Prime Minister Harper's address to the Economic Club of Toronto

Good afternoon, ladies and gentlemen.

Thank you, Andrew, for your kind introduction.

Greetings to President Adler and the members and guests of the Economic Club of Toronto, and thank you for inviting me here today to speak to you.

Greetings also to my Conservative colleagues who are with us, including Senator Lebreton and Secretary of State Kenney, and Member of Parliament Wajid Kahn.

It’s always a pleasure to be back in Toronto, and I’m very pleased to have this opportunity to speak to the Economic Club so soon after the passage of our government’s third budget.

You know, there was quite a bit of speculation in the days leading up to the Budget that it might trigger an election. The NDP and the Bloc were resolutely opposed to everything in it, even before they saw it. And the Liberals had done their fair share of sabre-rattling in the preceding weeks.

But on the day of the vote, their howls of outrage became whimpers of abstention.

Why? Political gamesmanship aside, I believe the reasons for this are quite straightforward.

The budget passed because, despite these uncertain economic times, the Canadian economy is strong.

And because, despite the tough budgetary choices such times require, the Government has chosen a clear and balanced direction that is widely supported by Canadians.

In fact, we’ve charted a consistent course on economic and fiscal policy since the day we took office.

We said, from the beginning, we would make affordable tax reductions, reduce the public debt and keep spending under control and focussed on results.

And in each of our budgets, that’s precisely what we’ve done.

This approach reflects our clear conviction, as Conservatives, that low taxes, less debt and controlled and effective spending at the national level are a big part of the key to the long-run success of any economy.

And that is our goal - the growth and prosperity of the Canadian economy, for the benefit of working Canadian families, now and into the future.

It also happens to be how hard-working families themselves plan for success – spending on priorities, keeping their debt levels down and making investments in the future for themselves and their children.

Roughly speaking, our budget allocations for the five years between 2006 and 2010 break down like this:

Half of all our discretionary fiscal action has gone to tax reduction and the remainder evenly split between debt pay-down and new spending.

It’s a real, consistent, balanced plan, and it’s working.

Canada’s economic fundamentals are strong.

At a time of growing uncertainty in the global economy, we’re in the best financial and economic position of any G-7 country.

Inflation and interest rates remain low and stable.

Personal disposable income has been rising steadily.

Net employment has increased by over three quarters of a million jobs since our government took office, including, as reported today, 43,000 jobs last month alone.

The national unemployment rate is still under six percent, the lowest it’s been since 1975.

But, as Finance Minister Flaherty observed in his budget speech, Canada is not an island - and our export-driven economy is expected to grow more slowly over the next two years.

As we said last fall, the economic downturn in the U.S., the tighter credit market, global financial volatility, the falling American dollar, all pose some serious challenges for us.

Some sectors are already facing the consequences of this or of longer-term adjustment pressures.

And though overall inflation remains low, rising costs of some goods and in some parts of the country are squeezing the budgets of some Canadian families.

There are a couple of ways to cope with these kinds of challenges.

One is to throw money at them, as the opposition parties demanded in the weeks leading up to the Budget, and as I suspect they will continue to do going forward.

To suggest that every problem demands an immediate response through short-term, high-cost intervention or subsidization.

We didn’t do that in the Budget, and we’re not about to going forward.

To do everything the opposition demands ($100 billion) would require us to raise taxes or run a deficit, or both – in a very big way – overnight.

That would be wrong for the Canadian economy – wrong now, and with worse consequences in the future.

History has proven over and over again that a balanced approach to fiscal policy, based on low taxes, lowering the debt burden and disciplined spending, creates a sturdy foundation for a strong, successful economy.

And broader economic policies must be shaped around building strong, long-term fundamentals that are forward-looking, not bail-outs of today’s problems.

We’ve tried to take this general approach since coming to office.

Our first budget, in 2006, established the broad direction of our government and delivered on a series of specific campaign commitments.

It delivered almost 20 billion dollars in tax reductions, more than the previous four budgets combined, as well as important initiatives like the Universal Child Care Benefit.

It restrained the rate of spending growth, and institutionalized a process for identifying and eliminating wasteful or low-priority spending.

And it launched Canada on the path to debt freedom by committing billions to paying down the national mortgage and setting some tough debt burden targets going forward.

Our second budget, in 2007, was even more focussed on longer-term objectives.

It cut taxes and reduced debt even more aggressively, and kept spending focussed on direct benefits for Canadian taxpayers and families.

It unveiled our infrastructure plan – our plan to undertake the largest investment in national infrastructure in this country in half a century.

And it tackled the fiscal imbalance - to ensure long-term, principle-based revenue arrangements with the provinces sufficient to give them similar flexibility on infrastructure and social service priorities.

As well, we invested heavily in post-secondary education and training, and in scientific and technological research and development, creating an S & T strategy which, as you all know, is key to maintaining Canada’s competitive edge.

And, of course, I should mention, we were already seized with some sectoral challenges.

Most importantly, we helped manufacturers improve their competitiveness by allowing them to accelerate write-offs of capital investments in new machinery and equipment.

Canada can maintain a competitive manufacturing sector, but to do so in the modern global economy that sector will have to move to the higher, more capital-intensive end of the industry, and that is what we are trying to help business achieve.

Budget 2008 stays the course: lowering taxes and focussing new spending while keeping the Budget balanced.

But we did something unusual this year. We announced and passed some of our most important budgetary actions well before Budget day.

Since last August, we have been increasingly worried about the ongoing consequences of the global financial volatility that began with the sub-prime mortgage meltdown in the United States.

Given our strong fiscal position, we decided in the fall to take action we had planned for this spring.

Most importantly, months before Washington did anything, we took action to stimulate the Canadian economy with 60 billion dollars in new broad-based tax relief for individuals, families and businesses.

Cutting the GST to five percent, dropping the lowest personal income tax rate and raising the basic personal exemption were key measures.

These are not just intended to be fair to everyone, not just intended to fulfill campaign commitments, but they are also serving to reinforce domestic demand, which is critical as our export sector to the U.S. began to weaken.

But more important to Canada’s long-term economic strength was our move to lower the general corporate tax rate, by two and a half points on January 1, and to 15 percent by 2012.

The way we are headed, we will soon have the lowest rate of business income tax in the G-7.

If I can digress for a moment, I’d like to emphasize how important it is for provincial governments to do their part also for the business taxation and investment climate.

We have challenged them:

To remove capital taxes,

To reduce the costs of traditional, layered sales taxes,

And to lower their own corporate tax rates to 10 percent,

So that Canada’s combined federal-provincial corporate income tax rate will be no more than 25 percent by 2012.

This can be a powerful selling point for Canadian companies competing for foreign investment.

I’m pleased to see Manitoba get on with eliminating its capital tax.

And I’m very pleased to see British Columbia moving clearly toward the goals we’ve set for corporate taxation in that province’s most recent budget.

These moves help the economy in those provinces.

But they help no part of the economy more strongly than manufacturing.

Make no mistake: the diversity and resiliency of the national economy depends on a healthy manufacturing sector.

Tax reform and reduction is part of securing our manufacturing base.

In fact, it is an indispensable part of what needs to be done for manufacturing.

Of course, it is not the only thing.

Before the Budget, we also announced the Community Development Trust.

The trust is designed to help communities and workers in areas highly dependent on struggling industries

To help them adjust to current economic challenges.

I first announced it at a strong, secondary forestry manufacturer – Marwood Ltd. – in Tracyville, New Brunswick.

Some were surprised I didn’t announce the program at a mill that had shut down.

The choice was deliberate. This program is not a bailout for a failing business – that would be a mistake.

Instead of bailouts for businesses, we are providing funds to the provinces to be used for workers and communities to seek new opportunities through initiatives like job training, local economic diversification, infrastructure improvements, and new approaches in traditional sectors.

February’s budget builds on these initiatives.

This includes a three-year extension of the accelerated capital cost allowance for manufacturing, on a declining basis.

We need new investment in the sector, and we want the incentive for it to be sooner rather than later.

We’re providing assistance to help build markets for forestry in light of the decline of the U.S. housing sector.

We’re providing even more support for scientific research, development, and post-secondary education.

And we’re dealing directly with challenges in the auto sector with our new Automotive Innovation Fund – a fund that will support the development of cleaner, greener, more fuel-efficient vehicles.

This is an example of how we are trying to look forward, not back: to make prudent, strategic investments in a way that will take advantage of inevitable adjustment and the resulting opportunities.

I should also mention that this year’s budget continued the implementation of a comprehensive expenditure management system.

In the first round we reviewed 17 federal bureaucracies and identified almost 400 million dollars worth of savings.

This year’s budget also addresses some of the particular needs of the Greater Toronto Area.

A significant portion of the National Public Transit Capital Trust will support transit expansion in Ontario and the GTA.

Toronto will be the site of one of five national pilot projects undertaken by the new Mental Health Commission of Canada to deal with the problem of homelessness.

And our Police Officers Recruitment Fund will help regional police forces hire additional front-line officers who can target local crimes and make communities safer.

But, having said all that, I do believe that the centerpiece of this year’s budget is, as Minister Flaherty has said, the introduction of the Tax-Free Savings Account, the single most important personal savings vehicle since the introduction of the RRSP half a century ago.

For the first time ever, Canadians will be able to earn tax-free income on their investments.

This will encourage Canadians to set aside more of their hard-earned income - because their earnings will be safe from the taxman – forever.

Not only will the savings be there for proverbial rainy days,

But because the money can be withdrawn at any time without tax penalty and without any loss to lifetime savings room, the savings and the earnings can be used flexibly - to buy a new car, a home renovation, the trip of a lifetime, or anything else. Obviously, this is important for individuals and families.

But I ask you to think for a moment about how important this is from a long-term, macroeconomic perspective – the powerful incentive to create a growing pool of national savings.

Compare that with the situation south of the border, with a credit market buckling under the weight of an over-extended housing sector.

All the incentive there has been to borrow against the equity in real estate holdings, leading to a housing market bubble that burst, with nothing to fall back on except foreclosure and bankruptcy.

By contrast, the Tax-Free Savings Accounts will create a new pool of investment capital that can be used to grow our economy and create new jobs.

It will start small, just as the RRSPs did, but a generation from now I predict that this country will see the difference – much higher personal savings rates, and much lower rates of government taxation on investment.

And as a direct result, I predict the Canadian economy of our children will be even stronger than it is in our time – much stronger, in fact.

Pretty optimistic, you’re thinking.

Well, I believe we should be aiming far and aiming high.

I believe in Canada’s much bigger economic potential. And I believe that if governments lift the tax load off Canadians, free them from the debt burden, and focus the spending of their tax dollars on things that actually make their lives better, then there truly is no limit to what our country can achieve.

Ladies and gentlemen, as Minister Flaherty said in last month’s budget speech, Canada has reached a fork in the road.

Indeed, as I said several months ago, we have been heading into a period of economic uncertainty and slower growth.

It’s happened before and it will happen again.

But the fork in the road is whether, under these circumstances, we will make choices that will exacerbate the problems for the sake of the short term, or whether we make choices that will allow us to exploit our potential in the future.

Some will suggest, as they already are, that we go back to the old ways.

In defiance of reason and experience, they will suggest higher spending, higher taxes, higher debt, business bailouts or even a return to protectionist trade policies. I don’t believe that’s what Canada needs, and I don’t believe that’s what Canadians want.

They want lower taxes, less debt and carefully targeted assistance that helps workers, families, communities and businesses build a better future in the global economy. They want prudent fiscal discipline during uncertain economic times, not reckless spending promises. They want strong economic leadership that, yes, anticipates short-term challenges but plans for long-term prosperity.

And if we stay the course of lower taxes, lower debt and prudent spending, Canada will come out of the current international downturn stronger, better and more prosperous than ever.

Thank-you, and until next time.

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