Budget Plan Budget a Ire Eng Fs

8/7/2019 Budget Plan Budget a Ire Eng Fs

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Leading the Way onJobs and Growth

C A N A D A S E C O N O M I C A C T I O N P L A N

Y E A R 2

Tabled in the House of Commons

by the Honourable James M. Flaherty, P.C., M.P.

Minister of Finance

March 4, 2010

Tabled in the House of Commons

by the Honourable James M. Flaherty, P.C., M.P.

Minister of Finance

March 4, 2010

B U D G E T 2 0 1 0


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Her Majesty the Queen in Right of Canada (2010)All rights reserved

All requests for permission to reproduce this documentor any part thereof shall be addressed to

Public Works and Government Services Canada.

Available through your local bookseller or by mail fromPublishing and Depository Services

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Fax: 613-954-5779 or 1-800-565-7757 (Canada and U.S.A.)Internet: http://publications.gc.ca

Cat. No.: F1-23/3-2010EISBN: 978-0-660-19957-3

This document is also available on the Internet at www.n.gc.ca

Cette publication est aussi disponible en franais.


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Table of Contents

1 Budget 2010: Leading the Way on Jobs and Growth ................. 5

2 Recent Economic Developments and Prospects........................... 13

3 New Investments in Jobs and Economic Growth........................ 39

3.1 Delivering Year 2 of Canadas Economic Action Plan ............... 43

3.2 Sustaining Canadas Economic Advantage ............................... 59

3.3 Building on a Strong Economic Foundation ............................ 65

3.4 Supporting Families and Communitiesand Standing Up for Those Who Helped Build Canada ........ 123

3.5 Honouring Canadas International Commitments ................... 139

4 Plan to Return to Budget Balance and Fiscal Outlook............... 147

4.1 Plan to Return to Budget Balance ........................................... 151

4.2 Fiscal Planning Framework ...................................................... 169

5 Canadas Economic Action Plan:A Fifth Report to Canadians ...................................................... 193

Annexes

1 Job Impact of the Economic Action Plan to Date ........................ 269

2 Responsible Spending ................................................................. 289

3 Debt Management Strategy 20102011 ...................................... 307

4 Promoting Strong, Sustained and BalancedGrowth Through G20 Cooperation ........................................ 325

5 Tax Measures: Supplementary Informationand Notices of Ways and Means Motions ................................. 331


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1Chapter

Budget 2010Leading the Wayon Jobs and Growth


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Budget 2010Leading the Way on Jobs and Growth

IntroductionCanada has returned to economic growth following the deepest globaleconomic recession since the 1930s. The global recovery, however,remains fragile.

Budget 2010 aims to contribute to this recovery and sustain Canadaseconomic advantage now and for the future. The budget plan has threebroad aims.

First, it conrms $19 billion in new federal stimulus under Year 2 ofCanadas Economic Action Plan, to create and maintain jobs complemented

by $6 billion from provinces, territories, municipalities and other partners.

Second, it invests in a limited number of new, targeted initiativesto build jobs and growth for the economy of tomorrow, strengthenCanadian innovation, and make Canada a destination of choice fornew businessinvestment.

Third, Budget 2010 charts a course to bring Canadas nances backto balance over the medium term and well before any other Group

of Seven (G7) country.

By making timely investments that t rmly within the Governments long-term economic vision for Canada, and thanks to the resilience and ingenuityof Canadians, our country will emerge from the recession with a strongereconomic advantage than before.

The Canadian brand will be based on competitive taxes, renewedinfrastructure and skills, a strong head start in clean energy, a tariff

advantage, less red tape, and a more prominent voice as a global nancialsector leader.

Together, we will create a stronger Canada and a stronger economy, nowand for thefuture.


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Chapter 1

Delivering Year 2 of Canadas

EconomicActionPlanActions taken under Canadas Economic Action Plan have helped ensuretheworst of the global recession lies behind us.

However, while a recovery has begun, it remains fragile and too manyCanadians remain out of work. This is why the Government will followthrough on its commitment to Canadians and its G7 and G20 partners todeliver Year 2 of the stimulus plan.

Over the next

scal year, Year 2 of the Economic Action Plan will continueto maintain and create jobs, and help Canadian workers and families managethrough still difcult economic conditions, including:

$3.2 billion in personal income tax relief. This includes allowingCanadians to earn more income before paying federal income tax andbefore being subject to higher tax rates. It includes the enhanced WorkingIncome Tax Benet to strengthen work incentives for low-incomeCanadians. Tax measures for 201011 also include higher child benetsfor parents and lower taxes for low and middle-income seniors.

Over $4 billion in actions to create and protect jobs. This includesadditional Employment Insurance (EI) benets and more trainingopportunities to help unemployed Canadians through this difcult period,and help ensure they are equipped to re-enter the workforce and prosperin the future.

$7.7 billion in infrastructure stimulus to create jobs. This willmodernize infrastructure and support home ownership and improve socialhousing across Canada. This builds on the $8.3 billion investment in

infrastructure and housing delivered in 200910. $1.9 billion to create the economy of tomorrow. This investment

will help develop and attract talented people, strengthen our capacity forworld-leading research, improve commercialization, accelerate privatesector investment, enhance the ability of Canadian rms to participateinglobal markets, and create a more competitive business environment.

$2.2 billion to support industries and communities. This will supportadjustment and provide job opportunities in all parts of Canada that

have been hit hard by the economic downturn. It provides support foraffected sectors, including forestry, agriculture, small business, tourism,shipbuilding and culture. In addition, the proposed elimination of tariffson manufacturing inputs and machinery and equipment will encourageinvestment in the manufacturingsector.


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Canadians in all regions have already beneted from the implementation ofCanadas Economic Action Plan in year 1:

Over 12,000 of these projects have begun or have been completed.

220,000 jobs. The Action Plan is on track. It has contributed to thecreation of over 135,000 jobs recorded in Canada since July 2009.

At the same time, the Action Plan will advance the objectives set outin our long-term economic plan,Advantage Canada.

New Investments in Jobs and Economic GrowthIn addition to delivering Year 2 of Canadas Economic Action Plan,Budget 2010 introduces a limited number of new and targeted actionsto protect Canadians from the global recession and create the jobs andeconomy of tomorrow.

Jobs Protection and Youth Employment Measures

Budget 2010 invests in measures that will directly protect jobs. Thisincludes extensions to work-sharing and investments in training and skillsdevelopment for youth.

Creating Economic Growth and JobsThrough InnovationBudget 2010 builds on earlier investments with over $600 million overthreeyears to help develop and attract talented people, to strengthen ourcapacity for world-leading research and development, and to improve thecommercialization of research.

Encouraging Investment and Tradeto Create Jobs and GrowthBudget 2010 takes action to improve the environment for investment,enhance competition and reduce barriers for businesses. This includesmaking Canada a tariff-free zone for manufacturers, by eliminating allremaining tariffs on productivity-improving machinery and equipmentand goods imported for further manufacturing in Canada. This initiative,

when fully implemented, will provide $300 million in annual duty savingsto Canadian business.


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Chapter 1

Proposed improvements to the international tax system to attract newinvestment, cuts to red tape for businesses and increased competition

for telecommunications will also foster investment and create jobsfor Canadians.

Canada will emerge from the recession

with a highly competitive tax system

Green Jobs and GrowthBudget 2010 builds on Canadas position as an energy superpower withmeasures to encourage investments in energy projects and clean energy

generation. The budget also includes measures to preserve Canadas naturalheritage through environmental protection in the North and furtherprotection of the Great Lakes.

Modernizing Canadas InfrastructureBudget 2010 strengthens the Governments commitment to rebuildCanadas aging infrastructure by making priority investments in projectsdesigned to ensure that Canadians have access to safe and effective

transportation. This includes support for the operations of Atlantic ferryservices, investments in federal bridges and new funding for aviation security.


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Strengthening the Financial SectorCanadas nancial sector has been widely acknowledged as being one ofthe strongest in the world. Budget 2010 will further strengthen the sectorby moving forward with the majority of provinces and territories toward aCanadian securities regulator, extending access to nancing for Canadianbusinesses, and enhancing disclosure and nancial institutions businesspractices to better protect consumers.

Supporting Families and Communities and

Standing Up for Those Who Helped Build CanadaBudget 2010 also introduces measures to support single parents and persons

with disabilities, makes investments to assist Aboriginal Canadians and theircommunities, and provides support for participation in sport. Budget2010also recognizes those who helped build our country, with measures formilitary families, investments to recognize the efforts of veterans, andadditional support for seniors.

Honouring Canadas International CommitmentsCanada is a global leader and continuously demonstrates this by honouringits international commitments. The importance of accountability forpromises will be a dening feature of Canadas G8 and G20 Summit year.Budget 2010 fullls Canadas commitment to double international assistanceby increasing the International Assistance Envelope by $364 million,bringing it to $5 billion in ongoing annual support.

The Three-Point Plan to Return

to Budget BalanceThe actions taken by the Government over the last two years are working.Stimulus measures are maintaining and creating jobs and securing theeconomic recovery. As the economy improves, the Government will refocusits attention on its long-term economic plan. The cornerstone of this plan isa return to balanced budgets.

Budget 2010 outlines a three-point plan for returning to budget balance

once the economy has recovered.

the Economic Action Plan. Temporary measures in the Action Plan willbe wound down as planned.


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Chapter 1

measures. Towards achieving this objective, Budget 2010 proposes

$17.6billion in savings over ve years.

ofgovernment administrative functions and overhead costs in order toidentify opportunities for additional savings and improve service delivery.

The Government will not raise taxes and will not cut major transferstopersons and other levels of government.

As a result of the expiration of the Economic Action Plan and the measures

in this budget, the decit is projected to decline by almost half over the nexttwo years to $27.6 billion in 201112, and by two-thirds to $17.5 billion in201213. In 201415, the decit is projected to be $1.8 billion.

Canadas scal health is the envy of the world. The Government is fullycommitted to sustaining our scal advantage.

Rapid decline in decits

Chart 1.1

Federal Budgetary Decit

billions of dollars

Source: Department of Finance.

5.8

53.8

49.2

27.6

17.5

8.5

1.8

0

10

20

30

40

50

60

20082009

Actual

20092010

20102011

20112012

20122013

20132014

20142015


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Recent EconomicDevelopmentsand Prospects

2Chapter


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Recent Economic Developments and Prospects

Highlights

The global economy has begun to stabilize after undergoing adeep and synchronized recession, which stemmed from the worstglobal nancial crisis since the 1930s.

With support from the extraordinary measures in CanadasEconomic Action Plan, the Canadian economy has startedto recover.

Canada has weathered the global recession better than allothermajor industrialized countries, reecting several important

nancial, economic and

scal strengths. Canadian labour markets have fared much better than in theU.S.,

where job losses to date have been proportionately morethanthree times as large as in Canada.

Domestic demand in Canada has also rebounded more stronglythan in all other Group of Seven (G7) countries since thebeginning of 2009.

While unemployment remains a concern, the rise in the

unemployment rate has been smaller than was initially forecastby private sector forecasters.

The Department of Finance conducted a survey of private sectorforecasters in December 2009. In early February, private sectorforecasters met with the Minister of Finance to discuss theeconomic forecast from the survey as well as the risks associatedwith that forecast.

The average private sector economic forecast from theDecember2009 survey forms the basis of the Governmentsscalplanning.

The use of private sector forecasts introduces an element ofindependence into the Governments economic and scal forecast.

This chapter incorporates data available up to and including March 1, 2010, unless otherwiseindicated. All rates are reported at annual rates unless otherwise noted.


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Chapter 2

Over the short term, the average private sector economicforecasthas improved somewhat since the September 2009

Update of Economic and Fiscal Projections. Private sectorforecasters expect the Canadian economic recovery to buildmomentum through2010.

Private sector forecasters have not materially changed theirmedium-term outlook since the September Update. Over themedium term, the level of uncertainty surrounding the outlookhas declined since the Update but remains high.

The average private sector forecast from the December surveyprovides a prudent basis for scal planning.


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IntroductionThe global economy has begun to stabilize after undergoing a deep andsynchronized recession, which stemmed from the worst global nancialcrisis since the 1930s. Since then, global nancial markets have improvedand condence is returning, leading to a tentative resumption of globaleconomic growth.

Reecting these positive developments, together with the impact ofCanadas Economic Action Plan and signicant monetary policy stimulus,economic activity in Canada has also strengthened. The near-termoutlook has improved since the Governments September 2009 Updateof Economic and Fiscal Projections. Both gross domestic product (GDP)and employment have increased, and private sector economists continue tobelieve that the recovery will gain momentum through 2010. However, theeconomic recovery is expected to be modest, and uncertainty surroundingthe economic outlook remains elevated.

This chapter reviews the major global and Canadian economic developmentssince the September 2009 Update, describes the private sector economicforecast that forms the basis for the scal projections, and discusses the risks

and uncertainties surrounding this economic outlook.

Financial Market DevelopmentsThe global nancial crisis of late 2008 and early 2009 resulted in apronounced tightening in credit conditions worldwide, which hadsignicant impacts on global economic activity. Global nancial conditionshave improved considerably since early 2009 due to the extraordinarypolicy measures introduced by governments and central banks to support

the nancial system worldwide. Wholesale borrowing costs of banks havedeclined, and spreads between corporate and government bond rateshave narrowed considerably (Chart 2.1). World equity markets have alsorebounded strongly over the past year, with most major benchmark indicesrising between 50 per cent and 65 per cent since March 2009.

While global nancial conditions have improved markedly over the pastyear, they have yet to fully normalize. In some markets, credit conditionsremain relatively tight in terms of both the availability and price of credit,

particularly at longer maturities.


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Chapter 2

In Canada, nancial conditions were less affected by the global nancialcrisis than in most other countries. Wholesale bank borrowing costs rose

much less in Canada and improved faster than in other countries, whilecorporate bond rate spreads remain below those of the U.S. and Europe.As a result, credit growth in Canada has remained solid, mainly due tocontinued strong household credit growth. Business credit growth isshowing some signs of stabilization after decelerating in late 2008 and mostof 2009 due to the impact of the recession on both the demand for andsupply of credit. A continued recovery in bond and equity market nancingshows that businesses have greater access tocapital.

Financial market conditions haveimproved signicantly since early 2009

Jan2007

Jul2007

Jan2008

Jul2008

Jan2009

Jul2009

Jan2010

Jan2007

Jul2007

Jan2008

Jul2008

Jan2009

Jul2009

Jan2010

Long-Term Corporate Spreads

basis points

Notes: The spreads are the difference betweencorporate and government bond yields witha maturity between 7 and 10 years. Weekly dataup to and including February 19, 2010.

Source: Merrill Lynch.

Chart 2.1

Short-Term Financing Spreads

basis points

Notes: These spreads are a measure of banksfunding costs relative to a risk-free rate andare a gauge of nancial market stress andbanks nancing pressures. The rate on theovernight-indexed swap (OIS) is used as aproxy for expected overnight rates. LIBOR isthe London Interbank Offered Rate. CDORis the Canadian Dealer Offered Rate. Dailydata up to and including February 19, 2010.

Source: Bloomberg.

0

100

200

300

400

500

600

Canada (CDOR-OIS)

U.S. (LIBOR-OIS)

Euro area (LIBOR-OIS)

Canada

U.S.

Euro area

Lehman Brothersbankruptcy

Asset-backedcommercial paper crisis

0

100

200

300

400

500

600

700


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The U.S. dollar has depreciated by about 10 per cent on a trade-weightedbasis since March 2009 against a broad group of currencies. This, together

with higher commodity prices, has contributed to an appreciation ofabout 20 cents in the Canadian dollar relative to the U.S. dollar since thebeginning of March 2009, peaking at US97.5 cents on January 14, 2010(Chart 2.2). The Canadian dollar has accounted for a large share of thebroad depreciation of the U.S. dollar.

The Canadian dollar has borne the brunt

of the broad depreciation of the U.S. dollar

Chart 2.2

Exchange Rate

US cents/C$

Contribution to U.S.-Dollar

Trade-Weighted DepreciationWeek of March 6, 2009 to week ofFebruary 19, 2010

per cent

Canada Mexico Japan UnitedKingdom

Australia ChinaEuroarea

Note: Daily data up to and includingFebruary 19, 2010.

Source: Bank of Canada.

Note: The U.S. nominal trade-weighted exchangerate is an index of the U.S. dollar's value relativeto the currencies of its 37 most importanttrading partners.

Sources: U.S. Federal Reserve; Departmentof Finance calculations.

Jan2008

Jul2008

Jan2009

Jul2009

Jan2010

70

75

80

85

90

95

100

105

0.20

5

10

15

20

25

30

35


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Chapter 2

Global Economic Developments

and OutlookThe global economy began to expand in the second half of 2009, supportedby extraordinary policy stimulus. The policy-induced recovery, in turn, hasled to a recovery in global trade and an end to the inventory liquidationcycle. Nonetheless, the recovery in most advanced economies is expectedto be weak by historical standards.

The recovery remains fragile in advanced economies. Most of the advancedeconomies emerged from recession in the third quarter of 2009, although

the recovery in some countries appears to have stalled in the fourth quarter,primarily within the euro area. Most major industrialized economies areexperiencing weaker domestic demand growth than overall GDP growth. Inthese countries, the economic recovery is led by export growth and an endto the cycle of inventory liquidation. Canada is unique in that the economicrecovery is being led by strong domestic demand growth.

After having previously contracted for ve consecutive quarters, real GDPin the euro area recorded a second consecutive modest increase in the

fourth quarter of 2009 (0.4 per cent). However, growth in a number ofmember countries, including Germany and Italy, was at or negative inthe fourthquarter. Real GDP grew 1.1 per cent in the United Kingdom inthe fourth quarter of 2009 after having contracted for six quarters. Aftera year-long recession, real GDP in Japan has expanded in two of the lastthreequarters, including a 4.6-per-cent increase in the fourth quarter.

The economic recovery is strongest in emerging and developing countries,led by Asian economies, particularly China, where massive scal stimulus has

buoyed domestic demand. This in turn has supported a recovery in globaltrade. Despite the severe global downturn and the disruption of trade,theChinese economy grew 8.7 per cent in 2009, including a 10.7-per-cent

year-over-year increase in the fourth quarter of 2009, the fastest pace intwoyears.

Looking forward, the forces currently driving the recovery in advancedeconomies are expected to gradually weaken, as positive contributions togrowth from inventories diminish and as the impact ofscal stimulus fadestoward the end of 2010 and early 2011. A sustained recovery will requireincreased support from private sector spending. The International MonetaryFund (IMF) expects global economic activity to grow by 3.9 per cent in2010 and 4.3 per cent in 2011, led by developing Asian countries andChina (Chart 2.3).


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The expected rebound is relatively modest compared to previous recoveries,especially given the sharp drop in output last year. Based on the IMF

outlook, the output lost during the recession is not expected to be recoupedover the medium term. The IMF outlook suggests that the level of globalGDP will be about 7.5 per cent lower in 2014 than it would have beenifpre-recession trends had continued. This loss reects the view thatthelevel of activity prior to the crisis was unsustainably high, as it wasbasedon excessive risk taking, an unsustainably low cost ofnancing, andrising leverage.

Modest global recovery led by Asia, but output loss notexpected to be recouped

Source: IMF, World Economic Outlook Update(January 2010).

Sources: IMF, World Economic Outlook(October 2009) and World EconomicOutlook Update (January 2010);Department of Finance calculations.

Chart 2.3

IMF World Real GDP

Growth Outlook

per cent

IMF World Real

GDP Outlook

index, 1994 = 100

-4

-2

0

2

4

6

8

10

12

World Emergingeconomies

Advancedeconomies

DevelopingAsia

China

2009

2010

2011

125

135

145

155

165

175

185

195

205

215

225

2001 2004 2007 2010 2013

Actual

Forecast

Trend

7.2%

Average annual growth from2001 to 2007 = 4.4%

7.4%


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Chapter 2

United StatesEconomic growth in the United States has resumed. This follows a peak-to-trough decline in real GDP of 3.8 per cent, which has resulted in arecord loss of 8.4 million jobs (or 6.1 per cent of U.S. jobs) and left theunemployment rate at 9.7 per cent, near a 26-year high (Chart 2.4). RealGDP rose 2.2 per cent in the third quarter of 2009 and accelerated to asix-year high of 5.9 per cent in the fourth quarter. Final domestic demand inthe U.S. remains weak, growing by only 1.6 per cent in the fourth quarterand accounting for less than a third of overall growth in the quarter.

The depreciation of the U.S. dollar since March 2009 and the continued

improvement in global growth have supported the U.S. trade sector. Inthe fourth quarter of 2009, these developments were accompanied by asubstantial rebound in inventory investment from very low levels, resultingin signicantly stronger U.S. growth than was anticipated by private sectorforecasters in theDepartment of Finance December 2009 survey.

U.S. recession has led to record

employment losses

Source: U.S. Bureau of Labor Statistics. Source: U.S. Bureau of Economic Analysis.

Chart 2.4

U.S. Payroll Employment

millions, cumulative change

Contribution of Final Domestic

Demand to U.S. Real GDP Growth

period to period at annual rates

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

Jan2008

May2008

Sep2008

Jan2009

May2009

Sep2009

Jan2010

-8

-6

-4

-2

0

2

4

6

8

2008Q1

2008Q3

2009Q1

2009Q3

Contribution from nal domestic demand(percentage points)

Real GDP growth (per cent)


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However, the unexpectedly strong growth in the fourth quarter has notsignicantly altered the quarterly private sector outlook for 2010, since

fourth-quarter growth mainly reected a large temporary contribution frominventories. In December, private sector forecasters expected real GDPgrowth to average about 3 per cent through 2010, reecting still-modestprivate domestic demand growth, the gradual withdrawal ofscal stimulustoward the end of the year, and the winding down of the temporary boostprovided by the end of the inventory liquidation cycle (Chart 2.5).

There remains considerable uncertainty surrounding the U.S. outlook dueto high U.S. unemployment and ongoing deleveraging, as well as large

U.S. decits and rising public debt.

Modest economic recovery expected in the U.S.

Chart 2.5

U.S. Real GDP Growth Outlook

per cent, period to period at annual rates

Sources: U.S. Bureau of Economic Analysis; Department of Finance December 2009 surveyof private sector forecasters.

-8

-6

-4

-2

0

2

4

6

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

Actual

December 2009 private sector forecast

2009Q4

Actual: 5.9%Private sector forecast: 3.1%


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Chapter 2

Canadian Recent Economic Developments

The global recession did not start within Canadian borders. Nevertheless,the Canadian economy has been signicantly affected by the globaleconomic recession. However, reecting several important nancial,economic and scal strengths, Canada has been able to weather the crisisbetter than all other major industrialized countries. Indeed, Canada wasthe last G7 country to enter recession. These strengths, together withthe extraordinary measures provided by Canadas Economic Action Plan,helpedCanada emerge from recession in mid-2009.

The economic recovery in Canada strengthened over the second half

of 2009, with real GDP increasing 0.9 per cent in the third quarter and5.0 per cent in the fourth quarter. The resumption of positive economicgrowth followed three quarters of negative growth in Canada, beginningin the fourth quarter of 2008. Over the course of the recession, the levelof real GDP declined by 3.6 per centsimilar to the decline in output thatoccurred during the recession of the early 1990s. However, the decline inCanadian real GDP was virtually the smallest of all G7 countries (Chart 2.6).

Canada has fared better than virtually all otherG7 countries during the global recession

Chart 2.6

Overall Contraction in Real GDP During the Recession

per cent

Note: The overall contraction in GDP is measured by the peak-to-trough decline in real GDP in each country:2008Q2-2009Q3 for United Kingdom; 2008Q2-2009Q2 for Italy; 2008Q2-2009Q1 for France, Germany andJapan; 2008Q3-2009Q2 for United States; 2008Q4-2009Q2 for Canada.

Sources: Statistics Canada; U.S. Bureau of Economic Analysis; Japan Cabinet Ofce; U.K. Ofce for NationalStatistics; Deutsche Bundesbank; Institut national de la statistique et des tudes conomiques; Istitutonazionale di statistica.

-3.6-3.5-3.8

-6.2-6.4

-6.7

-8.4

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

France Canada UnitedStates UnitedKingdom Italy Germany Japan


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Several factors account for Canadas ability to weather the global recessionbetter than most other industrialized countries. First, Canadas banks and

other nancial institutions were better capitalized and less leveraged thantheir international peers. In the corporate sector, debt-to-equity ratios werevery low going into the recession and have increased far less than in othercountries since the start of the nancial crisis.

In the household sector, net worth relative to personal disposable incomedeclined signicantly less than in many other countries. This reects thefactthat Canada entered the global recession without the type of majorhousing market imbalances that were present in many other advancedeconomies at the time, and as a result, Canadian house prices declinedfarless than elsewhere.

More recently, there are broad signs of recovery in the Canadianhousing market, with resale housing activity and prices returning back topre-recession levels. Canadas housing market remains healthy and stable. Asrecently conrmed by the IMF, our housing market is supported by soundeconomic factors such as low interest rates, rising incomes and a growingpopulation. Moreover, mortgage arrearsoverdue mortgage paymentshave remained low both during and after the recession. The Government has

taken proactive steps to maintain the long-term stability of Canadas housingmarket. The rules for government-backed insured mortgages have beenadjusted to help Canadians prepare for higher interest rates, to ensure homeownership is an effective way to save, and to limit speculation.


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These strengths, together with low interest rates and the substantialsupport provided by Canadas Economic Action Plan, have supported a

recovery of domestic demand in Canada. Since the start of 2009, naldomestic demand in Canada has grown signicantly faster than in anyother G7 country (Chart 2.8). The higher level of domestic economicactivity led the resumption of Canadian GDP growth in the second half of2009. Strong domestic demand growth in Canada was partly offset by a

weak export performance over much of 2009, reecting weak demand fromour major trading partners, particularly the United States, and the impact ofthe appreciation of the Canadian dollar.

Final domestic demand in Canada grew signicantly

faster than in any other G7 country over 2009

Chart 2.8

Real Final Domestic Demand Growth from 2009Q1 to 2009Q4

per cent

1 Data for 2009Q4 for Italy is based on Moodys Economy.com Global Outlook published on February 23, 2010.

Sources: Statistics Canada; U.S. Bureau of Economic Analysis; Japan Cabinet Ofce; U.K. Ofce for NationalStatistics; Deutsche Bundesbank; Institut national de la statistique et des tudes conomiques; Istitutonazionale di statistica; Department of Finance calculations.

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Canada UnitedStates

France Japan Italy1 Germany UnitedKingdom


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Chapter 2

The recovery of domestic demand in Canada has been broad-based andprovides strong evidence that the Economic Action Plan is working.

Growth in real consumer spending on goods and services averaged morethan 3.5 per cent over the second half of 2009. Residential investment hasalso rebounded strongly, supported by the Home Renovation Tax Credit,increasing 9.5 per cent in the third quarter and 29.7 per cent in the fourthquarter, following double-digit declines at the onset of the recession. Thesedevelopments have been accompanied by a swift recovery of consumer andbusiness condence to historical norms (Chart 2.9).

Consumer and business condence

have rebounded sharply over the past year

Business Condence

index, 2002 = 100

Source: The Conference Board of Canada.

Chart 2.9

Consumer Condence

index, 2002 = 100

Source: The Conference Board of Canada.

50

55

60

65

70

75

80

85

90

95

100

105

110

Jan

2005

Jan

2006

Jan

2007

Jan

2008

Jan

2009

Jan

2010

Historical averageHistorical average

65

70

75

80

85

90

95

100

105

110

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

The Economic Action Plan has also substantially increased funding forinfrastructure. Government investment in infrastructure increased by25.1 per cent in the third quarterthe largest increase in nearly a decadeand 16.3 per cent in the fourth quarter, contributing signicantly to thebroader recovery of domestic demand. A more detailed analysis of the

impact of the Economic Action Plan on the Canadian economy is presentedin Annex 1.


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The price of Canadian-produced goods and services has also reboundedfrom the lows of early 2009, increasing by 3.4 per cent in the third

quarter and 4.5 per cent in the fourth quarter. These increases have largelyreected a recovery of Canadas terms of trade, as world prices for Canadiancommodities have rebounded after declining sharply during the globalrecession. These price gains, combined with an increase in the volume ofoutput in the last two quarters, led to a rebound in nominal GDP growth.

After three consecutive quarters of decline, nominal GDP increased by4.3 per cent in the third quarter and 9.8 per cent in the fourth quarter.

Reecting the improved economic performance of the Canadian economy

over the second half of 2009, labour market conditions have improvedmarkedly since early 2009. In particular, over 135,000 jobs have beencreated in Canada since July 2009. As a result, the unemployment ratehas declined modestly from the peak of 8.7 per cent reached in mid-2009.However, at 8.3 per cent in January 2010, the unemployment rate remainsof concern.

The Economic Action Plan is on track to meet its

objective of maintaining or creating 220,000 jobs

One objective of the Economic Action Plan was to maintain or create220,000 jobs by the end of 2010. The Action Plan is on track. In therst year of implementation, an estimated 130,000 jobs have beencreated or maintained as a result of the Economic Action Plan. Inaddition, over160,000Canadians are beneting from the work-sharingprogram (seeAnnex 1). Overall, this has contributed to the net creationof over 135,000 jobs recorded in Canada since July 2009.

Canadas labour market performance has been signicantly stronger thanin the United States (Chart 2.10). Since the start of the U.S. recession inJanuary 2008, employment in the U.S. has declined by 8.4 million jobs,or 6.1 per cent. In contrast, since the start of the Canadian recession inOctober 2008, employment has declined by 1.6 per cent. This means that

job losses in the U.S. have been proportionately more than three times aslarge as in Canada. The unemployment rate in the U.S. has exceeded thatin Canada for almost one and a half years, and over the last ve months the

difference has averaged 1.6 percentage points. The last time the Canada-U.S. unemployment rate gap was so large was in the mid-1970s. Canadasrelatively better labour market performance compared to that of the U.S.reects Canadas later entry into recession as well as the relatively earlystabilization of Canadian domestic demand in 2009.


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30

Chapter 2

The Canadian labour market has been signicantly

stronger than in the U.S.

96

98

100

102

104

106

108

Jan2005

Jan2006

Jan2007

Jan2008

Jan2009

Jan2010

Canada

U.S.

Sources: Statistics Canada; U.S. Bureauof Labor Statistics.

4

5

6

7

8

9

10

11Canada

U.S.

Chart 2.10

Unemployment Rate

per cent

Sources: Statistics Canada; U.S. Bureauof Labor Statistics.

U.S. entersrecession

Canada entersrecession

Jan2005

Jan2006

Jan2007

Jan2008

Jan2009

Jan2010

Total Employment

index, January 2005 = 100

Commodity PricesCommodity prices have rebounded solidly from the sharp declinesobserved in late 2008 and early 2009. In particular, crude oil prices havenearly doubled since February 2009, while base metal prices are up over70 percent over the same period, reecting the improvement in global

economic and nancial conditions and the global outlook (Chart 2.11).Forestry prices have also increased since February 2009, in line with signsof stabilization in the U.S. housing market. Moderate gains were seen innatural gas prices over the period, despite a temporary decline in mid-2009reecting strong production and weak U.S. industrial demand.

As a result, prices for many commodities are now close to levels observedat the time of the October 2007 Economic Statement. Crude oil futurescontracts suggest prices will continue to increase modestly in coming

months, averaging US$81 per barrel in 2010, up from an average ofUS$62 per barrel in 2009. Futures contracts also suggest natural gas prices

willaverage US$5.39 per MMBtu in 2010 compared to US$3.95 in 2009.


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31


There remains considerable uncertainty surrounding the outlook forcommodity prices over the near term, reecting high inventory levels for

most commodities and risks surrounding the pace and timing of the globaleconomic recovery. However, most experts expect commodity prices tocontinue to increase as the global economic recovery continues togain strength.

Prices for key Canadian commodities

have rebounded since early 2009

Change in Commodity Prices

(in U.S. dollars)

February 2009 to February 2010

Chart 2.11Commodity Prices

(in U.S. dollars)

index, 1997 = 100

Note: February 2010 based on data up toand including February 19, 2010.

Sources: Commodity Research Bureau;Department of Finance calculations.

Note: February 2010 based on data up toand including February 19, 2010.

Sources: Commodity Research Bureau;Department of Finance calculations.

0 25 50 75 100

Agriculture

Preciousmetals

Natural gas

Forestry

Base metals

Crude oil

Total

75

100

125

150

175

200

225

Jan2002

Jan2004

Jan2006

Jan2008

Jan2010

50

150

250

350

450

550

650Total (left scale)

Non-energy (left scale)

Energy (right scale)

per cent

index, 1997 = 100


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32

Chapter 2

Canadian Economic Outlook

Private Sector ForecastsThe Department of Finance regularly surveys private sector economicforecasters on their views on the outlook for the Canadian economy.The economic forecasts reported in this budget, and which form thebasis of the Departments scal forecasts, are based on a survey thatclosed on December18, 2009 and includes the views of 15 privatesector economicforecasters.

The December 2009 survey of private sector forecasters included Bank

of

America Merrill Lynch, BMO Capital Markets, Caisse de dpt etplacement du Qubec, CIBC World Markets, The Conference Board ofCanada, Desjardins, Deutsche Bank of Canada, Laurentian Bank Securities,Global Insight, National Bank Financial, Royal Bank of Canada, Scotiabank,TD Bank Financial Group, UBS Warburg, and the University of Toronto(Policy and Economic Analysis Program).

The use of private sector forecasts introduces an element of independenceinto the Governments economic and scal forecast.

Private sector economists continue to believe that the recovery will gainmomentum through 2010. The short-term private sector economicforecast is now stronger than at the time of the September 2009 UpdateofEconomic and Fiscal Projections. Forecasts for both GDP andemployment have been revised up.

Over the medium term, the December average private sector outlook callsfor a moderate economic recovery and a gradual improvement in labourmarket conditions. This is expected to be accompanied by an increase ininterest rates and a stabilization of consumer price ination near themid-point of the Bank of Canadas ination target band (Table 2.1).

The private sector forecast for the unemployment rate in 2010 has beenrevised down again. In May 2009, private sector economists were forecastingan unemployment rate of 9.2 per cent for 2010. The forecast was reviseddown to 9.0 per cent in the September Update and then to 8.5 per centinthe December survey.


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33


Table 2.1

Average Private Sector Forecast

2009 2010 2011 2012 2013 201420092014

(per cent, unless otherwise indicated)

Real GDP growth

January 2009 privatesector forecast -0.8 2.4 3.4 3.1 2.9 2.6 2.3

September 2009 Update -2.3 2.3 3.2 3.3 3.0 2.7 2.0

March 2010 budget -2.5 2.6 3.2 3.0 2.8 2.6 2.0

GDP ination



March 2010 budget -2.1 2.2 2.1 2.2 2.1 2.0 1.4

Nominal GDP growth


Budget 2009 planning -2.7 4.3 6.4 6.1 5.3 5.0 4.1


March 2010 budget -4.6 4.9 5.4 5.3 4.9 4.7 3.4

Nominal GDP level(billions of dollars)

January 2009 privatesector forecast 1,590 1,657 1,751 1,847 1,940 2,031

Budget 2009 planning 1,560 1,627 1,731 1,837 1,935 2,031

September 2009 Update 1,527 1,590 1,674 1,768 1,862 1,955

March 2010 budget 1,527 1,601 1,688 1,778 1,865 1,953

3-month treasury bill rate

January 2009 privatesector forecast 0.8 1.7 3.2 4.0 4.3 4.4 3.1

September 2009 Update 0.4 0.8 2.5 3.9 4.2 4.3 2.7March 2010 budget 0.3 0.7 2.4 3.8 4.3 4.4 2.6

10-year government bond rate


September 2009 Update 3.3 3.8 4.4 4.9 5.1 5.2 4.5

March 2010 budget 3.3 3.7 4.3 4.9 5.2 5.3 4.5

Exchange rate (US cents/C$)


September 2009 Update 86.7 91.9 95.2 96.1 97.1 96.5 93.9March 2010 budget 87.9 95.5 98.3 97.7 99.3 98.5 96.2


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34

Chapter 2

Table 2.1 (contd)

Average Private Sector Forecast

2009 2010 2011 2012 2013 201420092014

(per cent, unless otherwise indicated)

Unemployment rate



March 2010 budget 8.3 8.5 7.9 7.4 6.9 6.6 7.6

Consumer Price Index ination



March 2010 budget 0.3 1.7 2.2 2.1 2.1 2.1 1.7

U.S. real GDP growth



March 2010 budget -2.5 2.7 3.0 3.4 3.1 2.9 2.1

Note: March 2010 budget gures for 2009 are from the December 2009 survey of private sector forecastersand have not been adjusted to include data released since December 18, 2009.

Sources: Budget 2009; September 2009 Update of Economic and Fiscal Projections; Department of FinanceJanuary 2009, August 2009 and December 2009 surveys of private sector forecasters.

As the global economy continues to stabilize following the deepest recessionsince the 1930s, the uncertainty surrounding the medium-term outlookhas diminished signicantly since the September Update. The differencebetween the average of the three highest and three lowest forecasts forthe level of nominal GDP in 2013 is $54 billion, down from the record$98-billion difference at the time of the September Update. However, the

gap still remains high by historical standards, reecting the still-fragile globaleconomic recovery and the inherent difculty in providing a medium-termforecast (Chart 2.12).


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35


The uncertainty surrounding the medium-term outlook

has diminished but remains high

1,780

1,800

1,820

1,840

1,860

1,880

1,900

1,920

1,940

Source: Department of Finance December 2009 survey of private sector forecasters.

Average of three lowestforecasts: $1,844

Average of three highestforecasts: $1,898

Average$1,865

$54 billiondifference,down from$98 billion inSeptember 2009

Chart 2.12

Private Sector Forecast Distribution of Nominal

GDP Level in 2013

billions of dollars

Risks to the Private Sector ForecastOn February 2, 2010, the Minister ofFinance met with private sectoreconomists to discuss the economic forecast from the December 2009survey as well as the risks associated withthose projections.

The forecasters were of the view that the short-term growth outlookwas likely to be stronger than suggested by the December survey givena numberof positive economic developments since the survey closed onDecember 18th. However, the private sector forecasters also expressedconcerns about the risks to economic growth over the medium term. Inparticular, they noted that a sustained recovery in the global economy,particularly in the United States, and in nancial markets may take somemore time to fully materialize. At the same time, many forecasters notedthatmedium-term risks to the outlook were to some extent incorporated

inthe average private sector forecast.


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36

Chapter 2

Since the meeting with the private sector forecasters, their views on upsiderisks to the short-term growth outlook have largely materialized. At the time

of the December 2009 private sector survey, forecasters expected realGDPgrowth of 3.4 per cent and nominal GDP growth of 5.6 per cent in thefourth quarter of 2009 (Chart 2.13). Both real and nominal GDP growthin the fourth quarter, released by Statistics Canada on March 1, 2010, werestronger than expected. Private sector forecasters expectations for real GDPgrowth were more than 1.5 percentage points lower than actual real GDPgrowth of 5.0 per cent, while expectations for nominal GDP growth weremore than 4percentage points lower than actual nominal GDP growthof 9.8percent, reecting higher real GDP growth as well as signicant

increases in commodity prices. If sustained, this would representa $14-billion increase innominal income in each year of the forecast.

Real and nominal GDP growth in the fourth quarter of 2009

were stronger than expected by private sector forecasters

0

1

23

4

5

6

7

8

9

10

Real GDP Nominal GDP

Chart 2.13

GDP Growth in 2009Q4

per cent, period to period at annual rates

Sources: Statistics Canada; Department of Finance December 2009 survey of private sector forecasters.

December 2009 private sector forecast

Actual


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37


Over the medium term, private sector forecasters, on average, expectthe level of real GDP in Canada between 2009 and 2014 to be about

$95billion lower each year compared to what they were expecting at thetime of the October 2007 Economic Statement, just before the beginningofthe U.S.recession.

The medium-term average private sector forecast for GDP ination isnearly identical to the forecast for Consumer Price Index (CPI) ination.GDPination, which is the broadest measure of price changes for goodsandservices produced in Canada, tends to be broadly in line with CPIination when the terms of trade is stable. The terms of trade, which is the

ratio of export prices to import prices, is inuenced by movements in theexchange rate and commodity prices. The close similarity of GDP and CPIination in the average private sector forecast is consistent with broadlyunchanged terms of trade and commodity prices over the next ve years.

Fiscal PlanningThe average private sector economic forecast from the December 2009survey forms the basis of the Governments scal planning. The Department

of Finance considers that this economic forecast is a prudent basis for

scalplanning. The scal outlook is presented in Chapter 4.


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New Investmentsin Jobs andEconomic Growth

3Chapter


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41

New Investments in Jobs and Economic Growth

IntroductionBudget 2010 takes actions in three broad areas, all of which contribute tothe overarching objective of sustaining Canadas economic advantage.

First, the Government will follow through on its commitments to Canadiansand its G7 and G20 partners to complete the implementation of CanadasEconomic Action Plan. These investments will maintain and create jobs now.

Second, Budget 2010 invests in a limited number of targeted initiatives thatbuild jobs and growth for the economy of tomorrow by improving skills,innovation, and our competitiveness.

Third, Budget 2010 charts a course to bring Canadas nances back tobalance over the medium term and well before any other G7 country.

This chapter reviews the $19 billion in new federal stimulus measures thatwill take effect in 201011 under Canadas Economic Action Plan, as wellas new actions Budget 2010 is proposing to build jobs and growth forthe future. Chapter 4 reviews actions to reduce the decit and return tobalanced budgets. Chapter 5 provides a detailed report on the status of

implementation of Canadas Economic Action Plan.

41


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Delivering Year 2of Canadas EconomicAction Plan

$19 Billion in New Stimulus in 201011

3.1


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46

Chapter 3.1

Canadas Economic Action Plan is a two-year $62-billion plan to protectand create jobs in response to the deepest global recession since the

SecondWorld War. Chapter 5 describes the full Action Plan andreports on the Governments progress in its implementation. This sectionbriey reviews the main elements of the Action Plan that will be in effectfor 201011.

In the rst year of the Action Plan (200910), a signicant amount ofstimulus has been provided to support the economy and Canadians.TheGovernment is ready to begin delivering Year 2 of the Economic

ActionPlan. The Action Plan will continue to maintain and create jobs,

and help Canadian workers and families manage through still difculteconomic conditions. Year 2 delivers $19billion innew federal stimulusspending, with an additional $6 billion in stimulus fromprovinces,territories, municipalities and other partners. Evenbefore the start of thescal year, 92 per cent of Year2funding is committed and ready to bedelivered. This includes:

the

unemployed.

acrossCanada.

Actions under theEconomic Action Plan that come into effect in201011 are describedbelow.


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48

Chapter 3.1

Canada will have the lowest corporate income tax

rate in theG7 in 2012

Chart 3. 1.1

Corporate Income Tax Rates in 20121

per cent

1 Includes national and sub-national corporate income tax rates.

Sources: Organisation for Economic Co-operation and Development; Department of Finance.

CanadaPrior toBudget

2006

CanadaUnitedKingdom

UnitedStates

France GermanyJapan Italy

15

20

25

30

35

40

45

These lower tax rates help us and companies like us keep more capital at

work and achieve our priority in reinvesting in the business for future growth in

our company.

Tim Hortons Chief Financial Ofcer Cynthia DevineCanada Regains Tims Bragging Rights,

Edmonton Journal, September 23, 2009


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49

New Investments in Jobs and Economic GrowthDelivering Year 2 of Canadas Economic Action Plan

Tax Achievements Since 2006

The Government has reduced taxes on individuals, families and businessesby an estimated $220 billion over 200809 and the following ve scal years.

The Governments tax reduction efforts began in 2006well before theintroduction of Canadas Economic Action Plan.

Individuals and families at all income levels are beneting from tax relief, withproportionately greater savings for those with lower incomes. For example:

income taxare beneting from the 2-percentage-point reduction in

the Goods and Services Tax (GST) rate. Maintaining the GST creditlevel while reducing the GST rate by 2 percentage points translatesinto more than $1.1 billion in GST Credit benets annually for low- andmodest-income Canadians.

includes reducing the lowest personal income tax rate to 15 per centfrom 16 per cent and increasing the basic amount that Canadians canearn without paying federal income tax.

and enhanced in the Economic Action Plan will provide $1.1 billioncombination with other tax relief introduced by this Government, hasof many low-income Canadians.

through a exible, registered general-purpose account that allowsCanadians to earn tax-free investment income while saving for theirindividual needs such as for a car, a home or retirement. The TFSA isthe single most important personal savings vehicle since the introductionof the Registered Retirement Savings Plan (RRSP).

The Government has also introduced measures targeted to help families,communities. Examples of such measures include:

raisingchildren.

bursary and fellowship income in support of academic studies.

Income Credit and two $1,000 increases to the Age Credit amount,which provide substantial tax savings to seniors and pensioners.

expenditures such as home computers, uniforms and supplies.


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50

Chapter 3.1

Tax Achievements Since 2006 (contd)

nancial security and well-being of children with severe disabilities.

among children.

Canadas business tax system more competitive, which is essential toencouraging new investment, growth and job creation in Canada.

Examples include:

general corporate income tax rate from 22.12 per cent (including the

reduced federal income tax rate to $500,000 effective January 2009,following an earlier increase to $400,000 from $300,000as well asa reduction of the federal income tax rate applying to qualifying smallbusiness income to 11 per cent effective January 2008.

of assets, including non-residential buildings, computers, railwaylocomotives, carbon dioxide pipelines, natural gas distribution pipelines,and liqueed natural gas facilities, to better reect their useful lifethisboth reduces the tax burden on investment and ensures neutral taxtreatment of different capital assets, encouraging investment to ow toits most productive uses.

was introduced to encourage provinces to eliminate their generalcapital taxes and to eliminate or replace their capital taxes on nancialinstitutions with a minimum tax. All provincial general capital taxes willbe eliminated by 2012.

research and development performers, which was announced in 2008.

The expenditure limit for the enhanced refundable Scientic Researchand Experimental Development Investment Tax Credit was increased

access to this bene

t over increased taxable capital and income ranges.


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51


Actions to Create and Protect Jobs and

Help the UnemployedWhile the unemployment rate has stabilized and there are signs thatthe economy is improving, too many Canadians are still unemployed. In201011, Canadas Economic Action Plan will provide more than $4 billionin additional benets, training opportunities and Employment Insurance(EI) premium relief to help unemployed Canadians through this difcultperiod, and help ensure that they are equipped to re-enter the workforceandprosper in the future.

The Government is providing $1.6 billion in 201011 to strengthenbenetsfor the unemployed. This support includes providing up to anextra ve weeks of EI regular benets for all EI-eligible claimants, providinggreater access to EI regular benets for long-tenured workers, and extendingthe duration and the scope of the work-sharing program.

The Government is providing almost $1.0 billion in 201011 to enhancetraining opportunities for all Canadian workers. This includes additionalsupport to the provinces and territories to expand training and skills

development. It also includes helping youth to gain work experience andnecessary skills and offering more opportunities to Aboriginal Canadians.

The Government is maintaining the freeze of the EI premium rate at$1.73per $100 of insurable earnings to the end of 2010the lowest ratesince 1982 (Chart 3.1.2). In Budget 2009, this action was estimated toleavemore than $1.6 billion in the hands of employers and employees in201011.

When the temporary freeze of EI premiums is lifted in 2011, premium rateswill be set by an independent armss length Crown corporation, the CanadaEmployment Insurance Financing Board (CEIFB). Under the EI nancingregime announced in Budget 2008, the CEIFB will set EI premium ratesin order to balance the EI program over time, subject to a 15-cent limit onannual changes. Consistent with the Governments commitment inBudget 2009, the CEIFB will not be mandated to recover any EIdecitsresulting from the benet and training enhancements announced inBudget2009.


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52

Chapter 3.1

Freeze in EI premium rate leaves money in the

hands of employers and employees in 201011

Chart 3. 1.2

Employment Insurance Premium Rates

$ per $100

20102000 2001 2002 2003 2004 2005 2006 2007 2008 2009

1.00

1.25

1.50

1.75

2.00

2.25

2.50

EI rate freeze at $1.73


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53


Actions to Create and Protect Jobs

Canadas Economic Action Plan is a $62-billion stimulus plan aimed at creatingto meet its objective, with 130,000 jobs created or maintained to date.

providingthem with additional benets and expanded access to training

Strengthening Benets$2.7 Billion

Enhancing Availability of Training$1.9 Billion

Employment Insurance Premium Rates$2.4 Billion

ofinsurable earnings for 2010


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54

Chapter 3.1

Building Infrastructure to Create JobsDuring 201011, communities, businesses and individuals from acrossCanada will continue to see the benets of infrastructure investmentsunder Canadas Economic Action Plan. The Action Plan will provide$7.7 billion in stimulus in 201011 to modernize infrastructure, supporthome ownership, stimulate the housing sector and improve social housingacross Canada. This builds on the $8.3 billion in infrastructure and housingstimulus delivered in 200910.

In 201011, the Economic Action Plan will invest more than $4 billionin provincial, territorial and municipal infrastructure, $285million inFirstNations community infrastructure and $780 million in priority federalprojects. These investments will create jobs and ensure that Canada emergesfrom the economic downturn with a more modernand greenerinfrastructure.

In addition, the Economic Action Plan will provide over $2 billion in201011 to renew Canadas social housing stock. This funding providessignicant support for provinces, territories and municipalities to renovatetheir social housing, including housing for low-income seniors and

persons with disabilities. The Action Plan also invests in First Nationsandnorthernhousing.


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55


Infrastructure investments will continue

to create jobs over the coming yearIn 200910 and 201011, the Government will deliver the followinginfrastructure programs as part of the Economic Action Plan:

Immediate Action to Build Infrastructure$8.2 Billion

Initiative$441 million

$500 million

Stimulating Housing Construction$7.8 Billion

These Action Plan initiatives and their progress are described in Chapter 5.

Creating the Economy of TomorrowIn designing Canadas Economic Action Plan, the Government incorporatedmeasures to help create the economy of tomorrow. In 201011, the

Action Plan will invest almost $1.9 billion in post-secondary education,

infrastructure, research, technology innovation, and environmentalprotection. This builds on 200910 investments of over $2.1 billion tosupport these strategicinvestments.

In 201011, the Government will provide $1 billion to support deferredmaintenance, repair and construction at Canadas colleges and universities.This investment will help keep Canadian research and educational facilitiesatthe forefront of scientic advancement and will help to ensure thathigh-paid jobs are maintained and created in Canada.

Funding to create the economy of tomorrow will also extend access tobroadband Internet in remote communities, develop carbon captureand storage technology, and fund other strategic investments in science,technology and research.


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56

Chapter 3.1

Supporting Industries and CommunitiesCanadas Economic Action Plan is providing $2.2 billion in stimulusspending in 201011 to support adjustment and secure job opportunitiesin regions, communities and industries that have been hard hit by theeconomic downturn.

In 201011, the Government will provide $1.3 billion in support to affectedsectors, including forestry, agriculture, small business, tourism, shipbuildingand culture. These investments will help to maintain and create jobs acrossthe country.

Building on tariff measures implemented in the Economic Action Plan,in this budget the Government is eliminating all remaining tariffs onmanufacturing inputs and machinery and equipment. This historic step willposition Canada as the rst among its G20 partners to establish itself as atariff-free zone for manufacturers. Full details regarding tariff reductions canbe found in Chapter 3.3.

In addition, over $900 million will be invested in communities that havebeen particularly hard hit by the economic downturn. This includes

$500million through the Community Adjustment Fund, which is designedto help communities with fewer than 250,000 people deal with industrialrestructuring by investing in new economic opportunities.

Strengthening Canadas Financial SectorThe Extraordinary Financing Framework (EFF) introduced as part ofCanadas Economic Action Plan helped to ensure that credit continuedto be available in Canada throughout the nancial crisis, allowing businesses

to continue to grow and create jobs. Financing conditions in Canada haveimproved markedly since the EFF was introduced. Accordingly, certainProgram and the Canadian Secured Credit Facility, will end as planned as of

will remain in place to support the growth in business credit that will beneeded during the economic recovery.

Budget 2010 builds on the strengths of Canadas nancial sector, further

bolstering Canadas advantage in global capital markets. New measures willsupport Canadas strong and competitive nancial sector, help businessesaccess the nancing they need to support the recovery, and protect Canadiannancial consumers.


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Table 3.1.1

Year 2 of Canadas Economic Action Plan$19 Billion

in New Stimulus in 201011

Year 1 Year 2

200910Stimulus

201011Stimulus

TotalAction Plan

(millions of dollarscash basis)

Reducing the Tax Burden for Canadians

Personal income tax relief for all taxpayers 1,885 1,950 3,835

supplement and the Canada Child 230 310 540

580 580 1,160

Targeted relief for seniors 325 340 665

TotalReducing the Tax Burdenfor Canadians 3,020 3,180 6,200

Actions to Create and Protect Jobsand Help the Unemployed

1,115 1,550 2,665

Enhancing the availability of training 919 986 1,905

Maintaining low EI premium rates 818 1,631 2,449

TotalActions to Create and Protect Jobsand Help the Unemployed 2,852 4,167 7,019

Building Infrastructure to Create Jobs

Investments in provincial, territorialand municipal infrastructure 4,156 5,866

230 285 515

Investments in federal infrastructure projects

Support for home ownership and thehousing sector 3,340 425

Investments in social housingfor Canadians 2,025 2,050

TotalBuilding Infrastructureto Create Jobs 8,312 7,696 16,007


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58

Chapter 3.1

Table 3.1.1 (contd)

Year 2 of Canadas Economic Action Plan$19 Billion

in New Stimulus in 201011

Year 1 Year 2

200910Stimulus

201011Stimulus

TotalAction Plan

(millions of dollarscash basis)

Creating the Economy of Tomorrow

Action to invest in post-secondaryeducation and research 1,089 1,155 2,244

Investing in science and technology 1,049 TotalCreating the Economy of Tomorrow 2,139 1,880 4,018

Supporting Industries and Communities

Support for industries 1,296

Support for communities 935 1,813

International partnerships to supportthe auto sector 0

TotalSupporting Industriesand Communities 11,768 2,231 13,998

Economic Action Plan stimulus 28,090 19,152 47,242

Assumed provincial and territorial actions 8,441 14,419

Total Economic Action Plan stimulus(with leverage) 36,531 25,131 61,661


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Sustaining CanadasEconomic Advantage

3.2


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61

New Investments in Jobs and Economic GrowthSustaining Canadas Economic Advantage

The measures in Canadas Economic Action Plan are designed toprotect Canadians from the immediate challenges posed by the

global recession. These actions will also improve Canadas long-termeconomic growth and prosperity. By ensuring that Canada emerges fromthe recession with a more modern infrastructure, a more skilled and exiblelabour force, lower taxes and a more competitive economy, the measures inthe Action Plan will also contribute to sustaining and building on Canadaseconomic advantages.

In 2006, the Government set out its long-term plan for the economyin Advantage Canada. Advantage Canadais about building a strong

foundation for Canadas economic future by focusing on the main driversof productivity: human capital, physical capital, and sound regulatory,tax and scal frameworks. To that end, the plan is centered on buildingve keystrategic advantages forCanada:

ATax Advantagereducing the tax burden on Canadians andCanadian businesses.

AKnowledge Advantagefostering skills, training and education.

An Infrastructure Advantagebuilding a modern, world-class

infrastructure.An Entrepreneurial Advantagemaking product and nancial marketsmore efcient.

AFiscal Advantagestrengthening Canadas scal position for currentand future generations.

Since 2006, the Government has made signicant progress in implementingall elements ofAdvantage Canada.

advantage: it has reduced taxes in every way that it collects revenues, and isensuring that Canadian families, students, workers, seniors and businesseslarge and small continue to keep more of their hard-earned money.

Action Plan has introduced over $20 billion in new tax relief in200809 and over the following ve scal years. This will bring totaltax relief for individuals, families and businesses from measures introduced

since 2006 to an estimated $220 billion over this period.


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62

Chapter 3.2

Canada will emerge from the recession with one of

theworlds most competitive tax systems

workforce in the world, the Government has made signicant newinvestments in education, training, a modernized Canada Student Loans

Program, the new Vanier Canada Graduate Scholarships, and innovation,science and technology. Canadas immigration system has also beenstreamlined to better respond to the needs of the labour market.

future by increasing productivity and competitiveness, cleaning up theenvironment and strengthening communities as vibrant centresof commerce, learning and recreation.

has signed bilateral free trade agreements, implemented unilateral tariffreductions and strengthened Canadas nancial system.


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63

New Investments in Jobs and Economic GrowthSustaining Canadas Economic Advantage

Canada entered the recession with a total government net debt-to-GDPratio of 23.5 percent. Looking ahead, Canadas net debt burden is2014. This compares to anexpected increase of between 24 and

Canadas Fiscal Position Will Remain

the Strongest in the G7

Chart 3.2.1

Total Government Net Debt, G7 Countries

per cent of GDP

0 20 40 60 80 100 120 140 160

Canada

Germany

France

United States

United Kingdom

Italy

Japan

Source: IMF, World Economic Outlook(October 2009).

2007 level

Projected increasefrom 2007 to 2014

5.9 %

63.1 %

24.4 %

53.5 %

42.6 %

28.8 %

24.7 %

The Government is committed to maintaining this strong FiscalAdvantage and returning to balanced budgets over the medium term.The Governments plan to return to balance is detailed in Chapter 4.Budget 2010 also introduces a number of targeted actions, at limited scal

cost, that will provide additional support to the economy by protectingAdvantage Canada, andaddressing other priorities. These actions are outlined in the next section.


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Building on aStrong EconomicFoundation

3.3


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New Investments in Jobs and Economic GrowthBuilding on a Strong Economic Foundation

Highlights

Jobs Protection and Youth Employment MeasuresBudget 2010 builds on the Economic Action Plan with targetedactions to protect Canadian workers from the effects of the globaleconomic recession by:

Temporarily extending the maximum length ofwork-sharingagreements to protect jobs.

Supporting the next generation of business leaders with$10 million in new funding for the Canadian YouthBusinessFoundation.

Providing $60 million in 201011 to assist more young Canadianswhile the labour market recovers.

Investing $20 million in support of Pathways to EducationCanadas work to support disadvantaged youth.

Committing $30 million to support better elementary andsecondary education outcomes for First Nations students.

Creating Economic Growth and JobsThrough Innovation

Budget 2010 makes targeted changes to improve Canadasproductivity growth through innovation by:

Providing $45 million over ve years to establish a post-doctoralfellowship program to helpattract the research leaders of

tomorrow to Canada. Delivering $222 million in funding over ve years tostrengthenthe world-leading research taking place at TRIUMF,Canadas premier national laboratory for nuclear and particlephysics research.

Increasing the combined annual budgets of Canadas researchgranting councils by an additional $32 million per year, plusan additional $8 million per year to the Indirect Costs of

Research Program. Providing Genome Canada with an additional $75 million forgenomics research.

Doubling the budget of the College and Community InnovationProgram with an additional $15 million per year.


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Chapter 3.3

Providing $135 million over two years to the National ResearchCouncil Canadas regional innovation clusters program.

Providing $48 million over two years for research, developmentand application of medical isotopes.

Providing a total of $497million over ve years to develop theRADARSAT Constellation Mission.

Launching a new Small and Medium-sized Enterprise InnovationCommercialization Program with $40 million over two years.

Renewing and making ongoing $49 million in annual funding

for the regional development agencies to support innovationacross Canada.

Encouraging Investment and Trade to CreateJobs and Growth

Budget 2010 takes further action to improve conditions forinvestment, enhance competition, and reduce barriers forbusinessesby:

Making Canada a tariff-free zone for industrial manufacturersby eliminating all remaining tariffs on machinery and equipmentand goods imported for further manufacturing. When fullyimplemented, this will provide $300million in annual dutysavings for Canadian business to support investment and growthandcreatejobs.

Improving Canadas system of international taxation to facilitateinvestment, cut red tape, and streamline the compliance processassociated with the taxation of cross-border activity.

Establishing a new Red Tape Reduction Commission. Providing $7.2 million over two years to improve canadian sh

and seafood industry access to the international marketplace. Delivering $75 million over three years to support investments by

Canadian cattle processing plants to help improve their operationsto ensure cattle producers have access to competitive cattle

processing operations in Canada.


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Green Jobs and Growth

Budget 2010 includes measures to promote energy investments, helpdevelop and deploy clean energy technologies, and protect and enrichCanadas unique environmental heritage by:

Establishing the Next Generation Renewable Power Initiative,with $100 million over the next four years to support thedevelopment, commercialization and implementation of advancedclean energy technologies in the forestry sector.

Modernizing the regulatory system for project reviews, and

supporting consultation with Aboriginal peoples on majorresource projects. Expanding eligibility for accelerated capital cost allowance for

investment in clean energy generation assets.

Modernizing Canadas Infrastructure

Budget 2010 strengthens the Governments already signicantinvestments in Canadas infrastructure by:

Providing $175 million over two years to renew Marine Atlanticseet and shore facilities and improve its services.

Providing $28 million to ensure Atlantic ferry services continueto operate in a safe and reliable condition.

Providing $51 million over two years to The Jacques Cartierand Champlain Bridges Incorporated to maintain the safety ofMontrals bridges.


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Strengthening the Financial Sector

Budget 2010 introduces measures that will support Canadas strongand competitive nancial sector by:

Moving forward with the majority of provinces and territoriesto establish a Canadian securities regulator within the nextthreeyears.

Extending access to nancing through continuation of theBusiness Credit Availability Program (BCAP) and the creation ofthe Vehicle and Equipment Financing Partnership under BCAP.

Moving ahead with a Code of Conduct for the Credit and DebitCard Industry in Canada and proposing legislation to providethe Minister of Finance with the authority to regulate the marketconduct of the credit and debit card networks, if required.

Introducing a legislative framework to enable credit unionsto incorporate and continue federally, which will promote thecontinued growth and competitiveness of the sector and enhancenancial stability.

Enhancing the nancial consumer protection framework throughnew measures to improve the business practices and disclosureregime for federally regulated nancial institutions.


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The Government is taking targeted actions to create and maintain jobsand encourage economic growth. Budget 2010 builds on Canadas

Economic Action Plan with initiatives to protect jobs, harnessinnovation to further improve Canadas economic advantage, supportincreased business investment and access to the international marketplace,create a more sustainable environment, modernize transportationinfrastructure, and strengthen thenancial system.

Jobs Protection and Youth Employment MeasuresCanadas Economic Action Plan takes decisive action to support the

economy and Canadians during the deepest global economic recession sincethe Second World War. In the rst year of the Plan (200910), signicantstimulus has been provided to protect and create jobs. Year2of the ActionPlan delivers $19 billion in new federal stimulus spending, including$4billion to create and protect jobs through additional EmploymentInsurance (EI) benets by maintaining low EI premium rates and improvingaccess to training and skills development. The Economic Action Plan hascontributed to the stabilization of labour market conditions. Nevertheless,many Canadians are struggling to nd jobs. In recognition ofthis,

Budget2010 includes additional measures to support those workers.

Work-SharingWork-sharing avoids layoffs by offering Employment Insurance incomebenets to qualifying workers willing to work a reduced work week whiletheir employer recovers. The Economic Action Plan extended work-sharingagreements by 14 weeks, to a maximum of 52 weeks, and increased accessto work-sharing agreements by providing greater exibility in the qualifying

criteria and streamlining processes for employers. More than 160,000workers are currently participating in nearly 6,000 work-sharing agreements.

Budget 2010 extends this measure. Existing or recently terminatedwork-sharing agreements will be extended by an additional 26 weeks, to amaximum of 78 weeks. Greater exibility in the qualifying criteria for new

work-sharing agreements will also continue to be provided. Both of theseenhancements will be in place until March 31, 2011.

This measure, estimated to cost $106 million over two years, means evenmore workers will keep their jobs, while employers will also be able to retainskilled employees with years of experience. This extended enhancement to

work-sharing will continue to reduce the nancial impact of the downturnon workers and their communities.


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Chapter 3.3

Building Skills for YouthYoung workers have been signicantly affected by the recession.Budget2010 invests $108 million over three years to assist young peoplelooking to gain skills and experience. This includes additional support forthe education ofFirst Nations children and youth.

Youth Internships

Recent post-secondary graduates are facing an uncertain job market.The Youth Employment Strategy is the Governments key labour marketprogram to help young people. To help more new graduates obtain

valuable work experience in their eld, Budget2010 provides a one-year$30-million increase in funding for the Career Focus component of theYouth Employment Strategy. This measure will provide additional supportto Canadian employers and organizations willing to offer valuable career-related work experience to college and university graduates, including moreinternships in green sectors of the economy. Thiswill allow more youngCanadians to get that vital rst jobin their eldof study.

Supporting Young Entrepreneurs

The Canadian Youth Business Foundation is a national organization thathelps young Canadians become successful entrepreneurs by providingmentorship, learning resources and start-up nancing where commerciallending is unavailable. Through its presence in communities acrossCanada, the Foundation supports the next generation of business leadersin developing the skills and experience necessary to thrive in todayscompetitive economy. Budget 2010 provides $10 million in 200910to the Canadian Youth Business Foundation to support its work with

Canadas young entrepreneurs.

Youth at Risk

The Skills Link component of the Youth Employment Strategy wasdeveloped to assist youth in a range of circumstances, including persons withdisabilities, single parents, Aboriginal Canadians, recent immigrants, thoseliving in rural and remote areas, and those who have not completed highschool. Skills Link provides funding to organizations to help these youngCanadians develop the broad range of skills, knowledge and work experiencethey need to participate and succeed in the job market.

Budget 2010 provides a one-year $30-million increase in funding for SkillsLink to assist more young Canadians while the labour market recovers.This initiative will provide more opportunities for young Canadians tosuccessfully join the labour market.


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Pathways to Education Canada

A gap continues to exist between the post-secondary participation rates

of youth from lower-income backgrounds and youth from higher-incomebackgrounds. Research shows that many of the barriers are not nancial,and that some youth need other supports to reach their goals. Pathways toEducation Canada is a unique program of early interventions and supportfor high school students. It has an established record of reducing highschool drop-out rates and increasing post-secondary enrolment of studentsfrom inner city high schools. This community-based, volunteer-supportedprogram provides tutoring, mentoring, counselling and nancial supporttodisadvantaged youth and their families.

Budget 2010 provides $20 million for Pathways to Education Canada topartner with the private sector, other governments and non-governmentalorganizations and work with communities in support of disadvantaged

youth. This funding will enable Pathways to extend its reachto more youngCanadians who are facing barriers to their pursuit ofpost-secondaryeducation.

Supporting Better Education Outcomes for First

Documents

Budget Plan Budget a Ire Eng Fs