Conservative Government acting on proven plan, Opposition yet to find one

We have been witnessing - and the Conservative Government has been preparing for - an unfolding financial crisis in the United States.

It is important to remember that these are challenges the Conservative Government foresaw and addressed to ensure we could have relative economic stability today and into the future.

Stephen Harper’s 2007 year-end interview was summarized by the Ottawa Citizen’s headline: “‘Challenging year’ ahead, Harper warns in year-end interview”[1].  At that time, almost one full year ago, Prime Minister Harper warned “the public to expect a “challenging year” as a global economic slowdown looms.”[2]

He stated then that while the Canadian economy’s fundamentals are very strong, “we are an open-trading economy in a world where there is increasing economic uncertainty — in the United States economy in particular, but (also) some other parts of the globe. We are not immune to that.”[3]

Our Conservative Government has a plan already in place to position us to go forward. It is the result of two and a half years of responsible leadership. Conservative policies have allowed Canada’s economic fundamentals to remain strong despite foreign instability.  We have charted a consistent course on economic and fiscal policy since the day we took office.

We made affordable tax reductions, reduced the public debt, kept spending under control and focused on results to protect our gains and ensure our tomorrows.

Our realistic plan of action for the Canadian economy is built on four principles:

• Keeping our budget balanced.
• Lowering taxes.
• Keeping inflation down.
• Investing to ensure we continue to create jobs.

And in three consecutive budgets, that’s precisely what we’ve done.  Low taxes, less debt and controlled and effective spending at the national level are a big part of the key to the long-term success of any economy.

Our goal has been, and will continue to be, the growth and prosperity of the Canadian economy, for the benefit of working Canadian families, now and into the future.

Advantage Canada[4]

Stephen Harper and the Conservative team set out to develop an economic plan as soon as our Conservative Government took office. Following a half-year of analysis, Finance Minister Jim Flaherty released Advantage Canada as part of the 2006 Economic and Fiscal Update. It committed to improving quality of life for Canadians through five key advantages:

1.  Tax Advantage: we committed to reducing taxes for all Canadians and establishing the lowest tax rate on new business investment in the G7.

• We delivered nearly $200 billion in personal and corporate tax relief through our three Budgets and two Economic Statements.
• We were ahead of the curve on stimulus: we injected more economic stimulus in the form of tax cuts than the U.S. did (for 2008, 1.4 per cent of GDP in Canada, compared to 1.1 per cent in the U.S.).  We did it earlier (October 2007 in Canada, April 2008 in the U.S.) and we made it sustainable for the future.

2.  Fiscal Advantage: we committed to eliminating Canada’s total government net debt in less than a generation. This will generate interest savings for the government and increase credit availability for the entire economy.

• We have repaid $37 billion in debt over the last two and a half years, putting us well on our way to this objective.

3.  Entrepreneurial Advantage: we committed to reducing unnecessary regulation and red tape and to lowering taxes to unlock business investment. The Paper Burden Reduction Initiative will deliver.

• We will have reduced red tape by 20 per cent by November 2008.

4.  Knowledge Advantage: we committed to creating the best-educated, most-skilled and most flexible workforce in the world. We are moving forward on our May 2007 Science and Technology Strategy toward this goal.

5.  Infrastructure Advantage: we committed to building modern, world-class infrastructure through increased investment delivered in new, more efficient ways. Our Building Canada plan created an unprecedented infrastructure fund –

• A $33 billion infrastructure investment fund.
• A public-private partnerships office to maximize returns on our investments.

These five Advantages are keeping Canada’s economic foundations strong, allowing us to weather economic storms such as those occurring today.

Creating a Canadian Advantage in Global Capital Markets[5]

Following the release of our overall economic plan, Advantage Canada, we set out to look into the issues in more detail, including development of a full capital markets strategy. This strategy, released as part of Budget 2007, set four priorities:

1.  Enhanced Regulatory Efficiency: we committed to:

• Improving Canada’s regulatory system through more proportionate, principles-based securities regulation.
• Moving toward common securities regulation across provinces.
• Creating a modern legal framework for financial transactions (i.e. improved bankruptcy and insolvency rules and securities transfer rules).

2.  Strengthened Market Integrity: we committed to:

• Improving market governance (management certification of internal control over financial reporting, use of International Financial Reporting Standards) and enforcement (improved effectiveness of Integrated Market Enforcement Teams, support for the federal-provincial working group of police, securities regulators and prosecutors).

3.  Expanded Economic Opportunities: We identified four ways to give Canadians access to greater financial market benefits:

• Free trade in securities.
• Tax measures to facilitate access to global capital markets.
• Deepened and broadened domestic financial markets.
• Innovative research on capital market advancements.

4.  Improved Investor Information: We committed to improve financial disclosure requirements, giving investors clear and accurate information on markets and investments and financial literacy education so Canadians can interpret that information effectively.

Canada’s capital markets and economic structures are world-class bedrocks of stability. Our policies, driven by these priorities, have helped make them even better.

Competition Policy Review Panel[6]

We also set out to thoroughly review Canada's competition and investment policies, some of which had not been re-examined in twenty years. To this end:

• We appointed an Expert Panel, chaired by Mr. Lynton Ronald Wilson, and asked them to make recommendations “for making Canada more competitive in an increasingly global marketplace.”[7]

Following a full year of analysis, the Panel released their final report in June 2008. They proposed 65 recommendations to improve Canada’s economic competitiveness, including specific improvements to both the Investment Canada Act and the Competition Act. Following the report’s release:

• Prime Minister Harper committed to proceed with the Panel’s core recommendations.

The Panel’s Report conclusion effectively states the benefits that these measures will generate for Canadians:

The objective can be simply stated: to raise Canadians’ standard of living by improving our economic performance. As we have noted throughout this report, we believe that the key will be to encourage more competition at home and more exposure to competition from abroad. Competition drives the productivity that ultimately sustains our incomes, jobs and quality of life. This is our central principle.[8]

Financial Stability Forum Report[9]

Beyond identifying priorities from a domestic perspective, we have worked with the international community toward joint means of improving capital market stability and performance. To this end, Jim Flaherty and the other G7 finance ministers:

• Launched a coordinated work program, under the auspices of the Financial Stability Forum (FSF), to examine international financial market turbulence and identify policy responses.

Following six months of work, the Report of the Financial Stability Forum on Enhancing Market and Institutional Resilience was released in April 2008. The report made 67 recommendations across five categories:

1. Strengthened prudential oversight of capital, liquidity and risk management.
2. Enhancing transparency and valuation.
3. Changes in the role and uses of credit ratings.
4. Strengthening the authorities’ responsiveness to risks.
5. Robust arrangements for dealing with stress in the financial system.

Some of the recommendations require coordinated international work, and our Conservative Government is contributing everything necessary to ensure that objectives are met. Others require Canada-specific responses and we are delivering. For example:

• All major Canadian banks increased their disclosures in their second quarter reporting for the current financial year. This was in line with the FSF recommendation and some two months ahead of the reporting cycle of European and American banks.
• In Budget 2008 (legislated through Bill C-50 – passed June 2008), we introduced amendments that now give the Bank of Canada similar flexibility and powers as other major central banks in providing liquidity to the market, including the Bank of England and the European Central Bank. This was a core recommendation of the report, and was endorsed by all G-7 finance ministers and central bank governors.

These proactive changes are ensuring the Bank now has the necessary tools to effectively fulfill its mandate during this period of market instability. The Bank has been using its new powers to provide liquidity since the amendments came into effect at the beginning of August.

All three opposition parties opposed this measure within Bill C-50 – although abstained votes within the Liberal Party allowed the measures to benefit Canadians nonetheless.

Mortgage Regulations[10]

On top of these broad strategic undertakings, we are constantly reviewing our market structures and making improvements where necessary. The best examples of this are the adjustments to the rules for government guaranteed mortgages announced in July 2008, aimed at protecting and strengthening the Canadian housing market. The new measures include:

• Reducing the maximum term for new government-backed mortgages from 40 years to 35 years.
• Requiring a minimum down payment of five per cent for new government-backed mortgages.
• Establishing a consistent minimum credit score requirement.
• Introducing new loan documentation standards.

These measures are a responsible and measured approach to ensure Canada's housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada. These rules have been welcomed by Canada’s financial community. They will be fully implemented as of October 15.

The Result: A Strong Canadian Economy

Our measures have taken a well-positioned economy and made it even more resilient. The facts speak for themselves:

• Economic growth in July was the highest in four years, exceeding economists’ predictions.[11]
• Canada’s budget surplus in July was $1.7 billion, exceeding expectations.[12]
• Canada has created 87,000 net new jobs so far in 2008.[13]
• These net new jobs are mainly high-paying manufacturing jobs.[14]

And despite changing global economic conditions, the experts agree that Canada will remain strong for the foreseeable future:

Recently a person based in the UK referred to “Brand Canada”. The person noted that, internationally, the Canadian "brand", is very strong. This is based on the perceived strength of the underlying fiscal and economic fundamentals, and the lower risks associated with Canadian banks, the corporate sector and the household sector.
Further, I am told that the recent financial market dislocation has enhanced interest in Canada ─ especially from a counterparty credit risk perspective ─ because market participants are aware that Canada is weathering the turbulence better than some others. Canadian banks are generally seen as strong counterparties as they tend to be more conservative and better capitalized than many other banks.
- Julie Dickson, Superintendent, Office of the Superintendent of Financial Institutions Canada, June 2008[15]

Tensions in Canadian credit markets have been somewhat less severe than those in the United States. The Canadian economy and financial system appear to be well placed to absorb the effects of the recent turbulence.
- Bank of Canada, Financial System Review, June 2008[16]

In conclusion, we do believe that the best days for Canadian housing markets are behind us, and that lower volumes of new home construction and resales lie ahead alongside further fairly modest erosion of house prices. Calgary and Edmonton are the most exposed in this regard. But, arguing that consequences to the overall Canadian economy and to debt markets particularly in terms of mortgage-backed securities are as severe as they are in the U.S. is way off-base.
- Scotiabank, Special Update: Canadian Mortgages, September 2008[17]

• Reduced federal taxation as a share of GDP to its lowest level in nearly 50 years.
• Cut the GST to 5 per cent, a tax cut worth $72.7 billion between 2007/08 to 2012/13.
• Delivered broad-based personal income tax (PIT) cuts worth $64.9 billion between 2007/08 to 2012/13.
• Removed 655,000 Canadians from the tax rolls through tax credits and basic personal exemption (BPE) increases.
• Paid down $37 billion of government debt; instituted a “Tax Back Guarantee” committing all interest savings from debt reduction to tax relief.
• Introduced a Working Income Tax Benefit to increase work incentives for low-income Canadians.
• Eliminated capital gains taxes on publicly-listed securities when donated to registered charities.
• Introduced an aggressive schedule for corporate tax reductions – our reductions will bring the corporate income taxes (CIT) down to 15 per cent by 2012. CIT cuts will be worth over $50 billion between 2007/08 to 2012/13.
• Reduced the small business tax rate to 11 per cent; raised the small business threshold to $400,000.
• Raised the lifetime capital gains exemption to $750,000 for small business owners, farmers and fishermen/women.
• Raised the Personal Income Tax Instalment threshold to $3,000.
• Introduced the Accelerated Capital Cost Allowance to reduce business investment costs, encouraging growth, innovation and employment.
• Provided choice in child care to parents through the Universal Child Care Benefit.
• Introduced a $500 children’s physical fitness tax credit.
• Raised the Personal Income Tax Instalment threshold to $3,000.
• Introduced the Canada Employment Credit: A $1,000 tax credit on employment income to offset work-related expenses.
• Supported apprenticeships by introducing the Apprenticeship Job Creation Tax Credit and the Apprenticeship Incentive Grant programs.
• Instituted a $500 tradesperson tax deduction for tools.
• Increased meal allowance tax exemptions for long-haul truck drivers.
• Fully exempted scholarship income from taxation and instituted a textbook tax credit.
• Instituted a tax exemption for transit passes and fare cards.
• Strengthened Registered Education Savings Plan tax incentives:
• Eliminated the $4,000 limit on annual contributions.
• Increased the lifetime contribution limit to $50,000.
• Increased the maximum annual Canada Education Savings Grant amount to $500.
• Introduced a $2,000 child tax credit.
• Supported Canada’s seniors by increasing the age credit and introducing pension income splitting.
• Increased pension plan flexibility: permitted phased retirement, increased the RRSP-to-RRIF conversion age limit from 69 to 71, expanding lists of eligible securities.

Investments in Jobs and Growth

• Established the Building Canada plan to modernize Canada’s infrastructure through a $33 billion investment over seven years, including:
• Gas Tax Fund ($11.8 billion) to meet the infrastructure needs of all Canada’s communities.  The government has committed to transferring this money permanently.
• GST rebate ($5.8 billion) to support municipalities.
• Provincial/territorial base funding ($2.275 billion).  This represents $25 million per province/territory.  This fund is intended to be flexible enough to meet the varied needs of each jurisdiction.
• Building Canada Fund ($8.8 billion) allocated across jurisdictions on a per capita basis, will invest in infrastructure for both major projects (typically larger urban areas) and smaller communities.
• Gateways and Border Crossings Fund ($2.1 billion).  This fund will invest on a merit basis in transportation and trade-related infrastructure at strategic entry points across Canada. 
• Public Private Partnerships Fund ($1.25 billion).  This program will devote funding to public-private partnership projects across Canada.
• Created the $1 billion Community Development Trust to support communities and workers suffering economic hardship.
• Created the $900 million Strategic Aerospace and Defence Initiative (SADI) was to support Canada’s aerospace and defence (A&D) industries.
• Created the $250 million Automotive Innovation Fund to support strategic, large-scale research and development projects in the automotive sector.
• Provided $200 million to combat the pine beetle infestation.
• Invested $127.5 million in the Forest Industry Long-Term Competitiveness Initiative to support innovation and assist the forestry sector to shift toward higher-value products and tap into new markets.
• Established a $25-million Forest Communities Program to assist eleven forest-based communities to make informed decision-making on the forest land base.
• Provided $10 million over two years for an international marketing initiative to promote Canada’s forestry sector as a model for environmental innovation and sustainability.
• Provided $3 billion over six years for new Labour Market Agreements to address the gap in labour market programming for those who do not currently qualify for training under the Employment Insurance program.
• Provided $105 million over five years in the Aboriginal Skills and Employment Partnership initiative to ensure that Aboriginal Canadians receive skills and training that will lead to their increased participation in the workforce.
• Invested $22 million over two years to modernize the immigration system, giving it the capacity to quickly process immigrants with needed skills, building on $1.4 billion over five years to improve the quality and availability of settlement and integration programming.
• Provided an additional $4.5 billion to farmers to fund an improved suite of programs to facilitate transitions for producers and to help address rising costs of production.

Market Oversight and Regulatory Accomplishments

• Begun to implement Financial Stability Forum (FSF) recommendations such as:
• Improved financial reporting requirements for banks,
• Greater liquidity provision powers for the Bank of Canada, powers which the Bank has been using since the beginning of August.
• Appointed an Expert Panel on Securities Regulation.
• Revised Canadian insolvency legislation to better protect counterparties to derivative contracts and other securities-financing agreements in case of insolvency.
• Appointed a senior expert advisor, Nick LePan, to assess the effectiveness of the RCMP-led Integrated Market Enforcement Teams (IMET).
• Promoted free trade in securities with the United States and the G7.
• Removed the withholding tax on arm’s length interest payments made to non-residents and sign a new Protocol amending the Canada-U.S. tax treaty –  this reduces borrowing costs for Canadian businesses and facilitates more efficient cross-border capital flow.
• Consolidated the borrowings of three Crown corporations with the Government’s own debt program.
• Amended tax rules for investment in securities listed on prescribed stock exchanges.
• Expanded the range of debt and listed securities that can be held by investors in an RRSP.
• Developed a Web-based financial literacy learning program that teaches young people financial skills that they can carry with them throughout their lives. The interactive online modules can be completed online and teachers can download materials to use in a classroom. Website was launched in September: www.themoneybelt.ca
• Provided the Financial Consumer Agency of Canada (FCAC) with ongoing funding to support efforts to improve financial literacy in Canada.
• Adopted new principles-based regulations for principal protected notes issued by federally regulated financial institutions.

Planning Ahead:  Upcoming Benefits of Planned Economic Measures

• We introduced the Tax-Free Savings Account (TFSA), the most significant change to Canada’s saving system since the introduction of RRSPs in 1957. Starting in 2009, Canadian residents over the age of 18 will be able to contribute up to $5,000 annually to TFSAs.  Investment income (including capital gains) and withdrawals will be tax free.
• We will continue to deliver our broad-based PIT cuts worth $64.9 billion between 2007/08 to 2012/13.
• We will continue to accelerate and deepen the already announced CIT reductions, which will bring the federal CIT rate to 15 per cent by 2012.
• Adjusted rules for government guaranteed mortgages (coming into force October 15, 2008):
• Reduced the maximum term for new government-backed mortgages from 40 years to 35 years.
• Required a minimum down payment of five per cent for new government-backed mortgages.
• Established a consistent minimum credit score requirement.
• Introduced new loan documentation standards.
• Appointed an Expert Panel on Securities Regulation who will report back by the end of 2008.
• Appointed a senior expert advisor, Nick LePan, to assess the effectiveness of the RCMP-led Integrated Market Enforcement Teams (IMET). Mr. LePan reported back in December 2007 and we are implementing his recommendations.
• We consulted on securities transfer law and are preparing a response aimed at ensuring federal statutes are consistent with acts being implemented by provinces.  We continue to work on the implementation.

The Choice

The key question in this election is who will protect Canada with a realistic plan to manage the economy amid global uncertainty.  We have been implementing a real plan to protect the Canadian economy. The Liberal Opposition, without an economic plan in its platform, last week panicked and promised to spend 30 days developing a plan after they are elected. We have a plan. They have a plan to find a plan.

Canadians deserve better.  On October 14, Canadians will choose between our real plan to protect the economy amid growing global uncertainty and the panicked promises of an opposition with no real plan and with policies that will take our economy in the wrong direction.

[1]  http://www.canada.com/globaltv/national/story.html?id=f5ec9cef-6654-4acc-9164-9e468011b18e
[2]  http://www.canada.com/globaltv/national/story.html?id=f5ec9cef-6654-4acc-9164-9e468011b18e
[3]  http://www.canada.com/globaltv/national/story.html?id=f5ec9cef-6654-4acc-9164-9e468011b18e
[4]  http://www.fin.gc.ca/ec2006/pdf/plane.pdf
[5]  http://www.budget.gc.ca/2007/pdf/bkcmae.pdf
[6]  http://www.ic.gc.ca/epic/site/cprp-gepmc.nsf/vwapj/Compete_to_Win.pdf/$FILE/Compete_to_Win.pdf
[7]  “Compete to Win” (Competition Policy Review Panel final report), p.1.
[8]  http://www.ic.gc.ca/epic/site/cprp-gepmc.nsf/vwapj/Compete_to_Win.pdf/$FILE/Compete_to_Win.pdf
[9]  http://www.fsforum.org/publications/r_0804.pdf
[10]  http://www.fin.gc.ca/news08/08-051e.html
[11]  http://www.cbc.ca/money/story/2008/09/30/canadagdp.html
[12]  http://www.fin.gc.ca:80/FISCMON/2008-07e.html
[13]  http://www.statcan.ca/english/Subjects/Labour/LFS/lfs-en.htm
[14]  http://research.cibcwm.com/economic_public/download/eqi-cda-20080716.pdf
[15]  http://www.osfi-bsif.gc.ca...
[16]  http://www.bank-banque-canada.ca/en/fsr/2008/fsr_0608.pdf
[17]  http://network.nationalpost.com...

Donate Join Help Print

Sign Contact Shop eNews

RSS Facebook Digg Del.icio.us