A self-funded budget proposal, creating immediate stimulus to Canada's economy

I would institute the following four broad measures to provide immediate stimulus to Canada’s economy:

(1) Reverse the income trust tax, to restore the collection of taxes on corporate earnings, in amounts greater than is otherwise collected from these companies, while at the same time providing a means of retirement income for seniors and those saving for retirement. Such a measure would stimulate direct investment in the Canadian economy and provide Canadian companies with immediate access to much needed investment capital, and a low cost of capital competitive advantage.

(2) Institute personal tax reductions of $15 billion a year, targeted at low income and middle income Canadians

(3) Institute an increase in the GST rate from 5% to 7% effective, January 1, 2011, which represents $15 billion in additional annual tax revenue for the government, sufficient to fully fund the tax cut in (2) above. The effect of (2) will also be to put more money into the hands of consumers, and the effect of the two year holiday on the GST increase will mean that more of that increase in after tax income will be devoted to consumer expenditures, than would otherwise be the case, since the “ GST tax window” would accelerate large ticket purchases by consumers on items like cars, home renovation, appliances etc. The other obvious effect of these two measures is they would, in combination, avoid creating any ongoing structural deficit whatsoever.

(4) The remaining portion of any budget initiative that I would institute would be devoted to expenditures in infrastructure, with an emphasis on green infrastructure, such as investment in wind and solar and creating high speed rail links in places like the Windsor-Quebec City corridor. These projects would be done on a basis that allows for investment participation by Canadians through their personal savings and RRSPs, to the extent possible, rather than the type of Private-Public-Partnerships that Flaherty is contemplating, that (no doubt) will favour offshore investors like MacQuarrie Infrastructure Group (part owner of Flaherty’s 407 give-away). To the extent to which these infrastructure projects can be funded with investment by average Canadians, they will not create deficit spending by the government and again provide a means for average Canadians to invest in Canada, rather than simply offshore investors and those 25% of Canadians who belong to pensions.

Flaherty's about face

Flaherty's about face

How the finance minister went from $100-million surplus to $34-billion deficit in less than 60 days

By James Bagnall, The Ottawa CitizenJanuary 24, 2009

Finance Minister Jim Flaherty's sudden conversion to deficit financing is pure pragmatism. If the Conservatives spend too little, they could very well lose the next vote in Parliament -- and with it, the government. The change in tack has been made easier by the country's enviable financial strengths.

Jim Flaherty's epiphany came within days, perhaps hours, of his Nov. 27 economic statement. The finance minister had predicted five years of budgetary surpluses on the strength of continuing economic growth.

"The days of chronic deficits are behind us," he told Parliament. He was dead wrong, and by early December, he knew it.

Even as Mr. Flaherty was speaking, Canada's job and housing markets had slipped into reverse, energy exports were plummeting and the auto sector was a wreck.

More than 250,000 Canadians -- 1.5 per cent of the workforce -- are now expected to lose their jobs in 2009, according to economists at the TD Bank.

Which is why, on Tuesday, Mr. Flaherty will publish a budget that just two months ago he could not have imagined writing.

He is expected to show a spending shortfall of $34 billion for the fiscal year ending March 31, 2010, and another $30-billion gap the year after that -- the federal government's biggest deficits since the mid-1990s.

How did Mr. Flaherty and his fellow Conservatives not see the writing on the wall sooner? Hubris, optimism, disbelief? Maybe a little of each. There was also the influence of economists, the majority of whom did not begin forecasting economic recession until December.

Nevertheless, there were plenty of portents that something was profoundly amiss. The stock markets had collapsed in September, and the Bank of Canada had been intervening to support Canada's financial system since Aug. 9, 2007 -- when the closure of three subprime mortgage investment funds managed by BNP Paribas, a French bank, signalled the onset of the credit crunch.

Within hours of BNP's action, Canada had its own credit crisis as $32 billion worth of corporate notes, many of them created by Coventree, failed to find buyers. These and other asset-backed securities were converted to bonds only last week.

In 2007 and much of 2008, the consensus view among central bankers and politicians was that the credit contagion had been confined to the financial sector. But last fall the infection spread to the real economy.

Had the Conservatives moved to stimulate earlier, there's little question they could have helped to soften the downturn that began in the last months of 2008.

Mr. Flaherty is trying to make up for lost time. Up to $15 billion of the projected spending deficit for the current fiscal year reflects lower-than-expected tax revenues, according to calculations by Dale Orr, an economist with IHS Global Insight Inc. The rest represents the costs of Mr. Flaherty's stimulus programs.

The amount earmarked by Mr. Flaherty for extra spending will depend on its use. A massive program to refurbish bridges, highways and other infrastructure will take time to organize and implement, and will likely have to be spread over several years.

If the Tories decide the emphasis should be tax cuts or capital infusions to shore up the country's banks and federal lending institutions --such as the Export Development Corp. and Canada Mortgage and Housing Corp. -- then huge amounts can be allocated almost immediately.

Mr. Flaherty's sudden conversion to deficit financing is pure pragmatism. If the Conservatives spend too little, they could very well lose the next vote in Parliament -- and with it, the government.

The Tories' change in tack has also been made easier by the country's enviable financial strengths.

Until this year, Canada was the only major industrialized country with a government that spent less money than it took in. Not only that, government debt last year was slightly less than 30 per cent of the country's annual economic output -- down from nearly 70 per cent in the mid-1990s. This makes Canada the least indebted of the G-7 nations by a fair margin.

Even if Mr. Flaherty racks up more than $100 billion worth of cumulative deficits over the next five years, as he conceded this week is likely, Canada should readily be able to manage the extra debt load.

Of course, all of this pre-supposes that Canada's economy will grow again in the second half of 2009, as predicted Thursday by the Bank of Canada.

Is this realistic? One of the most unsettling parts of the global credit crisis has been its violent and unpredictable swings. Even now, more than two years after the United States' subprime mortgage lenders began filing for bankruptcy protection, no one

can say with any certainty whether we are most of the way through this mess, or just beginning to sort things through.

Independent economists have been frantically revising their forecasts as new pieces of intelligence emerge, each more depressing than the last.

A Bloomberg survey of 10 economists last October suggested Canada's economy would grow at an annual rate of 0.3 per cent during the fourth quarter of 2008.

Earlier this month, the consensus forecast had shifted dramatically. The same group predicted the economy had contracted 2.1 per cent in the fourth quarter, a performance that would now be followed by at least two more quarters of reduced economic output.

While mainstream economists often miss the turn into a recession, this one has been particularly difficult to chart accurately.

That's because the credit crisis is different. The recessions in the early 1980s and early 1990s were induced by central bankers keen to keep the economy from overheating. The Bank of Canada pushed interest rates so high that eventually consumers and corporations reined in their borrowing, and the economy slipped into reverse for several quarters.

In earlier recessions, re-igniting growth was relatively simple. The central banks cut interest rates, prompting a new round of borrowing by consumers and homeowners.

The Bank of Canada and its counterparts are applying the same fix, but to far lesser effect. That's because, in this case, the financial system itself is broken, and this is much more difficult to fix than the economy.

The root of the problem is that the financial industry created immensely complicated investment products -- securities based on mortgages and other assets -- that no one really understood, and which could not be properly priced.

When the housing markets weakened in 2007, there were few takers for these exotic investments. Since many of the latter were funded with short-term money (notes that matured in months, rather than years), the financial system very quickly froze.

That wasn't the only problem. Many of the finance industry's assets were on the books of a new class of quasi-banks, also known as the shadow banking system. Its members included hedge funds, investment banks, private-equity providers and non-bank mortgage lenders shared two common features. They were aggressive, and they aren't covered by deposit insurance.

At its peak, in 2007, New York investment bank Bear Stearns had $33 in loans for every $1 in bank capital -- three times the ratio maintained by the more conservative Canadian banks.

Once Bear Stearns acknowledged the weakness of its loan portfolio, investors began to doubt the firm's staying power. Bear Stearns was acquired for a pittance last March by Bank of America -- a regular, deposit-taking institution.

The unwinding of the shadow banking system has occurred with astonishing speed in the U.S. But investors, businesses and employees alike are still bracing for ugly surprises in the quarters to come -- all of it related to the ability of corporations to keep solvent.

When employers and lenders are busy preserving capital, they are not creating jobs or stimulating economic growth.

Mr. Flaherty and his advisers have no clear idea how long this dangerous phase of the economic cycle will last.

Should they have acted sooner to head it off?

Certainly there were many who warned that financial calamity was on the way. Robert Shiller, an economics professor at Yale University, warned in 2004 that a housing bubble was forming.

Raghuram Rajan, a professor at the University of Chicago's Booth Graduate School of Business, presented a paper in 2005 that concluded the world's financial systems were developing in a manner that exaggerated risk.

And Nouriel Roubini, an economics professor at New York University's Stern School of Business, has published a well-read blog for more than a decade, warning about the implosion of the financial services industry.

But their analyses failed to offer insight into how or when it might unfold, and indeed, their misgivings continued against the backdrop of ever-rising home prices, which peaked in 2006.

Mr. Roubini and Mr. Shiller were dumbfounded at the equanimity of investors in 2007, when the illiquidity of the shadow banking system first became apparent.

Perhaps it was central bankers' quickness in pumping liquidity into the system, or maybe it had to do with the fact no one really understood the makeup of the complicated securities that lie at the heart of the new financial universe.

"The financial system is so complex, non-linear and chaotic," wrote Niall Ferguson in The Ascent of Money, "it's hugely difficult to forecast the timing of financial crises."

Alan Greenspan, the former chairman of the U.S. Federal Reserve Bank, noted in his recently published biography that great improvements in technology, financial software and banking infrastructure had made it possible for the industry to tolerate significantly more leverage (debt).

"A surge above what newer technology can support, invites crises," he noted, "I am not sure where the tipping point lies."

What shocked Mr. Greenspan in the end was the puzzling refusal of the financial heavyweights to protect themselves against a worst-case outcome. Why didn't they keep enough liquidity on hand to safeguard the institution?

This is where Mr. Rajan could have helped Mr. Greenspan -- who happened to be in the room when the Chicago academic delivered his paper. Mr. Rajan warned the new world of finance was incorporating pay incentives that offered huge benefits to financial services executives in a rising market, but imposed a small penalty for making bad calls. Risks were being discounted, greed celebrated.

The stewards of national economies -- Canada's included -- were also infected by hubris.

The Western World's central bankers had steered the economy through a massive tech bubble, and had avoided a serious recession for nearly a generation. There was a widespread belief -- supported by blind hope -- that everyone would muddle through.

Canada's Conservatives, starting with their Finance Minister Jim Flaherty, now understand that's not the way it's going to be.

E-mail jbagnall@thecitizen.

canwest.com

This guy Mintz is extremely bizarre!

Yves Fortin comments on the recent bizarre article by Jack Mintz, he of forked tongue amd hypocritical logic:

Mintz now laments the low return on pension fund investment and fears this will threaten their ability to pay adequate pension to retirees. But this is the same guy who pushed Harper and Flaherty to destroy the sole high yield investment vehicle in Canada under the still unproven pretense of tax leakage, namely the income trusts. The destruction of income trusts has dealt a very severe blow to retirees and pension funds. The economic crisis is amplifying the destructive effect.

Moreover while Mintz often decries (correctly) the gross unfairness of double taxation of dividends, the Harper tax on income trusts that he encouraged, is making the problem even worse as it extends double taxation to trust distributions received by pension funds and RRSP/RRIF. In a similar manner, Harper and Flaherty often say (correctly) that we are paying too much tax. But their tax on income trust distributions constitutes a net tax increase and is making the problem of excessive taxation and unfair double taxation worse. Pensions funds and retirees are getting a double whammy.

The attack on income trusts is a total disaster for retirees and people nearing the age of retirement. Moreover , it could not have been introduced at a worse time for the Alberta oil patch where the oil and gas trusts are playing a very significant economic and financial role And then you have a hord of "analysts", "experts", "journalists", "professors" and politicians who regularly express deep concern about the rapid aging of the population and the financing of retirement, and in the same breath applaud Harper's destruction of income trusts. Are we hellbent on self destruction in this country?

Yves Fortin


Jack Mintz: The unbearable heaviness of pensions
Posted: January 23, 2009,

The average return on investments in bonds and equity is not sufficient to fund overly generous defined pension plan benefits paid to retirees By Jack M. Mintz

An issue quietly making it to the front burner as this global recession takes its toll on the Canadian economy is the viability of company defined benefit plans. These plans, providing workers with an annual pension — typically 2% of the average salary in their last five years times years of service — are becoming an albatross for many cash-constrained companies that are now facing a large funding shortfall.Some businesses might be pushed towards bankruptcy since financial institutions would be hard pressed to lend money to cover pension deficits. Federal and provincial governments are clearly worried since jobs could be lost, aggravating an already bad economy.

Recent financial distress is the current source of the problem. As one test, a defined benefit plan is in deficit on a solvency basis when its liabilities — the discounted (time) value of pension benefits paid to workers — are more than the market value of its assets.

This year’s market has blown up deficits to new highs. Not only have asset values declined sharply but the government bond rate used to discount future pension liabilities to today’s values has dramatically fallen as the Bank of Canada makes every effort to bolster the economy.

To soften the impact of pension plan deficits on contribution requirements, Jim Flaherty, federal finance minister, announced in his beleaguered December economic statement the extension of solvency funding payments from five to 10 years as well as some other proposals.

And just this month, a new federal study of pension plan solvency has been announced. Several provincial governments are expecting to take action. Quebec has been first with its promise to take over the management of insolvent private pension plans with a five-year guarantee of payments to pensioners.

An underlying question is whether defined benefit plans are needed. After all, a company’s promise to provide a pension at the end of a person’s life seems a bit odd these days with employees frequently quitting one firm to go elsewhere for new opportunities. Pension plans may be transferable to other plans or rolled over into a locked-in RRSP but the terms for withdrawals are less flexible compared to an ordinary RRSP.

Where defined benefit plans become important to workers is with respect to risk. Fully funded defined-benefit pensions paid to employees generally do not depend on the investment experience of the fund. Instead, employers, who are in better position, absorb investment risks inherent with pension funding. Risks could be avoided substantially if all retirement assets are invested in safe bonds but contributions to retirement savings would then need to be much bigger. The fact that employers are willing to take on risks through defined benefit plans is the main benefit to workers.

However, in recent years, legal and regulatory decisions have resulted in extra risk costs imposed on employers who became responsible for the deficits but not the surpluses that could be given to employees upon partial windups. These surpluses could arguably be used to fund future pension benefits, given the uncertainty inherent with actuarial valuation. Many defined benefit plans have therefore operated with small deficits for this reason.

Thus, with the recent economic shock to the Canadian economy, defined benefits typically running at small deficits are now in the tank. To solve the problem, only three actions can be taken – increase contributions, raise the interest rate to discount future pension liabilities or reduce benefits.

Employers and employees are pushing to relax regulations, such as by extending periods taken to fund the pension plan, reducing the solvency ratio (assets to liabilities) to a level such as 85%, or using a higher interest rate to discount future liabilities to avoid triggering payments to make up pension plan shortfalls.

These measures to relieve businesses from making larger contributions simply shift risks to the future without really solving the funding problem. The real message in all this: The average long-run return on investments in bonds and equity, net of transaction costs, is not sufficient to fund overly-generous defined pension plan benefits paid to retirees.

Other approaches have been considered. In the past decade or so, businesses have shifted from providing defined benefit pensions to other forms of retirement savings such as defined contribution pension plans and RRSPs held by workers. In both cases, the pension received by workers is based on the risky investment performance of the plan. Unless the assets are held in relatively safe bonds — thereby making them more expensive to fund retirement income — employees face significant risk depending on investment performance.

Unfortunately, new retirees are discovering how important risk is with current market conditions. It is not fun to find accumulated wealth being hammered by today’s stock and bond markets.

Some are also calling for government pension fund guarantees, government sponsorship of new funds or hikes in Canada/Quebec pension fund payments and payroll taxes.

These solutions only offload risk onto someone else. Of course, this has been the problem in financial markets in the past 15 years, with people thinking that risk could be avoided by spreading it through global financial markets. Instead, today we look at measures to pass risk to governments and taxpayers.

The one solution that could help defined benefit plans has escaped debate — lower pie-in-sky benefits. There is no free lunch.

Jack M. Mintz is the Palmer Chair of Public Policy, School of Policy Studies, University of Calgary.

Experts on CBC’s The National call for reinstatement of income trusts to solve our economic woes

Last night there was a segment on CBC’s The National where the experts who appear on the CBC show, Dragons Den, where asked to provide advice on how the government can best go about stimulating the economy. Jim Treliving founder of Boston Pizza, was the first to make the point that the Government’s killing of the income trust investment vehicle served to destroy and important form of capital investment. The other participants in the show all agreed and concluded that income trusts should be reinstated to revitalize and grow our economy at NO COST whatsoever to the government.

This person said it even better, here

Scrap the tax.....or scrap the government

Scrap the tax
Published: January 23, 2009 4:00 PM
Vernon Morning Star
BC Local News

With increasing job and stock market losses and decreasing home values, Canada needs positive and sustainable economic changes. I’ll gladly accept the interest rate cut you’re going to hand out next week but can’t help but think of other measures that could be taken that would provide Canadians with economic benefits that are more sustainable.

It seems almost all ideas about how to best stimulate our economy have been focused around the creation of new monies.

We all know that it was artificially low interest rates, and therefore excess new money creation (read: inflation), were one of the main reasons we are in the economic mess in the first place.

Creating even more new money to solve the problem of excess money creation will only be a band aid fix at best. The cocaine addict feels better moving to heroin but still has to pay the ultimate price sometime, ie: it’s not a sustainable fix.

I feel very strongly that eliminating the proposed new tax on income trusts would go a long way towards sustainable and positive economic growth.

Aside from putting more money in the pockets of Canada’s largest demographic, allowing income trusts to operate as they did would allow the small to mid-sized companies that make up the majority of the income trust space to grow and create new jobs.

It is very tempting at this point to go over all the sketchy details surrounding the proposed income trust tax that don't make sense.

I won’t go into detail here but, these are just a few of the concerns:

BMO Capital Markets study showing income trusts create more than twice the tax revenues compared to corporations

Lost capital gains, increased capital losses and lost distributed income taxes not reported

Most of the 18 pages of the government document showing apparent tax leakage being blacked out even though the document was requested under the Freedom of Information Act

The misrepresentation that Stephen Harper gave in his campaign to not tax income trusts

Regardless of those facts and many others, the question becomes: what can we do here and now to stimulate our economy, while preferably not creating even more inflation?

Providing Canadian retirees and pre-retirees with a sustainable source of monthly income that is generated from Canadian companies, that in turn would create more jobs and therefore an economic circle that would allow Canadians to take care of Canadians makes nothing but sense.

On behalf of all our clients and all investors across Canada I implore you to eliminate the proposed ‘Tax Fairness Plan’.

Canada is still one of the best countries in the world but I’m sure many around the world have joined Canadians recently in scratching their heads over decisions made over the last few years with our income trust debacle, Alberta royalty taxes and proposed coalition government etc.

Dramatic changes can only happen under dramatic circumstances.

These are dramatic times and I therefore propose a challenge to all Canadians: Write your local MLA’s, write your party leaders as well as the Finance Minister and Prime Minister.

Income trusts should never have been taxed in the first place but, unless we the people do something about it by taking action, nothing will change.

Trevor J. Perepolkin

TD Bank's CEO proffers up government backstop to investors, that doesn't actually exist?

Toronto-Dominion CEO ‘Wrong’ to Suggest Aid Guarantee

By Theophilos Argitis and Sean B. Pasternak

Jan. 23 (Bloomberg) -- Toronto-Dominion Bank Chief Executive Officer Ed Clark was “absolutely wrong” to suggest the bank had the implicit promise of a bailout under any circumstances, a senior Canadian government official said.

There are “no guarantees” for companies that make “stupid decisions,” said the official yesterday in Ottawa, who spoke on condition he not be identified.

Clark said Jan. 8 that preferred shares the bank was planning to sell were attractive because investors considered them effectively backed by a government guarantee. “Maybe not explicitly, but what are the chances that TD Bank is not going to be bailed out if it did something stupid?” Clark told investors at a conference in Toronto sponsored by RBC Capital Markets.

The government official’s response to Clark’s comments came just five days before Finance Minister Jim Flaherty releases his budget, which will include stimulus spending and measures to bolster the availability of credit to jolt the economy out of recession. The plan will include new powers for the government to inject capital into banks if necessary, Flaherty has said.

Flaherty has said access to credit is the No. 1 concern of business owners and last month blamed banks for not doing enough to increase lending.

New measures might include efforts to revive Canada’s market for short-term corporate debt and bolster credit for car purchases, Flaherty told reporters this month.

Already, the government is providing guarantees on more than C$200 billion ($162 billion) of bank debt and has pledged to buy as much as C$75 billion in mortgages from banks to free up cash for loans to consumers and businesses.

Clark told the conference this month that Canadian banks may stand alone among global lenders in not requiring government help.

“The base point Ed was making is that Canadian banks are in a position of strength, and he clearly credits the role the government has played in how the banks have fared on a global basis,” bank spokesman Simon Townsend in Toronto said in an e- mailed comment.

The government official said the financial support is aimed at industries “facing challenges,” and not intended as an “insurance policy” for badly managed companies.

Canadian banks have raised about C$9 billion in capital since the end of October through stock sales to bolster balance sheets amid the recession. The average profit at Canada’s six main lenders declined 37 percent for the year ended Oct. 31, driven lower by about C$14 billion in combined debt writedowns.

Toronto-Dominion has raised C$2.93 billion selling preferred shares, common shares and capital trust notes since October. The bank said it will raise as much as C$375 million from a preferred share sale announced yesterday.

Toronto-Dominion, Canada’s second-largest bank, fell 84 cents, or 2.1 percent, to C$38.83 at 4:16 p.m. in Toronto Stock Exchange trading. The stock has fallen 43 percent in the last 12 months.

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Sean B. Pasternak in Toronto at spasternak@bloomberg.net.
Last Updated: January 23, 2009 16:19 EST

Today's Ignatieff Speech: Moving Forward from Hardship to Hope

January 23, 2009
Check against delivery

Moving Forward from Hardship to Hope
The Canadian Club of Toronto and the Empire Club of Canada

Thank you Helen (Burstyn) for that warm introduction.

And thank you to Ucal Powell, Tony Iannuzzi and the members of the Carpenters’ Union for sponsoring this event.

The Carpenters’ Union was instrumental in proposing the country’s first national infrastructure program 15 years ago.

Of course, in those days, it was run by a Liberal government, so the funds were not just announced, they were actually spent – and they put people to work right away, not in a few years’ time.

I appreciate this opportunity to meet with both the Canadian Club and the Empire Club.

And it is always great to be in the riding of my friend of 40 years – Bob Rae.

I am pleased to be here, even if the President-elect of the Canadian Club, John Capobianco, ran against me in Etobicoke-Lakeshore. He was a worthy opponent, and I salute him as a man and as a citizen.

As I look around the room today, I believe that the audience is split fifty-fifty in terms of political support.

Half of you are big fans of Prime Minister Harper.

And the other half are huge supporters of … President Obama.

The Empire Club and the Canadian Club are institutions that have always mattered to my family.

My great-grandfather—a proud New Brunswicker named George Parkin—spoke to the club.

My grandfather—a Russian émigré named Paul Ignatieff—spoke to this club.
My Dad spoke to this club in 1969.

He said then: “Those to whom this opportunity is offered, I realize, have to be brilliant, or original, or both. Since there is difficulty in being brilliant when you are trying to be original, and being original when you are trying to be brilliant, I shall merely try to be informative.”

I’ve been travelling coast to coast with the leaders of my economic team—John McCallum and Scott Brison—holding town halls with business and union leaders, students, legislators, seniors, representatives of a wide range of communities, and Canadian citizens from all walks of life.

You can’t lead if you don’t listen. We’ve listened.

I have listened to heartfelt stories about lost jobs, small businesses on the edge, fears about paying for drugs for sick children, worries about having to go to the local food bank.

I have heard troubling questions.

How will I ever get my first job?

Have I seen my last job?

How do I tell loyal employees that we are closing down?

How will we help our kids with their college funds?

A large number of Canadians tell me: “Well, I’ll get by but I am worried about my neighbor … or my co-worker.

We’re a people who look out for each other.

We must not lose this.

Recessions can divide a country, make us mean, turn us selfish. We must not let that happen.

We need to take inspiration from each other. That inspiration is all around.
One day, I was standing on the platform at the Union Station subway stop when a woman came up and wished me luck.

I asked where she was from and she said Oshawa.

She was on her way to the YMCA for some job counselling. I asked why and she said: she was a tool and die maker and GM had let her go.

I said, “You must be worried” and she said, “You bet. I’m a single mom and I’ve got one kid in university and another finishing high school, and it all comes down to me.”

“But we’ll get there”, she said.

And with spirit like that, we will get there.

We will get there together.

I’m in politics to help that woman get there: get the job training she needs, get the next job, get her kids through university and make sure she has a secure and happy retirement with her grandchildren.

She needs a government as strong and resourceful as she is.

Those of us in elected office cannot fail her.

We need to stand together as a country.

We went into this time of turmoil together and we must come out together: more united, more competitive, more confident than ever.

I know we can.

We Liberals understand about leadership in tough times.

Canadians turn to us when times are tough.

Canadians remember.

Sound fiscal management, repeated surpluses, debt reduction, and tax cuts on profits, revenue and income. Strong financial performance and forward-looking social policies.

Canadians remember -- we cleaned up the $42-billion deficit left behind by the Mulroney years.

We slayed that deficit, but at a steep cost.

Today, Mr. Harper is taking us back to those tough Tory times.

Just yesterday, he signalled that we should be prepared for a $64-billion deficit in the next two years alone. He wants to get the bad news out of the way before the budget.

I asked Mr. Harper not to play games like that. I wanted him to put the facts and figures on the table, not let them slip out at his convenience. I think he just can’t help himself. He thinks it is all just some kind of game.

The release of this budget information is irresponsible and potentially costly to the economy.

And who knows how many years Harper is planning to be in deficit? He hasn’t shared that information.

What we do know is that it was a long, hard road to dig us out of a huge deficit after the last Tory government.

As we face the budget choices next week, I’ve been clear.

Targeted help to those Canadians who need help most is absolutely essential.

Broad-based tax cuts that dig us deeper into deficit are not.

This is not about gimmicks or politically popular moves.

It is about listening to the real needs of Canadians.

It is about trust.

It is about competence.

And this is an issue of political morality.

My generation should pay its own freight. We shouldn’t burden the next generation with debts we didn’t pay off.

If the government proposes a deficit, I want to see the plan that digs us out of it quickly. And I don’t want that plan based upon some unrealistic projections made up inside the Prime Minister’s Office. Trust Canadians with the truth.

Then show them competence.

When a Liberal government returned the country to surplus we set aside a contingency reserve – savings for a rainy day.

A $3-billion dollar cushion.

But this government had other ideas. They scrapped that reserve. They spent rashly. They cut taxes rashly. They brought Canada to the red line when times were good.

Now the cupboard is bare. We face hard times, headed towards a deficit which may top $100 billion before we see the other side of this.

Barely eight weeks ago, the government claimed there would be only a short recession and certainly no need to run a deficit.

How did Stephen Harper so completely misjudge the crisis before us?

In September, on the campaign trail, Mr. Harper said if we were going to have a recession, we probably would have had it by now.

In October, he told us there was still no recession, but there sure were “a lot of great buying opportunities emerging… as a consequence of all the panic.”

In all seriousness, that was Mr. Harper’s strategy.

Let the chips fall where they may, and if you can make a few bucks off the misfortune of others, good luck to you.

Then, on November 27th, in front of Parliament and all Canadians, the Conservative government put forward its economic update.

According to Mr. Harper, there would be a surplus.

He said that the right way to address Canada’s difficulties was to take away civil servants’ right to strike, attack pay equity for women, and stop public funding for political parties.

That was not a program. It was a provocation.

And we said: No you don’t. Back down. Think again. This isn’t a game. It is a recession with painful human consequences.

On Tuesday, we’ll all see whether the Prime Minister has learned to listen.
If he hasn’t learned to listen, he’s not going to lead for long.

But let’s not forget that that the real test of leadership is listening when it counts. Not waiting until the shop’s closed down to raise the alarm.

It also means getting your story straight, telling Canadians the truth and acting on economic reality and not political chicanery.

Mr. Harper has failed to tell Canadians the truth.

The truth is, we’ve lost more than 100,000 jobs in the last 60 days.

Yesterday morning, StatsCan reported that retail sales are falling further and sales for new cars are in sharp decline.

The unemployment rate for young Canadians is pushing 13 percent.

We don’t want a country where young people begin their working lives in the unemployment line.

And it’s not just those who can’t find work or who lose their jobs altogether.

At Canada’s largest steel company, Dofasco, thousands of employees were put on a two-week layoff over Christmas.

And as of January 1st, salaried employees are now working only four days a week.

How would any of us like to have started the New Year with a 20 percent pay cut?

It’s not just the workers in the blast furnace and the coke ovens, the recession is hurting every family in Hamilton.

It is hurting every family in Sudbury, The Soo, Windsor and Thunder Bay.
And the Canadians who work in the big bank towers here in downtown Toronto are just as uneasy.

That’s the truth.

This isn’t a central Canada recession. This is a Canadian recession.

The city in Canada that lost the most jobs last month was Calgary. Alberta is hurting, and when Alberta hurts, the whole country suffers.

The forestry towns of the B.C. interior are facing the collapse of the housing market.

In Saguenay, Lac St. Jean, Alcan is cutting jobs.

In Esterhazy, Saskatchewan, the potash mines are cutting back. Right across the country, millions of Canadians feel their futures hanging by a thread.
They know that unemployment is not just a statistic.

They know that unemployment is fear in your guts, worry that you are not going to be able to feed your family, fear that what’s happened to your neighbour is going to happen to you.

That’s the truth.

In hard times, Canadians expect compassion, understanding, and non-partisan action from their government.

That’s the truth.

Canadians expect their leaders to have a plan—a plan that responds to the challenges at hand, while laying the foundation for a better future.

A competent plan. A plan to manage the problems. A plan to lead the country.
This Conservative government has failed them.

By mismanagement or by design, Mr. Harper has weakened the capacity of the federal government to act in the face of turbulence and uncertainty.

Reckless spending and irresponsible tax policies have left Canadians’ jobs, savings, and pensions—and our nation’s future prosperity—hanging in the balance.

Canadians expect more. We deserve better.

We deserve better than a government that turned an economic crisis into a political crisis, and then into a national unity crisis.

We deserve better than a government that is the last in the G8 to come up with a plan for dealing with a crisis that the entire world saw coming.

And that’s the truth.

A key test of leadership is anticipating the future.

A train used to run through the centre of the little town in Quebec where I spent some summers, and my father once told me that if you put your ear to the rails, you could hear a train before you could see it.

And we did.

And you could.

And Mr. Harper didn’t.

Mr. Harper wasn’t listening. He didn’t have his ear to the rail, and he didn’t act.

Rather than get infrastructure money out the door and get Canadians working, this government let $2 billion of allocated infrastructure funding go to waste—unspent.

We don’t need funds that are never invested.

We need money flowing now.

We need to put people to work now.

The projects are approved and ready to roll.

The jobs are set to go.

Everyone has been primed for action for a long time – except for the federal government.

Instead, 44,000 construction jobs were lost in December.

The members of the Carpenters’ Union know that all too well. It’s tough during the holidays hiding the fact from your kids that you don’t know when you’ll see your next pay cheque.

On Tuesday, Mr. Harper and his ministers are going to promise the same infrastructure they’ve failed to deliver for the last three years.

The time for splashy re-announcements, simplistic promises and inappropriate spending—the hallmarks of Mr. Harper’s government—has passed.

This crisis demands that we use the power of our government to the fullest. It demands that we understand what our government can be—and what it should be.

Because it’s not just about infrastructure, it’s about infrastructure that builds the country, so that when we are through this recession we’ll be prouder, more united and more competitive than ever. Conservatives don’t understand that.
Liberals do. I do.

Conservative governments don’t build national institutions like medicare, a constitution, a flag, childcare, or the Kelowna Accord. Liberal governments do. And that’s what we need to do now.

We need to build a budget that looks forward, that binds our country together and makes us stronger today and much stronger tomorrow.

Canadians know that their standard of living has always depended on prudent investment in public goods. They are the ties that bind us together as an economy and as a people.

We need affordable housing, public transit, energy grids, high speed rail and programs to help lift many Canadians – and their kids – out of poverty.

We need to help protect the pensions and savings of senior citizens, so that retirement is a time of happiness and accomplishment not a time of anxiety and fear.

Mr. Harper has allowed this country to slip, to become less than the sum of its parts. Now’s the time to pull together, to invest wisely in the projects that bring us together and make this country more than the sum of its parts.

This crisis is testing our political system and those like me who have entered public life.

Canadians everywhere are asking politicians: raise your game, be equal to the hour.

The inauguration of President Obama shows us how one man putting himself at the head of millions can restore trust and restore faith in the political process.

We in Canada must do the same.

We do not need to drift with the tide.

We can act.

We can choose.

We can work to avoid the worst and search for the best.

We can rebuild the trust that has been broken and restore faith in our own country.

Canadians want a government that puts the country first.

Enough with the games. Enough with the attack ads.

Let’s try to do what’s right. I shall try to do what’s right for my country next week.

I will ask some tough questions of Mr. Harper when he presents his budget:

Will it help the needy?

Will it save jobs?

Will it create the jobs of tomorrow?

Will it be fair to all of Canada’s regions?

Will it burden our children with debt?

This is what a responsible Opposition does. And if the government fails, I am ready to lead. I do not seek office at any price. But I am ready.

My deepest instinct about this country is that we are strong, not weak.

We are united, not divided.

Determined, courageous, uncomplaining and resolute.

We have been, we are, and we will be an example to the world. We have been, we are and we will be a light among nations.

Now, in crisis, our light must shine.

We must seize the moment, as Canadians have done before.

The Royal York opened its doors in 1929. It was the tallest building in the Commonwealth and the only one in Canada with elevators.

When the stock market crashed a few months later, many thought the Royal York would close its doors. Many thought we would never again see tall buildings with elevators in Toronto.

Look at this city now. Look at this country now.

And imagine what can be.

We can jump-start job creation. Spur innovation.

We can lay the foundation for the economy of the future.

Protect the vulnerable, protect the jobs of today and create jobs for tomorrow.
That’s the essence of our national interest and the test that this budget must meet.

My job is not to let Mr. Harper skate by with a passing grade. That’s not acceptable. Not in these times. Not ever.

Now is the time to do better – so much better.

I want to appeal to the best in Canadians.

To their compassion, decency, respect for others, civility, hardiness, generosity of spirit, patience, persistence and idealism.

My party and I want to bring people together with common purpose and common enterprise.

To show courage and boldness, and revive the faith that people have in themselves and in their country.

To draw upon the resourcefulness of Canadians and ask them to be equal to the greatness of their land.

To forge long-term prosperity.

Strengthen our citizenship.

Strengthen our unity.

Rediscover our place in the world.

Canadians understand that the days ahead will be difficult.

But together, we can fill them with optimism and hope.

And our light will shine brighter.

Thank you.