If we want to get lower unemployment and more jobs, we need to attract capital and small companies. They are the engines of job creation and they are discouraged from coming to Canada because of the high tax rates. I wonder what the economic analysts foresee for monetary policy in Canada as the fiscal situation moves from deficits to potentially large surpluses and cuts in income taxes and as the economy closes the existing output gap. I think we are a long way from closing the output gap in Canada by the fourth quarter of 1998. At a 9.1 percent unemployment rate, we are far from full employment.
Inflationary pressures are much beyond short-term forecasting horizons.
Wage inflation is unlikely to develop before the unemployment rate reaches 7 percent, which will not occur until we have created another 800,000 to 900,000 new jobs. The Bank of Canada has now lost control of monetary policy because of concerns with the foreign exchange market. I think its forecast for 4 percent real economic growth is threatened by the developments in the money and foreign exchange markets. However, it is clear that if, against my expectation, Canada would have substantial fiscal surpluses, monetary policy would have to become easier. John McCallum I agree with Jeffrey Rubin that Canada is a long way from an output gap of zero.