The theme of my speech is simple and direct – much public policy debate seems to assume that Canada can take its prosperity for granted.  Politicians squabble about how to divide up the cake.  The truth is that you need to bake a cake first.

The issues facing Canada and the world are too important to be met with bromides, whether they come from the right or the left.  The massive destruction of jobs and wealth that has taken place in the last few years, the continuing instability and dysfunction in so many countries previously thought guaranteed to be prosperous, should force us to think more deeply and act more strongly.

The Liberal Party finds itself now in political opposition, facing a majority Conservative government.  Billie Holliday used to say that she’d been rich and she’d been poor, and rich is better.  Liberals can say that we’ve been in government and out of government, and being in government is better.  But we need to take advantage of our time in opposition to prepare for government next time.

There is remarkable resilience in the liberal idea.  A respect for the dignity and freedom of the individual.  A clear understanding that this dignity and freedom requires the rule of law and good government, respect for both private property and transparent and effective regulation.

In our historical experience these things came before the universal franchise, before full democracy, before the rise of what became known as the “welfare state”.

But we should never forget their core value.  One of the founding fathers of modern liberalism, Adam Smith, has often been seen as some kind of anarchist libertarian, as the proponent of self interest at all costs.

Nothing could be further from the truth.  Smith’s message is quite different – that open and transparent markets are there for the common good, that the creation of wealth both fosters and is dependent on education, good health, strong civil society, the rule of law, the protection of private property and a keen sense of something called “the public good”.  The pursuit of wealth and social justice are not enemies.

And all this now depends on sustainability – of the planet, of the air we breathe and the water we drink, of our businesses and our personal and public finances, of our ability to pass on something greater and better to future generations.
This in turn is held together not by force or tyranny, but by trust.  Trust is the basis of commerce, of our social dealings, of our politics.  We need to understand more deeply its value as we go forward.

For liberals, our enemy is not government, or business, or labour. It is ignorance, poverty, and hate.  We do not fear debate, or science.  We cherish enquiry, and difference of opinion, and we celebrate the freedoms that are necessary to get closer to truth.

We know that public opinion is the sea on which we sail, but we also know it changes, and that the currying of favour that goes by the name of “populism” often leads to bad decisions and short term thinking. To put it more bluntly, we don’t believe the voice of the people is always the voice of God, because we know opinion moves and changes.  We respect the public’s right to decide, and are unwavering in our passion for democracy, but coming to public judgment requires a leadership that is willing to confront mindless conformity.

There is another sea on which we sail, and that is the sea of the world economy and world markets.  Liberalism is a global idea.  Canada’s economy is part of a vast network of competing goods, information, turmoil, turbulence, innovation and change, where companies which were once trend setters are now facing bankruptcy, where technologies which seemed innovative are now surpassed and outdated, where countries which seemed to have the world by the tail are now struggling to meet their interest payments.  Tigers become tabby cats very quickly in this world, companies and countries which were trend setters and market dominators are now scrambling to achieve success.

We ignore the pace and extent of this change at our peril. it is a very human instinct to want to slow things down, to even want to stop the world and try to get off.  But it can’t be done.

Let’s get down to the policy basics in Canada.  We are a relatively small economy that has to be open.  The best focus for public policy is to invest in education, innovation, and the physical and human infrastructure that will make it most likely we shall succeed.  There are limits to how much we can spend, borrow, and tax.  Just as it’s true we can’t spend, borrow, or tax our way to sustainable prosperity, neither can we cut and chop our way there either.

The best approach is one that recognises that only a deep collaboration between government, business, and civil society will get us to where we need to go.  The tea party and the occupy movement are actually two sides of a coin, voices of anger, frustration, and resentment, which can’t be the basis of effective policy.

The original protagonists of the tea party in Boston were not saying that all taxes were bad or evil.  They were saying they wanted accountability and representation, better government, closer to them so they could see where and how their taxes were being spent.  The disenchantment with the excesses of greed and profiteering that have become the hallmark of selfishness gone wild should not lead us to the illusion that command and control economies can ever work over time.

Jim Flaherty recently told Canadians that Canada’s strength is a regulated banking system, a progressive tax system and a strong social safety net.  Liberals should take a bow.  He is paying tribute to us.  Let us remember that the Conservative Party has opposed everyone of these measures.  They opposed the medicare and the Canada Pension Plan, they voted against family allowances and the Canada Assistance Plan, just as they did the original Old Age Pension in the 1920’s.  They fought against the introduction of the Canadian flag and the Charter of Rights and Freedoms.  They may want to take credit for Canada’s position in the world but truth to be told it had nothing to do with them.

When it comes to Canada’s strengths today the Conservatives were born on third base and think they hit a triple.

But with their adherence to ideology, complacency, populism and partisanship we can rest assured the Conservatives will fritter away the Canadian advantage unless we convince them to change course.

Let’s remember the reality that the last Conservative government with a surplus took office almost exactly a hundred years ago, in 1911.  They inherited that one from Wilfrid Laurier, and it was quickly squandered. Mr Harper spent the Chretien/Martin surpluses long before the recession hit in 2008.

No doubt the Conservatives will say “but Bob Rae ran deficits in the nineties when he was Premier”.  Yes, true, facing the worst downturn in Ontario’s history next to the Great Depression.  Spending in Ontario went from 42 to 50 billion over five years.  Harper’s spending has gone from 170billion to 240billion and climbing.

But I don’t mind saying that the experience of governing has had a profound effect on my thinking about economics and politics.  If I thought that at its heart the New Democratic Party rejected the ideology of protectionism I would not have left it.  Innovation in both the private and public sector has to be a watchword, and I just don’t see it happening from a party which just can’t say good-bye to the Regina Manifesto.

The Liberal Party itself has to be willing to embrace change.  We have been the architects of an open Canada.  There is no turning back.  The country made an historic decision in the 1990’s to get our financial house in order, because a small, open economy like ours has no choice.  We resisted the siren calls to dismantle national regulation which came from the political right, and to ignore financial and fiscal realities which came from the wishful thinking side of the political left.  We got the books in shape, and (just as we did after the end of the Second World War) we began paying down debt, reinvesting in health, education, innovation and infrastructure and
cutting income taxes when we could afford it.

This was a huge achievement, which the Conservatives inherited, and in many ways have squandered.  They cut the GST, which was popular, but was the wrong tax to cut.  They spent lots of money when first elected to buy votes in the minority government.  They ignored China and Asia.  They paid no attention to manufacturing or regional issues.  They thought the good times would last forever, and made the error of assuming prosperity was theirs for the asking.  When world markets collapsed because of a toxic combination of greed and regulatory failure they pretended Canada would be fine and Mr Harper talked about “buying opportunities” in the market.  They didn’t see the recession coming and so responded late.  Without really understanding the mixed and fragile nature of the recovery they immediately turned to the mantra of de-regulation, cuts and austerity, ignoring all the signs of crisis and slowdown elsewhere in the world.

Liberals need to encourage now a national debate on how to make sure the Canadian economy performs better even in difficult times.  We need to challenge complacent assumptions.

We need a tax system that clearly steers us to innovation, growth, and a shared, sustainable prosperity.  Most would say that means shifting the tax burden away from payrolls, innovation, and job creation.  I would agree with them.  The negative effects of taxes on consumption can be offset by deeper income tax cuts and credits for people who are less well-off.

Employment insurance premiums – a tax by any other name – are now set to rise by — over the next two years.  The Conservatives and the NDP are keen to perpetuate the myth that a separate Employment Insurance Fund really exists, and its financing should be kept quite separate from the rest of the consolidated revenue fund.  Years ago the Auditor General dispelled this illusion, but it still beats strongly in the hearts of the far right and left alike.

We would be much better off as a country moving away from a payroll tax for employment insurance altogether, and accepting the reality that to have a system that automatically increases taxes in bad times and decreases them in good times is simply absurd.  Supporting people who are out of work is an ongoing expense, for both the federal government and the provinces.  Imagine the reaction if the provinces were to suggest today to employers and empoyees that a new payroll tax should be created to pay for the longer term unemployed who receive welfare assistance because their employment insurance benefits have run out.

If employment insurance was really “insurance”, we would insist that those industries and employees with a higher risk of unemployment should pay far higher premiums, which does not happen.  Make no mistake, payments to people who have no work is essential, and a hallmark of a decent society.  But how we pay for them should be the subject of a serious debate.

A second subject which immediately arises is the absurd complexity of the income tax code itself.  Like their other favourite statute, the Criminal Code, the Conservatives cannot resist tinkering with endless boutique tax credits and changes that respond to the flavour of the month politics that is now the hallmark of the political right.

These credits are rarely refundable, which means that those who really need help don’t get it.

What is true for individuals is equally true for companies.  The Income Tax Act has become a haven for loopholes and exceptions, which reward legal ingenuity but not necessarily the useful creation of work and opportunity.

Creating a simpler, clearer tax code should be our objective, rooted in the twin principles of progressivity and support for innovation.