FINA Committee Report

In his appearance before the House of Commons Standing Committee on Finance on 16 November 2004, the Minister of Finance asked for the Committee’s advice in five areas:

In responding to the first area — the allocation of any available federal budgetary surplus among economic and social programs, tax cuts and debt reduction and what should guide those decisions — the Committee feels that a balanced approach must be taken. We do not advocate any particular formula, believing that in a rapidly changing world, some flexibility is required in order to respond to the priorities of Canadians — as citizens, employees and employers — as they evolve. Needs change, wants change, priorities change and the proper allocation of any surplus changes. In allocating any federal budgetary surplus, the federal government must respond in a manner consistent with the highest priorities of Canadians given that, in a very real sense, they own the surplus.

The Committee was asked to comment on the early steps that should be taken in the next federal budget to best advance the goals of enhanced Canadian productivity and competitiveness in a global economy. In our view, the recommendations we make throughout the report must be implemented in order to ensure Canadian productivity and competitiveness.

The country needs sound federal fiscal finances, and tax and program expenditures that focus on the highest priorities of Canadians and Canadian businesses. We need a competitive tax system for businesses and individuals, as well as the proper incentives to invest in research, development and innovation and the mechanisms to commercialize that research. We need strong communities, with adequate and well-maintained infrastructure, a sustainable environment and support for the charitable activities and culture that enrich the lives of Canadians and the environment within which businesses operate. We need a healthy, well-educated and highly skilled workforce that embraces the notion of lifelong learning, which will be critical to long-term business prosperity and which will enrich their lives. We need support for the vulnerable in our society — including the unemployed, the homeless, Aboriginal Canadians, disabled Canadians, seniors and children, as well as the vulnerable who live outside our
country — and these supports must be adequate in both design and amount. We believe that progress in each of these areas must occur if we are to be as productive and competitive as we can be. All of these elements are part of the solution.

Regarding the additional steps that the federal government should take now to prepare the Canadian economy for the demographic change that is in our future, the Committee believes that, again, the implementation of many of the recommendations we make throughout the report will help us to prepare. Sound federal fiscal finances will ensure that we have the funds to finance such programs as Old Age Security, as well as the resources needed to ensure adequate health care and other supports — such as affordable housing — that may be needed by seniors. Tax measures that provide incentives to save for retirement will ensure that seniors have more dignity in retirement, and will have positive implications for the level of expenditures on such programs as the Guaranteed Income Supplement. Measures to ensure research, development and innovation will result in the productivity that will be critical as our population ages, and incentives for lifelong learning by all Canadians — immigrants and native-born — will ensure that businesses have the highly skilled employees they need. In our view, a multifaceted approach is needed to ensure continued prosperity — as a nation, as businesses and as individuals — as demographic change continues.

The Minister of Finance also sought the Committee’s advice on the level of economic prudence that should be included in the next federal budget. We reiterate our ongoing support for the contingency reserve and economic prudence. In Chapter One, we recommend that the contingency reserve should be at least $3 billion annually. We also comment that it would take about 170 years to eliminate the federal debt if the only action taken was the use of a $3 billion contingency reserve. It was in part for this reason that we recommend that the contingency reserve be at least this amount. Moreover, in our view, the contingency reserve should continue to be used to reduce the federal debt if not required for other purposes. Debt repayment has significant benefits in reducing debt servicing costs, thereby increasing the funds available to finance the highest priorities of Canadians. While we cannot recommend a precise figure for economic prudence, we believe that an amount must exist in order to avoid a return to federal budgetary deficits. As we noted in Chapter One, forecasting is far from an exact science, and becomes more unreliable the farther in the future is the period for which you are developing the forecast. We cannot be more precise than to suggest that the figure for economic prudence should be an amount considered by experts to be adequate.

Finally, in commenting on how the Committee might contribute to fiscally responsible and coherent decision making, and on what should be done to ensure that proposed spending and tax measures are examined objectively and in the context of all other priorities for possible inclusion in the federal budget, we are reminded of several of our comments and recommendations in the report. We continue to believe that the annual pre-budget consultations undertaken by us are an important part of the federal budgetary process, since they give Canadians an opportunity to share with the Minister of Finance, through us, their priorities at that point in time. We note, however, that our pre-budget consultations were abbreviated this year because of the parliamentary schedule, and that our consultations are just one tool that may be used to communicate the priorities of Canadians to the Minister of Finance. We support the notion of ongoing expenditure review, and feel that the consultations that we recommend be undertaken with Canadians about their priorities are important in helping to determine what the appropriate federal budget measures might be.

In conclusion, the Committee believes that governments, businesses and individuals must work together as we move forward. Governments rely on businesses and individuals to pay the taxes needed to finance expenditures. Businesses rely on governments to make decisions resulting in an environment within which they can prosper, and on individuals to play a key role as employees and consumers. Individuals rely on governments to provide the public services they desire, and on businesses to employ them and to provide the goods and services that they want. We do, quite literally, share the same future, and success must be experienced by all if we are to prosper.