How Canada Survived the Recession
Following are remarks delivered by Canadian Prime Minister Stephen Harper to New York business leaders.
Good evening, ladies and gentlemen. First of all, thank you Marie-Josée Kravis for your very kind and warm introduction. Greetings to the former U.S. Ambassador to Canada, Gordon Giffin, and to our Canadian Consul General here in New York, Dan Sullivan.
Greetings as well to Kelly Johnston, chair of the Canadian-American Business Council, and to John Moore, president of the Canadian Association of New York. I want to thank to both of you and the distinguished members of your respective organizations for hosting me here this evening. I especially want to thank you for the work you do to strengthen Canada-U.S. relations.
Ours is not only the largest two-way trading relationship in human history, not only one of its most enduring alliances, but it is a deep friendship unmatched by any other two nations. It is a very close relationship, a family-like relationship, and like any such relationship, it requires care, dialogue and understanding, so I salute both of your organizations for the ongoing contributions you are making to strengthening the ties that bind us.
I'm very glad to have this opportunity to speak to you tonight during this, one of the most extraordinary times in our economic history. As a student of economics, I spent much of my early life studying and learning about the powerful economic forces that shape our lives and our destinies. The first global recession of the 21st century has taught us all some new lessons or, I would be inclined to say as an economist, reminded us of some older lessons about those economic forces. And governments, policy-makers and business leaders around the world are now assessing these lessons and drawing the conclusions that will guide future action. As this comparative work is carried out, I'm here to draw attention to the Canadian experience, and let me summarize it.
None of the roots of the recession are to be found in Canada, and Canada, while it has been significantly impacted, is emerging from the global recession in a strong position. Despite the turbulence of recent months, Canadian banks are secure, our markets are expanding, our stimulus is working, our taxes are falling, our long-term fiscal position is solid, and our broader economic assets remain intact. If we stay the course, Canada's future has never looked so bright.
Now, ladies and gentlemen, the foundations of this strong position are rooted in a sound economic philosophy. Our Conservative Government is committed to open borders and free markets, while understanding that markets require prudent, transparent regulation and oversight. Markets are also supported over time by a commitment to social cohesion and responsible social objectives. But likewise, those require long-term fiscal discipline with low and predictable taxes. This is the approach that has guided our actions from the day we took office almost four years ago. Now, of course, Canada is still first and foremost part of the global economy. So let me just comment for a moment on the global situation.
I would say this: while we all recognise hopeful signs, the global recovery is fragile. None of us are fully through it, but the light is there at the end of the tunnel if we are clear on the way forward and stay the course. In particular, we must not waver in our focus on the economy. This was the message I brought to Washington this week, and this will be the message Canada brings to the G20 meeting in Pittsburgh next week. The G20 countries must continue their efforts to fix the financial sector. There are still toxic assets that must be purged from the international financial system. Where they have failed, better systems of domestic oversight must be put in place, and there should be international peer review of those domestic regulations. We cannot repeat the mistakes that almost created a financial collapse worldwide a year ago. This is what President Obama said here in New York a few days ago, and I share his view on that. We must also maintain a concerted effort to beat back the forces of protectionism and keep our trade flows expanding. And we must continue implementing stimulus measures until we see a much stronger rebound in private investment. But at the same time, there must be exit plans put in place from high levels of government deficits and debt so that capital investment in the private sector is not eventually crowded out.
I mentioned that Canada's situation, though seriously hit by the global recession, remains relatively strong. As Marie-Josée mentioned, Canada was the last major industrialized country dragged into the global recession. As late as last summer, our economy was still expanding. We had a low unemployment rate, net job creation and government surpluses. Although our economy had been strong, we'd also at the same time avoided certain excesses, the so-called bubbles in the housing, consumer and financial sectors. But Canada was hit late last fall and early this year by the effects of the global recession, and of course affected by it principally through the effects on our export sector.
And yet, as early as the second quarter of this year, we have started to see significant upticks in home investment and consumer spending, especially in auto sales. By June, according to the latest data, Canada's economy had edged back into positive growth territory. The trend is expected to continue through the last half of this year and through next year. In August, Canada defied expectations and recorded a net increase in employment led by the creation of nearly 50,000 new jobs in the private sector. Canadian housing starts have also exceeded expectations, advancing 12 percent in August alone.
Now, all of this still only adds up to the beginnings of a fragile recovery, as I said. Far too many Canadians are still out of work and still suffering genuine hardship. But proportionally speaking, we lost less than half as many jobs as the U.S. over the past 18 months. Our unemployment rate is now a full percentage point lower than yours, something which has not happened in more than 30 years. In fact, in relative terms, it has been a more moderate recession in Canada than in most other developed countries. The reasons for this are many and complex. But they have much to do with Canada's underlying strengths. To paraphrase Warren Buffet, as the tide went out last year, the crisis exposed those who had been swimming naked: But it turns out that Canada was not only no skinny-dipper, she was also one of the strongest swimmers.
First, Canada's financial sector, Canada's banks in particular, are strong. Thanks to their good management as well as to our prudent but not overly heavy-handed financial regulatory system, Canadian banks largely stayed out of sub-prime mortgages and mortgage-backed securities. They remained well capitalized, stable and secure. None have needed bailouts. When our banks were squeezed with the worldwide credit crunch, our government worked with them to bolster liquidity and to help ensure access to credit for Canadian consumers and business. But let me be clear: our government does not today own any commercial bank in Canada. It is an entirely private sector. In fact, three of the top ten banks in North America are now Canadian. Our share of the international financial services sector is growing, as is our global reputation for prudent regulation of our financial system. That's one of the reasons we have been co-chair of the G20 working group on Enhancing Sound Regulation and Strengthening Transparency. In that capacity, Canada has been leading the world on dealing with these questions at the international level.
A second reason for Canada's relatively strong economic performance is our unwavering commitment to free trade and open markets. In fact, tonight in Montreal we are celebrating the 25th anniversary of the coming to office of the Mulroney Government, the Conservative Government that initiated the first modern comprehensive free trade agreement between our two countries, which of course subsequently became NAFTA. These agreements finally laid to rest the ambivalence Canada had had, through much of our history, towards free trade. In response to the economic crisis and its effects on trade and the rise of protectionist forces, we in Canada have redoubled our efforts to keep trade flowing. We've been very outspoken about this at the international level. Our domestic stimulus package did not include domestic procurements. In fact, on the contrary, it included unilateral cuts to Canadian tariffs. We've also been aggressively pursuing new free trade agreements. Canada has concluded agreements with eight more countries since our government took office, and we are in numerous other talks, including historic economic partnership negotiations with the European Union. And of course, we have been working diligently with the White House and Congress to maintain Canada-U.S. trade flows and improve the security and efficiency of our border crossings.
The third reason Canada's economy has held up comparatively well has been our effective implementation of stimulus measures. In the first year of the crisis - in fact, way back in fall of 2007 - we cut taxes aggressively while maintaining a balanced budget. This helped keep our domestic economy out of recession for some time. When the situation became more serious, as I mentioned, through the export sector, we responded with large-scale spending, we cut red tape in project approvals, and we have implemented it rapidly in coordination with our provinces and municipalities. Our Economic Action Plan mobilizes more than four percent of Canada's GDP, making it one of the largest stimulus packages in the G7.
It began in March. By June, 80 percent of the money was already committed to specific projects. This is sustaining and creating jobs. It is helping the workers and communities hardest hit by extending Employment Insurance benefits and expanding skills training, and it is keeping credit flowing to ensure that affordable financing is available to Canadian consumers and businesses. But despite the benefits of these measures in the short term, the thing I want to emphasize to you is that Canada's stimulus spending is overwhelmingly focused on investments of a long-term nature: highways, ports, borders, border crossings, excuse me, bridges, universities and colleges, scientific and technological research and development. We are investing in the critical economic architecture of Canada's future prosperity.
I also want to assure you that we are clear on our exit strategy from these fiscal measures. First of all, as I've mentioned before, Canada's budget was in surplus when the recession began, which is obviously an enormous advantage in exiting. Second, because our focus has been on rapid implementation of projects that could be launched immediately, we have made our funds time-limited. Stimulus spending will end in the second year, when we expect a robust recovery to be taking hold.
All this means that despite our large-scale spending, our deficit is one of the smallest in the developed world. Our debt-to-GDP ratio, which was the lowest in the G7 going into this recession by far, will be the lowest at the end of this recession, by far. In fact, it will be less than half the G7 average. While other countries will have to raise taxes and employ significant absolute reductions in government spending, our taxes will continue to fall while our budget balance gradually recovers. For example, we have been and will continue to be cutting the general corporate income tax rate, as was mentioned. It was 22 percent, over 22 percent in fact, when we took office. It is 19 percent today. It will be at 15 percent by 2012, and we will achieve the lowest overall tax rate in the G7 on new business investment by next year. On the personal tax side, Tax Freedom Day in Canada now arrives 20 days earlier than when our Conservative Government first came to office. In fact, the federal tax burden in Canada is falling to its lowest level in almost 50 years.
Our performance has vaulted Canada into ninth place in the World Economic Forum's national economic rankings this year, up from 13th place in 2007, now ahead of Britain, South Korea, Hong Kong and the Netherlands. These comparative financial, economic and fiscal strengths make Canada one of the most attractive places in the world to invest. In fact, I would argue, make it the platform from which to do business in North America in the coming generation. But they don't tell the whole story, the full story.
Canada does have other attributes worth mentioning. I could go on at length: our highly educated and mobile workforce, our culturally diverse yet harmonious society. But the one I do want to emphasize with you is our resource endowment, particularly in that most vital of resources, energy. Canada holds a vast storehouse of the energy resources that will fuel the next round of global growth. We are the world's seventh largest crude oil producer with the second largest proven reserves. We are the third largest natural gas producer, the third largest hydroelectric generator, the largest producer of uranium, and by far the largest supplier of all of these commodities to the United States. We are also - and this is important, because it is more than a question of volume - we are also an American energy supplier that is simultaneously growing, stable and market-oriented. In other words, we are not just critical to the volume of your energy, but to the security of your energy supply as well.
In short, Canada is emerging as an energy superpower, and through the Canada-U.S. Clean Energy Dialogue, we are working closely with the Obama administration going into the Copenhagen meeting on climate change. We want to also develop clean energy technologies and a North American approach on emissions reductions to ensure we are a green energy superpower as well.
Now, ladies and gentlemen, let me just conclude by observing that historically we Canadians have been known as a polite, quiet and self-effacing people, but in my view, as you may have noticed, this is no time for Canadians to hide our light under a bushel. A few months ago, The Economist magazine carried a headline calling Canada, quote, "A country that got things right." We have all suffered from the global economic recession, but Canada's management of its economy and its financial system is a success story of which we can be justifiably proud, and on which we can build. In other words, Canada got it right.
We are emerging from the global recession in a strong position, and our government is committed to the economic philosophy which is the basis of that strength. We are also equally committed to being a positive and productive contributor to the resolution of the economic and other challenges with which the world is confronted, and in all of those things, let me remind you that there is no relationship to which we are more committed and of which we are prouder than our relationship with the government and the people of the United States of America. So on that note, thank you once again for inviting me here this evening, to this great city.