Chairman's Foreword

This report is the second by the Committee since the government committed itself to broad public involvement in the preparation of its budgets. With the release of this report on our second round of consultations with Canadians, the process is now firmly established as a permanent feature of citizen participation in budget-making.

The Committee's first report of a year ago was central to identifying and building the broad consensus for the measures eventually undertaken in the government's second budget of February 1995.

The government is now about to prepare its third budget. This report is based on the testimony of 480 witnesses who appeared before us in Ottawa and every province of Canada, and on the 58 submissions we received.

The Committee's consultations took place against the backdrop of historic progress in confronting Canada's debt crisis and moving toward the government's interim target of reducing the deficit to no more than 3% of gross domestic product for 1996-97. The measures already in place will bring the deficit to $24.3 billion by then, down from $42 billion in 1993-94, $37.5 billion in 1994-95, and $32.7 billion this year.

At the same time, there are significant dangers.

The size of our national debt, in both absolute terms and relative to national economic output, makes us highly vulnerable to the adverse impact of economic, financial or political shocks.

Another international financial shock, such as the Mexican peso crisis of a year ago, could sharply increase international interest rates. A recession would reverse the many trends now working in our favour and threaten our progress toward fiscal health.

Above all, the possibility of another Quebec referendum on separating from Canada is a significant drag on our economy, particularly in Quebec.

This, then, was the context within which the Committee worked. Based on what we learned, we suggest that the coming budget emphasize the following six areas.

First, it is imperative that the government hit its deficit targets. Were we to fail, the loss of confidence would be quickly reflected in higher interest rates and drive up the already enormous cost of servicing our debt. This reality means two things: program spending must continue to decline, and current tax levels must be maintained.

Second is the need to focus more strongly on the national debt. This does not mean abandoning the deficit reduction strategy of moving on a two-year rolling basis beyond the 3% of GDP target in 1996-97 and 2% in 1997-98. Far from it. This strategy is working. What is driving the deficit, however, is the national debt, and it is the weight of that debt on Canada's economy that must be reduced.

Third, the Committee believes it reasonable to anticipate before the end of this century any of a number of events that could throw us off our deficit targets, including those mentioned above, a serious downturn in the business cycle or a recession, an international financial crisis or a referendum in Quebec.

This means, among other things, the use of more prudent assumptions regarding interest rates and growth than now contemplated for the next budget. It also means planning for larger contingency reserves for the years beyond the two-year horizon of the next budget when the risks facing us will be heightened.

Fourth, while considerable progress has been made in creating jobs, actual unemployment or the fear of it has cast a foreboding shadow over our future. The Committee has offered a number of possibilities for helping more Canadians become self-employed and helping small businesses expand. In the end, however, the two most important steps the government can take to assist job creation are to restore Canada's fiscal health and resolve our unity crisis.

Fifth, as governments at all levels cut back on the services they provide, individuals will have to do more for themselves and others. More responsibilities will fall to the voluntary sector and charities. We have asked the government to consider ways to encourage more charitable giving, thereby helping Canadians to help themselves and to do more of the things previously done by governments.

Lastly, as expenditure cuts continue, as regrettably they must, the Committee urges upon the government the continuing need for a balanced approach to cutbacks. This means balance in both what we change and the pace of change. Cutbacks must not be so severe as to retard economic growth. They must not be made on an across-the-board basis, but be targeted so as to reflect true national priorities. It is a national priority to promote education, research, innovation, science and technology; they are essential to building our economic future. And cuts must not be made at the expense of those least able to cope; sharing and compassion are also national priorities. So is Canada's national health care system.

I wish to note that there is considerable support throughout Canada for the balanced approach the government has taken to controlling deficits and beginning to shrink the national debt as the dominant element in the country's life. The government must proceed on its course, but it must proceed at a pace that gives Canadians confidence not only in the government's ability to restore the nation's fiscal health, but also in their own ability to adapt to the historic changes made in the way Canada's finances are managed. There is no great support for slash and burn policies. To the contrary, there is considerable concern that, as change progresses, Canadians be able to preserve a society in which caring for one another continues at the heart of our social contact with each other.

On a personal note, I have no doubt that as difficult as our problems may seem, and at times they seem daunting, we will emerge from our present difficulties with our fundamental values tested but, for that testing, strengthened.

I found, as I know my fellow Committee members found, no will to level the work of our parents and grandparents and cast out both achievements and mistakes alike. To the contrary, I found the will to correct mistakes, to pay down the debts we have accumulated, to repair, to rebuild but most of all to leave a better country to our children and grandchildren.

Our forebearers built a country that most others on the planet consider beyond their reach, and when you meet the kind of people I have met through the work of this Committee, it is easy to see that the spirit that built Canada is undiminished.

With that spirit, I have no doubt that we will bequeath to generations of Canadians born and yet to be born the healthier, the more prosperous, the better country, that is within our reach.

I would like to thank all of those who appeared at our Committee hearings throughout the country and the Committee members of all parties who were diligent in their work and graceful in enduring the long hours and occasional discomforts that extended travel and long hearings often entail. The briefs and testimony form a part of the record of this Committee and a part of the body of material the Minister of Finance will have available and consult in preparing his budget.

Finally, the Committee and I are most grateful for the invaluable support given to us by the staff of the House of Commons, and all those who worked with us. I am particularly grateful to our Clerk, Martine Bresson and her assistant Pierre Rodrigue; our Researchers Marion Wrobel and Richard Domingue; David Ablett and Michael Bryans who advised on the text; Liz Yong-Laflèche and Jeannie Dempster of my Ottawa office; and especially my Legislative Assistant Lou Riccoboni. Their professionalism and dedication made this work possible in the short time we had.

Jim Peterson,
Chairman.