Growing and Sharing Wealth the Double Challenge

November 25, 1999

Chairman, Honourable Members, Ladies and Gentlemen,

Thank you for inviting us once again to appear before you, this time to discuss our recommendations for the year 2000 budget and beyond. We have submitted to you copies of a memorandum sent to the Prime Minister in September, which includes specific recommendations for the next budget. I do not plan to take up time by repeating them here, but I would like to elaborate on a couple of key points.

I am as delighted as you are to be able to discuss surpluses rather than deficits. I also was encouraged by the willingness of the Minister of Finance to lay out a multi-year projection as a tool for generating debate. What concerns me is that too much of the debate I have heard to date treats these projections as a zero-sum game where all options are equal. What we have to remember is that spending for current consumption is different from measures that will stimulate future growth in the economy and the tax base.

As this committee noted in its report last summer, Productivity with a Purpose: Improving the Standard of Living of Canadians, "Social cohesion results from productivity enhancement and economic growth, and does not cause it. In other words, we must first bake the pie before we cut it up and distribute the slices. The bigger the pie, the more slices we can cut or the larger the slices might be."

Yet instead of constructive discussion about how we could move most effectively, to bake a bigger pie, we have seen a public debate marked by divisive rhetoric, misleading statistics and, regrettably, personal attacks.

As we noted in our brief to the Committee last May, the critical issue going forward is how Canada will pay for the services citizens want in future — and we referred particularly to the inevitable growth in the cost of medical care due to our aging population. We said then and say again now: if we want to maintain and improve our public health care system, as we must certainly do, Canada must focus on policies that will enable more Canadians to earn substantially higher incomes than they do today.

Instead, we are seeing policies and attitudes that give our existing small pool of higher-income earners all sorts of incentives to leave. In the knowledge economy, neither workers nor their jobs are tied to any one location. There has been an assumption by some in the brain drain debate that Canada does not need to worry as long as the number of skilled immigrants exceeds the number of people leaving. But many of the Canadians who are leaving today are taking their jobs with them, and in some cases, entire departments or laboratories. Immigrants cannot fill those jobs, because the jobs themselves are gone.

As a country, we have to figure out what will persuade people with global skills to want to come here and to stay here, to live here and to build successful enterprises here. If instead Canada insists on making itself unfriendly to excellence, to high achievers, if we fail to build up the number of high-skill, better paid jobs, who will pay tomorrow’s bills for social services?

Let me turn briefly to another example of the need for more forward-looking thinking. As part of its Canada Global Leadership Initiative, the BCNI asked Jack Mintz to update the work he did as chair of the Technical Committee on Business Taxation that reported in 1998. As he noted in a resulting paper for the C. D. Howe Institute, the rest of the world has discovered that there is no better way to attract investment and boost growth than to cut corporate taxes.

In the past three years, Canada has moved from middle of the pack to a high-tax country. That alone justifies commitment by the Minister of Finance to address corporate taxation, early on within his five-year framework, but Professor Mintz also has shown that corporate taxation provides a very effective avenue for growth.

Ireland, for example, cut its corporate tax rate for manufacturing and financial services to ten percent about a decade ago, and has since reported the highest rate of growth in the industrialized world in real GDP per capita, the effective measure of standard of living. To put that another way, the real standard of living of Ireland’s citizens has gone up 18 times faster than that of Canadians over the past decade. And even though Ireland’s average corporate tax rate is less than one third that of Canada, it collects more corporate income tax revenue as a percentage of GDP. Lower rates have led to more companies reporting higher profits and a stronger tax base.

Canada has made great progress over the past decade. Opening ourselves to the world did pay off. The number of unemployed has dropped by 500,000 over the past six years, and the number of Canadians with jobs has grown by 1.8 million. But we have to make sure that globalization keeps paying off for all Canadians.

That means not slavishly copying the United States. It means we have to keep working to improve those things we already do better. And it means we have to face our weaknesses squarely and have the courage to deal with them.

Canadians have just finished a decade in which all their hard work left them a total of just five percent better off in terms of their real standard of living. I do not think they will reward any government that fails to improve on that dismal showing in the years to come. I would close by urging the committee strongly to keep its focus not on how to split up this year’s budget pie, but on how to make sure the pie keeps growing substantially bigger every year.