Canada Managing An Economy At The Head Of The Class

Saturday, October 1, 2005 - 01:00

The Editor interviews The Hon. Ralph Goodale, Canadian Minister of Finance.

Editor: Minister Goodale, would you tell our readers something about your background?

Goodale: My background is in private business, law and broadcasting, and, for a very long time, I have been involved in Canadian politics, both at the provincial and federal levels. I hold degrees in arts and the law from the Universities of Regina and Saskatchewan.

Editor: Since being elected to Parliament in 1974 at the age of 24 - and that must be a record - you have had an extremely active political career. Would you share with us the highlights of that career?

Goodale: I got started in politics at an early age. I was always interested in politics and public affairs. As a university student that interest was accelerated through my work with the Canadian Broadcasting Corporation in both radio and television news. Following university, I had an opportunity to work with the federal Department of Justice for a short period of time, and that lead me to seek nomination as a federal government candidate for the first time in my home province of Saskatchewan. That was in 1974. I have been involved, either as a candidate or campaign worker, in every federal and provincial election ever since. I have spent a number of terms in Parliament, as well as in the provincial legislature of Saskatchewan, and most recently I have held a number of portfolios in the federal cabinet, including Minister of Agriculture, Minister of Natural Resources, Minister responsible for the government's agenda in the House of Commons, Minister of Public Works and now Minister of Finance.

Editor: What are the principal responsibilities of the Minister of Finance?

Goodale: The Minister of Finance is responsible for both the revenue raising policies and the expenditure policies of the government of Canada. Our expenditures are within the flow of revenues, so the budget is balanced and has been for the past seven years. In this regard, the principal job is to maintain and protect, rather jealously, the physical integrity of the government of Canada and to make sure the revenue raising and expenditure practices of the government are in accord with good public policy. The position is also concerned with making certain that the overall economic plans of the government are heading in the right direction, including fostering growth and ongoing prosperity. The Canadian economy is doing very well right now, and our fiscal position is at the top of the G-7, the world's seven largest industrial market economies.

Editor: You have come out loud and strong about the perils of budget deficits, a message that many of our readers hope is heard in Washington. Please share with us the state of affairs that prevailed prior to 1997, when Canada's books were balanced for the first time in many years, and the benefits that have accrued over the years of balanced budgets.

Goodale: The work on fiscal responsibility and balancing the budget began when our government was first elected in 1993. At that time the annual budget deficit was in the neighborhood of $40 billion. It was suffocating the economy and crowding out an enormous volume of private sector activities. The situation, as we found it, was absolutely untenable, and it just could not go on. The debt was 68% of GDP. We discovered that Canadians wanted action and the deficit eliminated. We embarked on an expenditure review process that looked at everything the country did, and we imposed strict controls on government spending. In the period from 1993 to 1997 we eliminated the deficit and in 1997 balanced the books. That was the first time Canada had a budgetary balance in 27 years. Now that we have had seven consecutive balanced budgets, Canadians are sending a very clear message that deficits are no longer acceptable.

Editor: And your thoughts on federal debt reduction?

Goodale: We have made major progress in this area. Debt reduction, which was 68% when we inherited it, is now at 38%. Debt servicing costs are now more than $3 billion lower per year than they were. We have succeeded in recovering Canada's AAA credit rating. We have enjoyed very low and very stable interest rates now for the better part of a decade. This has provided the framework for the fiscal integrity behind a vibrant economy that is thriving in the private sector.

Editor: And tax reduction?

Goodale: As soon as we balanced the books in 1997 we began the process of tax reduction. We have reduced taxes in every budget since 1997. The cumulative total of reductions is well over $100 billion at this point, both corporate and personal. That has served to improve the standard of living and the quality of life for the majority of Canadians

Editor: On many of these issues, Canada is in the enviable position of serving as a model for other developed nations, including the United States. The value of the Canadian dollar has risen substantially, however, as a consequence of your getting the fundamentals right. What has the rise in value done to Canadian exports to the U.S and Europe and elsewhere?

Goodale: We were worried about what a rapid escalation in the value of the dollar might mean. The Canadian dollar at $.62 a few years ago probably represented a substantial undervaluation, but the major recent concern has been the pace at which the change in value is taking place. In the space of some two years the value of the Canadian currency has appreciated by fully a third. What is interesting is that Canadian business and the Canadian workers have adjusted to this change of circumstances remarkably well. One of our major exports to the U.S. is energy so, of course, the change in the value of the Canadian dollar and the resulting pressure on exports has been offset to a degree by the rising energy prices in international markets.

Editor: And Canada's competitive position vis-à-vis China and now India?

Goodale: Over the past decade China and India have emerged as economic heavyweights. Not long ago they were thought of as recipients of foreign aid, and now they are major competitors on the world stage. They are heavily involved in global supply chains. Between the two of them, they account for roughly one-third of humanity. In such circumstances, they will play a major role in setting the terms of trade in the world, both in terms of supply and demand. This represents a competitive challenge, but it is also a marketing opportunity. We need to be agile and innovative if we are to insure our position as a country in attracting the high value part of those supply chains. If we succeed, the most demanding, and therefore the most rewarding jobs, in servicing those chains will occur in Canada.

Editor: You have spoken eloquently about a need to enhance Canada's investment in its public infrastructure - transportation, communication, energy efficiencies and the environment - and in innovative technologies. How are these initiatives proceeding?

Goodale: We have made roughly $12 billion worth of investments in public infrastructure over the course of the last decade, and we are poised to make another $8 to $10 billion of public investment in the next five to six years. The process is rolling forward. On technology, we have made another $11 billion worth of investment over the same period of time. That has moved us from sixth place to first among the G-7 countries in government-sponsored research and development, which represents a major improvement for us. I hasten to add, we lag behind in private sector research and development investments.

Editor: As Finance Minister, you are also involved with a number of very difficult, if not to say intractable, trade issues between Canada and the United States. I refer to the live cattle industry in particular. Is there no NAFTA mechanism that will see this issue through to resolution?

Goodale: NAFTA does have dispute resolution mechanisms, and those mechanisms should be effective in resolving disputes of this kind. We have found, regrettably, that, on the American side, there is some reluctance to abide by the terms of what that process has determined. What we believe is crucial for the global economy is a rules-based international trading system that is not dependent on the sheer power of any of its individual participants, but rather is premised on fairness and the rule of law, most particularly where a duly empowered tribunal has issued its final decision. The issue of Canadian beef has apparently been the victim of internal U.S. politics. Let me add, however, that with Hurricane Katrina our concern is not over the few trade issues which divide our countries - we will resolve them, as we always have - but rather it is focused on the humanitarian needs of those who have been hit by one of the worst natural disasters in living memory. The Canadian people, both individually and through their government, have expressed their support for the victims of this disaster, and we will continue to provide whatever help is necessary to alleviate the suffering. I submit that that is a true measure of the relationship between our countries, not the inevitable trade disputes.

Editor: Will you share with us your thoughts about the partnership being forged between Canada and the United States with respect to national and global security?

Goodale: We have a number of common interests in that field. Canada, the United States and Mexico have a common prosperity and security agenda, and all three countries are working on it at a very senior level. The challenge for all of us is to make sure we have international borders that are firmly closed to criminals and terrorists but open to business, investment, trade and legitimate immigration. Infrastructure and technology are, of course, very important features of this agenda.

Editor: What about the future? Where would you like to see Canada's economy in, say, five years?

Goodale: We have had a very good run for the last ten to twelve years. Unbroken economic expansion has been the defining factor over that period, and that means that Canada is in a very good economic and fiscal position at the present time. Nevertheless, the period has seen major changes in terms of the global economy. The price of energy has changed, the value of the Canadian dollar has risen dramatically, as have U.S. trade deficits, and new players have emerged on the world stage, most particularly China and India. In the domestic arena, we are beginning to see the departure of the baby boomers, and the generation that is replacing them is much smaller. Each of these developments is going to have an impact on our economy. If we continue to factor in all that we need to get the equation right - as we have most certainly in recent years - I have no fears for the Canadian economy. Some of these developments, however, are very serious.