Canadian Council of Chief Executives

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Fiscal Policy

The tough fiscal medicine that Canadians swallowed in the early 1990s produced impressive results, and Canada is now the best fiscally managed country in the G-7. Maintaining this fiscal health in an uncertain global environment requires prudence in planning, determination in reducing taxes and vigilance in the management of public spending.

Eight years of surpluses have reduced total federal debt by $63 billion, freeing up some $3 billion a year in savings on interest payments for more useful purposes. But debt service still soaks up 19 cents of every tax dollar. Further debt reduction would both reduce Canada's exposure to future global shocks and give governments greater capacity to sustain and enhance public services. The government should continue to aim for balanced budgets or better, to set aside significant contingency funds and to use prudent economic assumptions in planning. Its goal should be to reduce federal debt to less than 25 percent of GDP. Provincial governments should adopt similar debt reduction principles.
Canada has cut personal tax rates significantly since the highs of the early 1990s, and corporate tax levels have also fallen. Canada's overall tax burden, however, remains considerably higher than in the United States, our major competitor for people and investment. And Canada's tax mix is skewed toward taxation of income rather than consumption, which has a greater impact in reducing economic growth for each dollar of revenue raised. Canada therefore should consider changes to its tax mix while continuing to reduce overall tax rates.
As its fiscal balance moved into surplus, the federal government began to raise spending at an unsustainable rate. In just five years, from fiscal 1999/2000 to 2004/2005, the budget for direct program spending by federal departments grew 48 percent. Sustaining vital public programs such as health care and education will require taxes low enough to ensure solid and consistent growth in the economy, as well as concerted efforts to review existing government programs and reallocate money from those that have proven less effective or outlived their usefulness.
In October 2003, the CCCE's submission to the Standing Committee on Finance of the House of Commons recommended a multilevel process for continuous review of federal programs, policies and procedures. In addition to capping overall spending growth at a maximum of the rate of increase in Gross Domestic Product minus one percent (GDP-1), the CCCE called for the creation of an annual reallocation pool. Senior officials and ministers would be required to identify each year the least effective five percent of spending under their direction for inclusion in this pool. Even if limited to direct program spending (excluding transfers to provinces, Employment Insurance benefits and pensions) this "5 percent solution" would create a pool of more than $3 billion a year for reallocation to new and growing priorities.


Click for further information:	Home >> Fiscal and Tax Policy >> Fiscal Policy Fiscal Policy The tough fiscal medicine that Canadians swallowed in the early 1990s produced impressive results, and Canada is now the best fiscally managed country in the G-7. Maintaining this fiscal health in an uncertain global environment requires prudence in planning, determination in reducing taxes and vigilance in the management of public spending. Eight years of surpluses have reduced total federal debt by $63 billion, freeing up some $3 billion a year in savings on interest payments for more useful purposes. But debt service still soaks up 19 cents of every tax dollar. Further debt reduction would both reduce Canada's exposure to future global shocks and give governments greater capacity to sustain and enhance public services. The government should continue to aim for balanced budgets or better, to set aside significant contingency funds and to use prudent economic assumptions in planning. Its goal should be to reduce federal debt to less than 25 percent of GDP. Provincial governments should adopt similar debt reduction principles. Canada has cut personal tax rates significantly since the highs of the early 1990s, and corporate tax levels have also fallen. Canada's overall tax burden, however, remains considerably higher than in the United States, our major competitor for people and investment. And Canada's tax mix is skewed toward taxation of income rather than consumption, which has a greater impact in reducing economic growth for each dollar of revenue raised. Canada therefore should consider changes to its tax mix while continuing to reduce overall tax rates. As its fiscal balance moved into surplus, the federal government began to raise spending at an unsustainable rate. In just five years, from fiscal 1999/2000 to 2004/2005, the budget for direct program spending by federal departments grew 48 percent. Sustaining vital public programs such as health care and education will require taxes low enough to ensure solid and consistent growth in the economy, as well as concerted efforts to review existing government programs and reallocate money from those that have proven less effective or outlived their usefulness. In October 2003, the CCCE's submission to the Standing Committee on Finance of the House of Commons recommended a multilevel process for continuous review of federal programs, policies and procedures. In addition to capping overall spending growth at a maximum of the rate of increase in Gross Domestic Product minus one percent (GDP-1), the CCCE called for the creation of an annual reallocation pool. Senior officials and ministers would be required to identify each year the least effective five percent of spending under their direction for inclusion in this pool. Even if limited to direct program spending (excluding transfers to provinces, Employment Insurance benefits and pensions) this "5 percent solution" would create a pool of more than $3 billion a year for reallocation to new and growing priorities.
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