in turn will allow Canadians to enter the new millennium convinced that every year, they can expect their total tax burden to fall rather than to rise,” the memorandum states.

While remaining optimistic about the future, the Council warned that good news cannot be taken for granted. Serious risks in the years ahead range from the impact of financial turmoil in Asia to self-inflicted wounds flowing from a possible vote for secession in Quebec. “We should make sure that no matter what happens, Canada’s fiscal posture will be solid and our progress towards steadily lower tax rates will remain unimpeded,” Mr. d’Aquino said.

The BCNI announced the formation of a new Task Force on Taxation to consider the priorities for tax reduction over the next five years. But the memorandum makes it clear that personal tax rates at all income levels are the most urgent concern. The Task Force is expected to issue a report this fall.

“Canadians have paid a stiff price to bring almost three decades of deficit financing to an end, but we must use the current strength of the economy to ensure that those sacrifices are not squandered,” Mr. d’Aquino concluded. “Prudence today can pave the way for a generation of lower taxes and greater prosperity for all Canadians.”

The members of the BCNI head enterprises operating in all sectors of the Canadian economy, accounting for a majority of private-sector investment, exports, training and research and development. With some 1.5 million employees, they administer assets in excess of $1.7 trillion and have annual revenues of $500 billion.