Finance minister kicks off budget consultations

(January 12, 2004) Despite mixed economic signals, Canada’s freshly minted federal finance minister says Ottawa remains committed to new spending on healthcare, debt reduction and tax cuts. Ralph Goodale kicked off a series of pre-budget consultations with a speech this morning in Regina.

“Our immediate challenge for 2003-04 is keeping ourselves in the black while honouring an extra undertaking to try to provide the provinces and territories with an incremental $2 billion for healthcare,” the finance minister said.

Goodale, who has appointed to the finance post just one month ago, says Ottawa’s estimated surplus currently stands at $2.3 billion. If the feds keep their promise of additional healthcare spending, that leaves a “skinny” $300 million contingency fund, says Goodale — “Far too close for comfort.”

To address the possible shortfall, the finance department has launched a series of cost-saving initiatives, including a cap on the size of the public service, a hold on new capital spending and a detailed examination of discretionary spending. “The provinces and Canadians can be assured that we are doing everything we possibly can to deliver that incremental $2 billion for health this year, short of deficit financing,” said Goodale.

Noting that the Liberals have paid down around $52 billion in debt since first balancing the books in 1997-98, Goodale said he plans to continue an annual paydown of about $3 billion in an effort to reduce the country’s debt-to-GDP ratio to 25%.

“To save more on interest charges and for the sake of our fiscal credibility, we need to keep Canada’s public debt on that steady downward track from year to year,” he said.

The federal government is into the fifth and final year of a tax reduction plan Goodale says will save Canadians $100 billion. He rejected a call from federal NDP leader Jack Layton to cancel the business portion of the tax reduction and return the corporate tax rate to 28%.

Even after the reductions, Goodale says that private sector forecasters expect Ottawa to gain an additional $1.3 billion in corporate tax revenues in the coming fiscal year. “As for the future, we should strive to continue to ease the overall tax burden on Canadians, especially those in modest income circumstances, as and when our resources, and good sense, will allow,” he added.

Goodale admitted that the country’s economic prospects are mixed, noting that following record growth between 1997 and 2002, last year’s numbers were disappointing, due to an “unprecedented combination of shocks and disasters,” including severe acute respiratory syndrome and mad cow disease. “At the same time, the Canadian dollar soared by more than 20% against the U.S. dollar, and that has contributed to a decline in the volume and value of our exports over the past four quarters.” he added.

Despite the turmoil of 2003, Goodale said the economy looks poised for better things in 2004 as the U.S. economy rebounds, employment growth picks up and inflation remains under control. “On balance, private sector forecasters predict that Canada is likely to achieve economic growth close to 3% this year,” he said. “That will be up from 2003, but still below the 3.5% originally expected for 2004. Indeed, it would take a sustained growth rate of more than 5% through this year for Canada to make up all the ground lost during its recent less-than-forecast performance.”

Goodale is holding pre-budget consultations in major cities across the country over the next two weeks. He is expected to deliver his first budget in late February or early March.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com