This article was originally published in the National Post January 26th 2012. To view this article and other related articles at the National Post website, please click here.
DAVOS, Switzerland — Addressing the World Economic Forum, Prime Minister Stephen Harper signalled his government will bring forward “major transformations” to the country in the coming months — in areas such as the retirement pension system, immigration, science and technology investment and the energy sector — while making a forceful case for pro-growth economic policies over entitlements.
Of those reforms, Harper said, getting a grip on slowing the rising costs of the country’s pension system is particularly critical.
In the wake of Harper’s speech, it now appears the Conservative government could be poised to gradually change the Old Age Security system so that the age of eligibility is raised to 67 from 65.
The opposition NDP and Liberals said that such a move would financially cripple millions of Canadians, and that at a time when world leaders were talking about addressing income inequality, the prime minister’s words indicated the opposite may happen in Canada.
Harper made the revelations in a major keynote speech Thursday at the World Economic Forum, the annual gathering of the world’s political and business elite.
As expected, the prime minister was critical of Europe and the United States for not adequately dealing with the economic problems that have gripped them in recent months and years.
But it was Harper’s assessment of the major changes that lie ahead for Canada that stood out in the speech.
“In the months to come, our government will undertake major transformations to position Canada for growth over the next generation,” said Harper.
The Conservative government will table a budget in the coming weeks that is expected to set the stage for years of deficit-slashing and government reform.
“Under our government, Canada will make the transformations necessary to sustain economic growth, job creation and prosperity now and for the next generation,” said Harper.
He said that means two things: “Making better economic choices now. And preparing ourselves now for the demographic pressures the Canadian economy faces.
Stephen Harper meets with Canadian businessmen at the World Economic Forum Thursday.
Harper said the country’s aging population has become a backdrop for his concern about how to keep the country strong over the long term.
“If not addressed promptly, this has the capacity to undermine Canada’s economic position and, for that matter, that of all western nations well beyond the current economic crises.”
Indeed, Harper said the country’s demographics — an aging population and a dwindling workforce — constitute “a threat to the social programs and services that Canadians cherish.”
For that reason, he said his government will “be taking measures in the coming months.”
Harper did not specify what those measures will be, but he said they are necessary — not just to bring the government’s finances back to a balanced budget in the medium term, “but also to ensure the sustainability of our social programs and fiscal position over the next generation.”
“We have already taken steps to limit the growth of our health-care spending over that period,” said Harper. “We must do the same for our retirement income system.”
Harper said the centrepiece of the public pension system — the Canada Pension Plan — is fully funded, actuarially sound and does not need to be changed.
But he added: “For those elements of the system that are not funded, we will make the changes necessary to ensure sustainability for the next generation while not affecting current recipients.”
So far, the government has come forward with a plan to create a private pooled pension system to encourage Canadians to prepare for their retirement.
Still, there are concerns that as baby boomers approach retirement, the cost to government of providing public pensions will skyrocket.
In December, the National Post reported that there was internal debate within the government about increasing the age of eligibility for the other major element of the public pension scheme — Old Age Security — to 67 from 65.
Internal government documents project the cost of the OAS system will climb from $36.5-billion in 2010 to $48-billion in 2015. By 2030 — when the number of seniors is expected to climb to 9.3 million from 4.7 million now — the cost of the program could reach $108-billion.
Among the other priorities where change is coming:
The Conservative government will make it a “national priority” to ensure the country has the “capacity to export our energy products beyond the United States, and specifically to Asia.”
“In this regard, we will soon take action to ensure that major energy and mining projects are not subject to unnecessary regulatory delays — that is, delay merely for the sake of delay.”
Harper did not explain what he has planned, although he and Natural Resources Minister Joe Oliver have complained that foreign-backed “radical” opponents of the $5.5-billion Northern Gateway project have threatened to slow down hearings by the National Energy Board.
The system faces “significant reform,” said Harper.
“We will ensure that, while we respect our humanitarian obligations and family reunification objectives, we make our economic and labour force needs the central goal of our immigration efforts in the future.”
The government will continue to make “key investments in science and technology” that are necessary to sustain a “modern competitive economy.”
“But we believe that Canada’s less-than-optimal results for those investments is a significant problem for our country.”
In future, he said, there will be changes to rectify that problem.
Harper expects to complete negotiations on a Canada-European Union free-trade agreement this year.
Furthermore, he said, his government is committed to also completing negotiations for a free-trade deal with India by the end of 2013.
And Canada will begin talks to become a member of the Trans-Pacific Partnership while also pursuing opportunities to trade in the emerging market of Asia.
NDP finance critic Peter Julian, speaking to reporters in Ottawa, called Harper’s speech “ominous words because we don’t have any details yet.”
Julian said the NDP wants to see the government increase spending on the OAS by $700 million per year, which the NDP says would make the system sustainable, rather than tell seniors they have to work for two more years before they can retire.
“That’s completely unacceptable. If he had run on that platform last May, he wouldn’t have the numbers he has in the House he has today,” Julian said.
The NDP and the Liberals said that increasing funding to the OAS could be financed by reining in spending on prisons and the F-35 fighter jet, which could cost anywhere between $16-billion and $30-billion, depending on who you ask.
“If he’s serious about the demographic shift, he should listen to evidence and invest in hospital beds, not prison beds,” said Liberal critic Scott Brison.
Brison said the government should make tax credits refundable for those in the lowest income brackets to help address income inequality in Canada.
“It would be a very regressive step to cut or restrict OAS at a time when income inequality is growing issue,” Brison told Postmedia News.
“Harper isn’t addressing income inequality.He’s proposing changes that would make it worse.”
The challenge to the government will now be selling whatever changes it plans to the pension system, something which has dogged previous prime ministers, said Errol Mendes, a politics experts from the University of Ottawa.
Brian Mulroney, months into his mandate, controversially decided to de-index pensions. After a senior confronted him, Mulroney backed away from the plan.
“I bet you (Harper) won’t talk about the OAS over here because there will be pictures of that woman saying ‘Goodbye Charlie’ to Brian Mulroney,”said Mendes, referring to the famous 1986 encounter.
Harper issued a scathing criticism of countries in the developed world, which he suggested had forgotten about the importance of creating economic growth.
“Is it the case that, in the developed world, too many of us have in fact become complacent about our prosperity?” Harper asked.
He suggested that developed countries had taken wealth “as a given . . . assuming it is somehow the natural order of things.”
As a result, he said, countries in the western world had become focused primarily “on our services and entitlements.”
As a result, he said, it’s not surprising that, in addition to banks facing debt, countries themselves were also facing sovereign debt crises.
The problem, he suggested, could be “too much general willingness to have standards and benefits beyond our ability, or even willingness, to pay for them.”
Harper warned that the wealth of western economies “is no more inevitable than the poverty of emerging ones.”
He said the problems afflicting Europe and the U.S. threaten to become even more serious in future.
“Each nation has a choice to make. Western nations, in particular, face a choice of whether to create the conditions for growth and prosperity, or to risk long-term economic decline.”
The solution, he said, is for countries to make the sometimes tough, but correct, decisions now.
“Easy choices now mean fewer choices later.”
Postmedia News with files from AFP
The full text of Mr. Harper’s speech is below
Thank you Professor Schwab for that kind greeting.
Professor, you have made the World Economic Forum an indispensable part of the global conversation among leaders in politics, business, and civil society.
And in the face of continuing global economic instability, the opportunity this gathering provides is now more valuable than ever.
So I know everyone here joins me in thanking you for, in service of the common good, your vision and your leadership!
My greetings to Ambassador Santi, to the governor of the Bank of Canada, known internationally as chair of the Financial Stability Board, Mark Carney, to our hard-working minister of international trade, Ed Fast, and to the best finance minister on the planet, Jim Flaherty.
And let me just say that I’m especially proud to see so many outstanding Canadian business leaders making their presence felt here in Davos.
Ladies and gentlemen, I will use my time today to highlight Canada’s economic strengths and to frame the choices we face as we work to secure long-term prosperity for our citizens in a difficult global environment, that is likely to remain so.
Forbes magazine ranks Canada as the best place on the planet for businesses to grow and create jobs.
The OECD and the IMF predict our economy will again be among the leaders of the industrialized world over the next two years.
And, one more cherished accolade, of course, is that for the fourth year in a row, this body, the World Economic Forum, says our banks are the soundest in the world.
These evaluations are the result of sound fundamentals.
Among G7 countries, Canada has the lowest overall tax rate on new business investment.
Our net debt-to-GDP ratio remains the lowest in the G7 — and by far.
And, while we remain concerned about the number of Canadians who are out of work, Canada is one of only two G7 countries to have recouped all of the jobs lost during the global recession.
Indeed, more Canadians are now working than before the downturn.
How was this achieved?
We made historic investments in infrastructure.
We encouraged businesses to invest and helped them to avoid layoffs.
We put substantial funding into skills training.
And we extended support for workers who lost their jobs.
These things we did on a timely, targeted and temporary basis.
We did not create permanent new programs or government bureaucracy.
As a consequence, our deficit is now falling, our debt-GDP ratio has already peaked and we do not need to raise taxes.
I should add, we also did not reduce immigration or give in to protectionism.
Instead, we have maintained the high levels of immigration that our aging labour force of the future will require.
We have continued to pursue new trade agreements.
And we have taken action to make Canada, among G20 countries, the first tariff-free zone for manufacturers.
We have pursued these policies, ladies and gentlemen, because our number-one priority as a government is prosperity, that is, economic growth and job creation.
Now, that may sound obvious, almost cliched.
But is it really?
As I look around the world, as I look particularly at the developed world, I ask whether the creation of economic growth, and therefore jobs, really is the number-one policy priority for everyone?
Or is it the case, that in the developed world too many of us have in fact become complacent about our prosperity, taking our wealth as a given, assuming it is somehow the natural order of things leaving us instead to focus primarily on our services and entitlements?
Is it a coincidence that as the veil falls on the financial crisis, it reveals beneath it not just too much bank debt, but too much sovereign debt, too much general willingness to have standards and benefits beyond our ability, or even willingness, to pay for them? I don’t know.
But what I do know is this.
First, that the wealth of western economies is no more inevitable than the poverty of emerging ones.
And that the wealth we enjoy today has been based on — and only on — the good, growth-oriented policies, the right, often tough choices and the hard work, done in the past.
And second, that regardless of what direction other western nations may choose under our government, Canada will make the transformations necessary to sustain economic growth, job creation and prosperity now and for the next generation.
That further means two things: Making better economic choices now, and preparing ourselves now for the demographic pressures the Canadian economy faces.
On what we must do now: First, we will, of course, continue to keep tax rates down.
That is central to our government’s economic vision.
But we will do more, much more.
In the months to come our government will undertake major transformations to position Canada for growth over the next generation.
For example, we will continue to make the key investments in science and technology necessary to sustain a modern competitive economy.
But we believe that Canada’s less than optimal results for those investments is a significant problem for our country.
We have recently received a report on this — the Jenkins Report — and we will soon act on the problems the report identifies.
We will continue to advance our trade linkages.
We will pass agreements signed, particularly in our own hemisphere, and we will work to conclude major deals beyond it.
We expect to complete negotiations on a Canada-EU free trade agreement this year.
We will work to complete negotiations on a free-trade agreement with India in 2013.
And we will begin entry talks with the Trans-Pacific Partnership, while also pursuing other avenues to advance our trade with Asia.
Of course, I will again be making an official visit to China very shortly.
We will also continue working with the Obama administration to implement our joint “Beyond the Border” initiative, our plan to strength and deepen our economic and security links to our most important partner.
However, at the same time, we will make it a national priority to ensure we have the capacity to export our energy products beyond the United States, and specifically to Asia.
In this regard, we will soon take action to ensure that major energy and mining projects are not subject to unnecessary regulatory delays – that is, delay merely for the sake of delay.
This complements work we are already doing, and that we will move forward on, with the Canadian Federation of Independent Business to cut the burden of red tape on entrepreneurs.
We will also undertake significant reform of our immigration system.
We will ensure that, while we respect our humanitarian obligations and family reunification objectives, we make our economic and labour force needs the central goal of our immigration efforts in the future.
As I said earlier, one of the backdrops for my concerns is Canada’s aging population.
If not addressed promptly this has the capacity to undermine Canada’s economic position and, for that matter that of all western nations, well beyond the current economic crises.
Immigration does help us address that and will even more so in the future.
Our demographics also constitute a threat to the social programs and services that Canadians cherish.
For this reason, we will be taking measures in the coming months.
Not just to return to a balanced budget in the medium term, but also to ensure the sustainability of our social programs and fiscal position over the next generation.
We have already taken steps to limit the growth of our health care spending over that period.
We must do the same for our retirement income system.
Fortunately, the centrepiece of that system, the Canada Pension Plan, is fully funded, actuarially sound and does not need to be changed.
For those elements of the system that are not funded, we will make the changes necessary to ensure sustainability
for the next generation while not affecting current recipients.
Let me summarize by saying, ladies and gentlemen, that, notwithstanding Canada’s many advantages, we remain very concerned about the continuing instability of the global economy of which we are a part.
The problems afflicting Europe — and for that matter the United States — are not only challenging today but, in my judgment, threaten to be even greater problems in the future.
Having said that, each nation has a choice to make.
Western nations, in particular, face a choice of whether to create the conditions for growth and prosperity, or to risk long-term economic decline.
In every decision – or failure to decide – we are choosing our future right now.
And, as we all know, both from the global crises of the past few years, and from past experience in our own countries, easy choices now mean fewer choices later.
Canada’s choice will be, with clarity and urgency, to seize and to master our future, to be a model of confidence, growth, and prosperity in the 21st century.
Thank you, ladies and gentlemen, for your kind attention.