FINA Committee Report

Dissenting Opinion of the Bloc Québécois

Pre-budget Consultations 2001

Standing Committee on Finance

The Bloc Québécois wishes to dissociate itself from the report of the Liberal majority, which in no way reflects the real needs of Quebeckers and Canadians in these unusual times.

The Bloc Québécois would also like to point out that, as in prior years, the pre-budget consultations were, unfortunately, an exercise befogged with hypocrisy; the Finance Committee and the federal Minister of Finance did not really consider the recommendations and complaints of Quebeckers and Canadians as to how the federal surplus should be spent. We are not fooled – the die has already been cast!

PLAYING WITH THE NUMBERS

Unfortunately, the federal budgetary process has become an exercise in subterfuge rather than an indicator of the federal government’s financial position. As we have come to see in recent years, the Finance Minister has an annoying habit of underestimating budget surpluses. In fact, since 1996, the federal government has accumulated budget surpluses in excess of $30 billion.

Since 1996, in fact, the federal government has accumulated surpluses in the order of $35 billion. While we should all rejoice in this good public management, the federal government has, in reality, demonstrated its inability to make predictions by artificially inflating its deficits and continuously underestimating its budget surpluses. In so doing, it has excluded from any public debate almost $60 billion in fiscal manoeuvrability that the Bloc Québécois, with far fewer resources, was able to measure much more accurately.

By distorting the true picture of the nation’s finances, the federal government has also diverted significant financial resources from the nation’s priorities, especially health and education. It has also hampered public participation by sending very divergent messages to the people.

First, we deplore the alarmist tone of the report that, on a number of occasions, threatens the return of deficits. In these times of uncertainty and insecurity, we believe that people are entitled to a positive attitude, one that will instil confidence by simply affirming that the government “will not be returning to a deficit situation”. A clear declaration along those lines would have helped to maintain consumer spending at a higher level and would have sent out a positive signal that it is possible for the economy to slow down without collapsing.

Second, the Bloc Québécois believes that it is impossible to return to a deficit situation. The budget surplus for the first six months of the fiscal exercise is $13.6 billion. How could the government possibly make this surplus disappear completely? Even with the economic slowdown, and the increase in military and security-related spending, we cannot foreseen that a “balanced approach”, so dear to the government, could raise the bill to $13 billion. In fact, to fall into a deficit position, annual growth would have to be less than –5% or spending would have to increase by 11%, hence the ridiculousness of this alarmism.

Lastly, the Bloc Québécois would like to remind the Liberal majority of the Standing Committee on Finance and the Finance Minister that a large part of last year’s federal surplus – approximately $7.5 billion – came from the Employment Insurance Account surplus. Moreover, according to the chief actuary for the EI Account, the Account surplus this year will be comparable to the $7.8 billion surplus accumulated during the last fiscal exercise.

BREATHING NEW LIFE INTO THE ECONOMY!

In light of the current economic slowdown and the impact of the events of September 11th, the Bloc Québécois proposed to the Finance Minister a $5 billion economic stabilization plan, with no deficit. This plan rests on two basic principles, namely supporting the economy and supporting employment. It is realistic, effective and responsible. Unfortunately, the Committee drew nothing from it.

Moreover, even after any expenses incurred as a result of this plan, the federal Finance Minister would still have sufficient fiscal manoeuvrability to address new requirements with respect to security and international aid.

Credible estimates

This plan is based on very realistic estimates, given that it draws on the most conservative scenario. For the sake of caution and because the Bloc is, first and foremost, a responsible partly that does not wish to place Quebec and Canada in a budget deficit situation, we went with the hypothesis of a negative net growth of approximately 2% for the last two quarters of 2001-02. Based on these figures, the federal surplus would be approximately $13.6 billion for the current fiscal year. Our estimates take into consideration decreased income and federal transfer payment to the provinces.

If we subtract from this figure the $5 billion needed for the realization of the economic renewal plan proposed by the Bloc Québécois, which are non<\h>-recurring costs, the Finance Minster could achieve a comfortable margin of manoeuvrability of $8.6 billion.

Overview of the renewal plan

• Support for SMEs $1.85 billion

First, along the lines of the measures adopted by the Quebec government in its recent budget, the instalments for SMEs should be carried forward to March 31, 2002. Second, we believe that the federal government should give SMEs a two-month Employment Insurance premium holiday.

• Employment insurance $1.15 billion

The Bloc Québécois believes that the federal government should propose a series of measures to bolster confidence and ensure that the thousands of Quebeckers and Canadians who have joined the ranks of the unemployed since the outset of this crisis find employment.

We would like to remind the government that the immediate implementation of the recommendations of the Standing Committee on Human Resources Development, tabled in May 2001, should be a priority in that these recommendations refer to passive measures proposed subsequent to the recommendations made by our party. Although we feel that it represents a good first step, the recommendation to reduce premiums by ten cents is not, in our opinion, adequate.

• Miscellaneous sectoral assistance $1 billion

The Bloc Québécois is proposing that the federal government give assistance to sectors that are suffering in the wake of the terrorist attacks of September 11: tourism, the airline industry, biotechnology, aeronautics and freight transport.

The Liberal government could spend $1 billion over the next six months to assist the hardest- hit sectors of the Quebec and Canadian economy. These initiatives could take the form of loan guarantees, investments in research and development, or targeted grants.

• Security and defence $1 billion

Naturally the Bloc realizes that manoeuvring room must be allowed for in response to increased security and defence needs following the September 11 attacks. Enough flexibility must be left to respond more effectively to the public’s fears. In addition, renewal of security measures is all the more important in that it will have a direct impact on the economy by encouraging a return to normal trade.

OTHER CONSIDERATIONS

There are other considerations that the Bloc Québécois hopes the Committee will take into account. First, the report boasts of cuts in the government’s spending program. In fact, from 1993-94 to 1999-2000, spending declined by only 1%. Apart from that tiny drop, the government left its revenues to float on the rising tide of a booming economy.

Let us remember that the government picked and chose what cuts it would make within its total expenditures. It was transfers to Quebec and the provinces (which go largely to finance health care, higher education and social assistance) that suffered the most: they were reduced by 18% between 1993 and 2001. During this time, other program spending went up by 8%. It is generally agreed that the improvement in the spending to GDP ratio is largely due to the growth of the GDP.

Second, a number of proposals referred to the need for “prudence” in the budget estimates. The Committee favours an approach involving prudent hypotheses, a contingency reserve and prudent manoeuvring room. These are three conservative criteria that taken together have transformed the budget process into the exercise in juggling the numbers that it has become. We appreciate the necessity of taking a prudent approach, but not at the expense of transparency.

Third, we would have liked income tax reductions to be modified so that they benefited low income households. The existing cuts in income and other taxes are aimed primarily at very high income earners, to such an extent that in Mr Martin’s two most recent budgets, Canadians with incomes over $250,000 have been handed more than $9,000 in income tax reductions, while families with incomes in the neighbourhood of $40,000 have seen their income tax go down by scarcely $300. By arranging the cuts more intelligently, immediate relief could have been given to families with incomes of $40,000 and less, particularly single-parent families with two dependent children. Such families could have been exempted from the obligation to pay income tax at all to the federal government, if the federal government had allowed itself to be guided by concern for a certain balance in society rather than the wish to lavish tax cuts on the country’s millionaires.

Fourth, certain sections focus on health care in particular. In the view of the Bloc Québécois, the central government’s desire to intervene in this area demonstrates once again its lack of respect for areas of provincial jurisdiction. Ottawa withdrew from health care by slashing its transfers to the provinces — it now provides Quebec with only 13 cents on every dollar invested in health. We would like to underscore to the Committee that it would be unacceptable to reinvest in health care and education networks by setting standards and imposing other conditions on the provinces. The necessary investment must leave full freedom and flexibility to the provinces to use the money where the needs are most urgent.

Fifth, we consider that the creation of a municipal emergency services training fund in collaboration with the provinces would be a good initiative, as long as the provinces have precedents in how these initiatives are directed, given that they know their municipalities better. However, the funds for various information or communications services must be distributed in such a way that the freedom and right to privacy of Quebeckers and Canadians are respected.

Sixth, we want to draw the Committee’s attention to the report’s comments on spending. More specifically, we are concerned about the $10 million for the Financial Transactions and reports Analysis Centre of Canada (FINTRAC). We applaud this increased funding but we are afraid that it will not be sufficient. The main problem for FINTRAC is that its regulations have not been completed. The requirements for mandatory reporting are not yet in effect, since the implementing regulations are still being drafted. This means that there is still no mandatory reporting in Canada, which continues to encourage the existence of tax havens and thus facilitates the financing of terrorist networks.

Seventh, we hope that the recommendation on tax assistance for mechanics’ tools, which responds to a Bloc Québécois initiative, will be implemented as soon as possible.

Eighth, we want to voice strong reservations about the consistency of two recommendations. The first proposes to achieve the OECD objective of spending 0.7% of GDP on assistance for developing countries by a target date. The second calls for a moratorium on international expenditures not related to security. It is clear that the OECD objective cannot be achieved this year.

Lastly, the environmental recommendations are in our opinion very attractive. However, it seems to us that the government has been studying tax incentives and economic tools for the environment for a very long time. Many countries have a long head-start on Canada. Perhaps it may be time for the government to stop studying and start taking action.

CONCLUSION

This is our response to the report by the Liberal majority on the Standing Committee on Finance. We believe that the majority report is marked by a pessimism that has no place in the current context. Quebeckers and Canadians will not be getting the go-ahead signal they need to restore their confidence.

The Bloc Québécois is disappointed that the majority report does not take its stabilization plan into account. This plan is however, as desired by Quebeckers, realistic, effective and responsible. Now we can only hope that the Minister of Finance will listen to our suggestions and considerations.