Budget Plan Budget a Ire Eng

8/14/2019 Budget Plan Budget a Ire Eng

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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



Minister of Finance

March 4, 2010

B U D G E T 2 0 1 0


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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



Minister of Finance

March 4, 2010



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 o Canada (2010)All rights reserved

All requests or permission to reproduce this documentor any part thereo shall be addressed to

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

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Telephone: 613-941-5995Orders only: 1-800-635-7943 (Canada and U.S.A.)

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.fn.gc.ca

Cette publication est aussi disponible en ranais.


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Table o 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 o 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 or 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 Fith Report to Canadians ...................................................... 193

Annexes

1 Job Impact o 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 Inormationand Notices o 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 ollowing the deepest globaleconomic recession since the 1930s. The global recovery, however,remains ragile.

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

First, it confrms $19 billion in new ederal stimulus under Year 2 oCanadas Economic Action Plan, to create and maintain jobs complemented

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

Second, it invests in a limited number o new, targeted initiativesto build jobs and growth or the economy o tomorrow, strengthenCanadian innovation, and make Canada a destination o choice ornew business investment.

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

o Seven (G7) country.

By making timely investments that ft frmly within the Governments long-term economic vision or Canada, and thanks to the resilience and ingenuityo Canadians, our country will emerge rom the recession with a strongereconomic advantage than beore.

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

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

Together, we will create a stronger Canada and a stronger economy, nowand or the uture.


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Chapter 1

Delivering Year 2 o Canadas

Economic Action PlanActions taken under Canadas Economic Action Plan have helped ensurethe worst o the global recession lies behind us.

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

Over the next fscal year, Year 2 o the Economic Action Plan will continueto maintain and create jobs, and help Canadian workers and amilies managethrough still difcult economic conditions, including:

$3.2 billion in personal income tax relie. This includes allowingCanadians to earn more income beore paying ederal income tax andbeore being subject to higher tax rates. It includes the enhanced WorkingIncome Tax Beneft to strengthen work incentives or low-incomeCanadians. Tax measures or 201011 also include higher child beneftsor parents and lower taxes or low and middle-income seniors.

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

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

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

will help develop and attract talented people, strengthen our capacity orworld-leading research, improve commercialization, accelerate privatesector investment, enhance the ability o Canadian frms to participatein global 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 o Canada that

have been hit hard by the economic downturn. It provides support oraected sectors, including orestry, agriculture, small business, tourism,shipbuilding and culture. In addition, the proposed elimination o tarison manuacturing inputs and machinery and equipment will encourageinvestment in the manuacturing sector.


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Canadians in all regions have already benefted rom the implementation oCanadas Economic Action Plan in year 1:

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

220,000 jobs. The Action Plan is on track. It has contributed to thecreation o 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 o Canadas Economic Action Plan,Budget 2010 introduces a limited number o new and targeted actionsto protect Canadians rom the global recession and create the jobs andeconomy o 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 or youth.

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

Encouraging Investment and Tradeto Create Jobs and GrowthBudget 2010 takes action to improve the environment or investment,enhance competition and reduce barriers or businesses. This includesmaking Canada a tari-ree zone or manuacturers, by eliminating allremaining taris on productivity-improving machinery and equipmentand goods imported or urther manuacturing in Canada. This initiative,

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


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Strengthening the Financial SectorCanadas fnancial sector has been widely acknowledged as being one othe strongest in the world. Budget 2010 will urther strengthen the sectorby moving orward with the majority o provinces and territories toward aCanadian securities regulator, extending access to fnancing or Canadianbusinesses, and enhancing disclosure and fnancial institutions businesspractices to better protect consumers.

Supporting Families and Communities and

Standing Up or 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 or participation in sport. Budget 2010also recognizes those who helped build our country, with measures ormilitary amilies, investments to recognize the eorts o veterans, andadditional support or seniors.

Honouring Canadas International CommitmentsCanada is a global leader and continuously demonstrates this by honouringits international commitments. The importance o accountability orpromises will be a defning eature o Canadas G8 and G20 Summit year.Budget 2010 ulflls 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 reocusits attention on its long-term economic plan. The cornerstone o this plan isa return to balanced budgets.

Budget 2010 outlines a three-point plan or 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

$17.6 billion in savings over fve years.

o government administrative unctions and overhead costs in order toidentiy opportunities or additional savings and improve service delivery.

The Government will not raise taxes and will not cut major transersto persons and other levels o government.

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

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

Canadas fscal health is the envy o the world. The Government is ullycommitted to sustaining our fscal advantage.

Rapid decline in defcits

Chart 1.1

Federal Budgetary Defcit

billions o dollars

Source: Department o 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 ater undergoing adeep and synchronized recession, which stemmed rom the worstglobal fnancial crisis since the 1930s.

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

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

fnancial, economic and fscal strengths. Canadian labour markets have ared much better than in the U.S.,

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

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

While unemployment remains a concern, the rise in the

unemployment rate has been smaller than was initially orecastby private sector orecasters.

The Department o Finance conducted a survey o private sectororecasters in December 2009. In early February, private sectororecasters met with the Minister o Finance to discuss theeconomic orecast rom the survey as well as the risks associatedwith that orecast.

The average private sector economic orecast rom theDecember 2009 survey orms the basis o the Governmentsfscal planning.

The use o private sector orecasts introduces an element oindependence into the Governments economic and fscal orecast.

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 economicorecast has improved somewhat since the September 2009

Update o Economic and Fiscal Projections. Private sectororecasters expect the Canadian economic recovery to buildmomentum through 2010.

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

The average private sector orecast rom the December surveyprovides a prudent basis or fscal planning.


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IntroductionThe global economy has begun to stabilize ater undergoing a deep andsynchronized recession, which stemmed rom the worst global fnancialcrisis since the 1930s. Since then, global fnancial markets have improvedand confdence is returning, leading to a tentative resumption o globaleconomic growth.

Reecting these positive developments, together with the impact oCanadas Economic Action Plan and signifcant monetary policy stimulus,economic activity in Canada has also strengthened. The near-termoutlook has improved since the Governments September 2009 Updateo 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 economicorecast that orms the basis or the fscal projections, and discusses the risks

and uncertainties surrounding this economic outlook.

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

the fnancial system worldwide. Wholesale borrowing costs o 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 fnancial conditions have improved markedly over the pastyear, they have yet to ully normalize. In some markets, credit conditionsremain relatively tight in terms o both the availability and price o credit,

particularly at longer maturities.


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Chapter 2

In Canada, fnancial conditions were less aected by the global fnancialcrisis than in most other countries. Wholesale bank borrowing costs rose

much less in Canada and improved aster than in other countries, whilecorporate bond rate spreads remain below those o 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 o stabilization ater decelerating in late 2008 and mosto 2009 due to the impact o the recession on both the demand or andsupply o credit. A continued recovery in bond and equity market fnancingshows that businesses have greater access to capital.

Financial market conditions haveimproved signifcantly 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 dierence 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 o banksunding costs relative to a risk-ree rate andare a gauge o fnancial market stress andbanks fnancing pressures. The rate on theovernight-indexed swap (OIS) is used as aproxy or expected overnight rates. LIBOR isthe London Interbank Oered Rate. CDORis the Canadian Dealer Oered 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 o currencies. This, together

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

The Canadian dollar has borne the brunt

o the broad depreciation o the U.S. dollar

Chart 2.2

Exchange Rate

US cents/C$

Contribution to U.S.-Dollar

Trade-Weighted DepreciationWeek o March 6, 2009 to week oFebruary 19, 2010per cent

Canada Mexico Japan UnitedKingdom

Australia ChinaEuroarea

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

Source: Bank o Canada.

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

Sources: U.S. Federal Reserve; Departmento 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 hal o 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 ragile in advanced economies. Most o the advancedeconomies emerged rom recession in the third quarter o 2009, although

the recovery in some countries appears to have stalled in the ourth 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 o inventory liquidation. Canada is unique in that the economicrecovery is being led by strong domestic demand growth.

Ater having previously contracted or fve consecutive quarters, real GDPin the euro area recorded a second consecutive modest increase in the

ourth quarter o 2009 (0.4 per cent). However, growth in a number omember countries, including Germany and Italy, was at or negative inthe ourth quarter. Real GDP grew 1.1 per cent in the United Kingdom inthe ourth quarter o 2009 ater having contracted or six quarters. Atera year-long recession, real GDP in Japan has expanded in two o the lastthree quarters, including a 4.6-per-cent increase in the ourth quarter.

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

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

year-over-year increase in the ourth quarter o 2009, the astest pace intwo years.

Looking orward, the orces currently driving the recovery in advancedeconomies are expected to gradually weaken, as positive contributions togrowth rom inventories diminish and as the impact o fscal stimulus adestoward the end o 2010 and early 2011. A sustained recovery will requireincreased support rom 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 o globalGDP will be about 7.5 per cent lower in 2014 than it would have beeni pre-recession trends had continued. This loss reects the view thatthe level o activity prior to the crisis was unsustainably high, as it wasbased on excessive risk taking, an unsustainably low cost o fnancing, 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 o 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 rom2001 to 2007 = 4.4%

7.4%


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Chapter 2

United StatesEconomic growth in the United States has resumed. This ollows a peak-to-trough decline in real GDP o 3.8 per cent, which has resulted in arecord loss o 8.4 million jobs (or 6.1 per cent o U.S. jobs) and let 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 o 2009 and accelerated to asix-year high o 5.9 per cent in the ourth quarter. Final domestic demand inthe U.S. remains weak, growing by only 1.6 per cent in the ourth quarterand accounting or less than a third o overall growth in the quarter.

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

improvement in global growth have supported the U.S. trade sector. Inthe ourth quarter o 2009, these developments were accompanied by asubstantial rebound in inventory investment rom very low levels, resultingin signifcantly stronger U.S. growth than was anticipated by private sectororecasters in the Department o Finance December 2009 survey.

U.S. recession has led to record

employment losses

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

Chart 2.4

U.S. Payroll Employment

millions, cumulative change

Contribution o 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 rom fnal domestic demand(percentage points)

Real GDP growth (per cent)


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However, the unexpectedly strong growth in the ourth quarter has notsignifcantly altered the quarterly private sector outlook or 2010, since

ourth-quarter growth mainly reected a large temporary contribution rominventories. In December, private sector orecasters expected real GDPgrowth to average about 3 per cent through 2010, reecting still-modestprivate domestic demand growth, the gradual withdrawal o fscal stimulustoward the end o the year, and the winding down o the temporary boostprovided by the end o 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. defcits 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 o Economic Analysis; Department o Finance December 2009 surveyo private sector orecasters.

-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 orecast

2009Q4

Actual: 5.9%Private sector orecast: 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 signifcantly aected by the globaleconomic recession. However, reecting several important fnancial,economic and fscal 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,helped Canada emerge rom recession in mid-2009.

The economic recovery in Canada strengthened over the second hal

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

Canada has ared 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 or United Kingdom; 2008Q2-2009Q2 or Italy; 2008Q2-2009Q1 or France, Germany andJapan; 2008Q3-2009Q2 or United States; 2008Q4-2009Q2 or Canada.

Sources: Statistics Canada; U.S. Bureau o Economic Analysis; Japan Cabinet Ofce; U.K. Ofce or 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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Chapter 2

Canadas strong fscal situation has been another key source o strength.With the lowest debt-to-GDP ratio in the G7, the Government has been

able to undertake unprecedented actions to support the economy withoutjeopardizing Canadas long-term fscal position and causing uncertaintyabout uture tax increases (Chart 2.7). Unlike other jurisdictions which

will be orced to consider tax increases, Canada will be able to keep taxeslow and to continue with planned tax cuts.

Canada entered the recession with the strongest

fscal position in the G7

Chart 2.7

Total Government Net Debt in 2007

per cent o GDP

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

0

20

40

60

80

100

120

Canada UnitedKingdom

UnitedStates

France Germany Japan Italy


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

recovery o domestic demand in Canada. Since the start o 2009, fnaldomestic demand in Canada has grown signifcantly aster than in anyother G7 country (Chart 2.8). The higher level o domestic economicactivity led the resumption o Canadian GDP growth in the second hal o2009. Strong domestic demand growth in Canada was partly oset by a

weak export perormance over much o 2009, reecting weak demand romour major trading partners, particularly the United States, and the impact othe appreciation o the Canadian dollar.

Final domestic demand in Canada grew signifcantly

aster than in any other G7 country over 2009

Chart 2.8

Real Final Domestic Demand Growth rom 2009Q1 to 2009Q4

per cent

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

Sources: Statistics Canada; U.S. Bureau o Economic Analysis; Japan Cabinet Ofce; U.K. Ofce or NationalStatistics; Deutsche Bundesbank; Institut national de la statistique et des tudes conomiques; Istitutonazionale di statistica; Department o 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 o 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 hal o 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 ourthquarter, ollowing double-digit declines at the onset o the recession. Thesedevelopments have been accompanied by a swit recovery o consumer andbusiness confdence to historical norms (Chart 2.9).

Consumer and business confdence

have rebounded sharply over the past year

Business Confdence

index, 2002 = 100

Source: The Conerence Board o Canada.

Chart 2.9

Consumer Confdence

index, 2002 = 100

Source: The Conerence Board o 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 unding orinrastructure. Government investment in inrastructure increased by25.1 per cent in the third quarterthe largest increase in nearly a decadeand 16.3 per cent in the ourth quarter, contributing signifcantly to thebroader recovery o domestic demand. A more detailed analysis o the

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


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

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

Ater three consecutive quarters o decline, nominal GDP increased by4.3 per cent in the third quarter and 9.8 per cent in the ourth quarter.

Reecting the improved economic perormance o the Canadian economy

over the second hal o 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 rom the peak o 8.7 per cent reached in mid-2009.However, at 8.3 per cent in January 2010, the unemployment rate remainso concern.

The Economic Action Plan is on track to meet its

objective o maintaining or creating 220,000 jobs

One objective o the Economic Action Plan was to maintain or create220,000 jobs by the end o 2010. The Action Plan is on track. In thefrst year o implementation, an estimated 130,000 jobs have beencreated or maintained as a result o the Economic Action Plan. Inaddition, over 160,000 Canadians are benefting rom the work-sharingprogram (see Annex 1). Overall, this has contributed to the net creationo over 135,000 jobs recorded in Canada since July 2009.

Canadas labour market perormance has been signifcantly stronger thanin the United States (Chart 2.10). Since the start o 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 o 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 or almost one and a hal years, and over the last fve months the

dierence 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 perormance compared to that o the U.S.reects Canadas later entry into recession as well as the relatively earlystabilization o Canadian domestic demand in 2009.


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30

Chapter 2

The Canadian labour market has been signifcantly

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. Bureauo Labor Statistics.

4

5

6

7

8

9

10

11Canada

U.S.

Chart 2.10

Unemployment Rate

per cent

Sources: Statistics Canada; U.S. Bureauo 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 rom 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 per cent over the same period, reecting the improvement in global

economic and fnancial conditions and the global outlook (Chart 2.11).Forestry prices have also increased since February 2009, in line with signso 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 or many commodities are now close to levels observedat the time o the October 2007 Economic Statement. Crude oil uturescontracts suggest prices will continue to increase modestly in coming

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

will average 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 orcommodity prices over the near term, reecting high inventory levels or

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

Prices or 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 o Finance calculations.

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

Sources: Commodity Research Bureau;Department o 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 (let scale)

Non-energy (let scale)

Energy (right scale)

per cent

index, 1997 = 100


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32

Chapter 2

Canadian Economic Outlook

Private Sector ForecastsThe Department o Finance regularly surveys private sector economicorecasters on their views on the outlook or the Canadian economy.The economic orecasts reported in this budget, and which orm thebasis o the Departments fscal orecasts, are based on a survey thatclosed on December 18, 2009 and includes the views o 15 privatesector economic orecasters.

The December 2009 survey o private sector orecasters included Bank

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

The use o private sector orecasts introduces an element o independenceinto the Governments economic and fscal orecast.

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

Over the medium term, the December average private sector outlook callsor 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 o consumer price ination near themid-point o the Bank o Canadas ination target band (Table 2.1).

The private sector orecast or the unemployment rate in 2010 has beenrevised down again. In May 2009, private sector economists were orecastingan unemployment rate o 9.2 per cent or 2010. The orecast was reviseddown to 9.0 per cent in the September Update and then to 8.5 per centin the December survey.


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33


Table 2.1Average Private Sector Forecast

2009 2010 2011 2012 2013 201420092014

(per cent, unless otherwise indicated)

Real GDP growth

January 2009 privatesector orecast -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 2.0March 2010 budget -2.5 2.6 3.2 3.0 2.8 2.6 2.0GDP infation

January 2009 privatesector orecast -0.4 1.7 2.2 2.3 2.1 2.1 1.7September 2009 Update -2.3 1.8 2.0 2.3 2.2 2.2 1.4March 2010 budget -2.1 2.2 2.1 2.2 2.1 2.0 1.4Nominal GDP growth


Budget 2009 planning -2.7 4.3 6.4 6.1 5.3 5.0 4.1September 2009 Update -4.6 4.1 5.3 5.6 5.3 5.0 3.5March 2010 budget -4.6 4.9 5.4 5.3 4.9 4.7 3.4

Nominal GDP level(billions o dollars)

January 2009 privatesector orecast 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 orecast 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 2.610-year government bond rate


September 2009 Update 3.3 3.8 4.4 4.9 5.1 5.2 4.5March 2010 budget 3.3 3.7 4.3 4.9 5.2 5.3 4.5Exchange 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


September 2009 Update 8.5 9.0 8.5 7.8 7.1 6.8 7.9March 2010 budget 8.3 8.5 7.9 7.4 6.9 6.6 7.6Consumer Price Index infation

January 2009 privatesector orecast 0.7 1.9 2.1 2.1 2.0 2.0 1.8September 2009 Update 0.5 1.8 2.0 2.1 2.1 2.1 1.8March 2010 budget 0.3 1.7 2.2 2.1 2.1 2.1 1.7U.S. real GDP growth


September 2009 Update -2.6 2.0 3.2 3.8 3.5 3.2 2.2March 2010 budget -2.5 2.7 3.0 3.4 3.1 2.9 2.1Note: March 2010 budget fgures or 2009 are rom the December 2009 survey o private sector orecastersand have not been adjusted to include data released since December 18, 2009.

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

As the global economy continues to stabilize ollowing the deepest recessionsince the 1930s, the uncertainty surrounding the medium-term outlookhas diminished signifcantly since the September Update. The dierencebetween the average o the three highest and three lowest orecasts orthe level o nominal GDP in 2013 is $54 billion, down rom the record$98-billion dierence at the time o the September Update. However, the

gap still remains high by historical standards, reecting the still-ragile globaleconomic recovery and the inherent difculty in providing a medium-termorecast (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 o Finance December 2009 survey o private sector orecasters.

Average o three lowestorecasts: $1,844

Average o three highestorecasts: $1,898

Average$1,865

$54 billiondierence,down rom$98 billion inSeptember 2009

Chart 2.12

Private Sector Forecast Distribution o Nominal

GDP Level in 2013

billions o dollars

Risks to the Private Sector ForecastOn February 2, 2010, the Minister o Finance met with private sectoreconomists to discuss the economic orecast rom the December 2009survey as well as the risks associated with those projections.

The orecasters were o the view that the short-term growth outlookwas likely to be stronger than suggested by the December survey givena number o positive economic developments since the survey closed onDecember 18th. However, the private sector orecasters 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 fnancial markets may take somemore time to ully materialize. At the same time, many orecasters notedthat medium-term risks to the outlook were to some extent incorporated

in the average private sector orecast.


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36

Chapter 2

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

o the December 2009 private sector survey, orecasters expected real GDPgrowth o 3.4 per cent and nominal GDP growth o 5.6 per cent in theourth quarter o 2009 (Chart 2.13). Both real and nominal GDP growthin the ourth quarter, released by Statistics Canada on March 1, 2010, werestronger than expected. Private sector orecasters expectations or real GDPgrowth were more than 1.5 percentage points lower than actual real GDPgrowth o 5.0 per cent, while expectations or nominal GDP growth weremore than 4 percentage points lower than actual nominal GDP growtho 9.8 per cent, reecting higher real GDP growth as well as signifcant

increases in commodity prices. I sustained, this would representa $14-billion increase in nominal income in each year o the orecast.

Real and nominal GDP growth in the ourth quarter o 2009

were stronger than expected by private sector orecasters

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 o Finance December 2009 survey o private sector orecasters.

December 2009 private sector orecast

Actual


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37


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

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

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

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

Fiscal PlanningThe average private sector economic orecast rom the December 2009survey orms the basis o the Governments fscal planning. The Department

o Finance considers that this economic orecast is a prudent basis or fscalplanning. The fscal 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 o which contribute tothe overarching objective o sustaining Canadas economic advantage.

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

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

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

This chapter reviews the $19 billion in new ederal stimulus measures thatwill take eect in 201011 under Canadas Economic Action Plan, as wellas new actions Budget 2010 is proposing to build jobs and growth orthe uture. Chapter 4 reviews actions to reduce the defcit and return tobalanced budgets. Chapter 5 provides a detailed report on the status o

implementation o 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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45

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

Highlights

Budget 2010 will deliver Year 2 o Canadas Economic Action Plan,with $19 billion in new ederal stimulus in 201011, by: Providing $3.2 billion in personal income tax relie to support

growth and job creation. Delivering $1.6 billion to strengthen benefts or the unemployed. Providing $1 billion to enhance training opportunities or all

Canadian workers. Freezing the Employment Insurance premium rate at

$1.73 per $100 o insurable earnings to the end o 2010the lowest rate since 1982in order to leave more money in thehands o employers and employees.

Providing $7.7 billion in new stimulus to modernizeinrastructure, support home ownership, and improvesocial housing across Canada.

Investing almost $1.9 billion in post-secondary educationinrastructure, research, technology innovation andenvironmental protection.

Providing $2.2 billion in stimulus spending to support adjustmentand secure job opportunities in regions, communities andindustries that have been most aected by the economic downturn.

Introducing new measures to strengthen Canadas fnancial sector,allowing businesses to continue growing and creating jobs.


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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

Second World War. Chapter 5 describes the ull Action Plan andreports on the Governments progress in its implementation. This sectionbriey reviews the main elements o the Action Plan that will be in eector 201011.

In the frst year o the Action Plan (200910), a signifcant amount ostimulus has been provided to support the economy and Canadians.The Government is ready to begin delivering Year 2 o the Economic

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

and help Canadian workers and amilies manage through still difculteconomic conditions. Year 2 delivers $19 billion in new ederal stimulusspending, with an additional $6 billion in stimulus rom provinces,territories, municipalities and other partners. Even beore the start o thefscal year, 92 per cent o Year 2 unding is committed and ready to bedelivered. This includes:

the unemployed.

across Canada.

Actions under the Economic Action Plan that come into eect in201011 are described below.


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Reducing the Tax Burden or CanadiansTax reductions in the Economic Action Plan are an essential part o theGovernments eort to stimulate the economy and to create and maintain

jobs. The Economic Action Plan will deliver $3.2 billion in personal incometax relie in 201011. This includes allowing Canadians to earn moreincome beore paying ederal income tax and beore being subject to highertax rates. It includes the enhanced Working Income Tax Beneft, whichreduces the welare wall by making work pay better or many low-incomeCanadians. Eligible benefciaries will begin to receive enhanced beneftsupon fling their 2009 tax returns. Tax measures or 201011 also includehigher child benefts or parents and lower taxes or low- andmiddle-income seniors.

Tax measures in 201011 will continue to support the housing market.First-time home ownership is being encouraged through the First-TimeHome Buyers Tax Credit and additional access to Registered RetirementSavings Plan savings to purchase or build a home.

Credit beore its expiry on January 31, 2010, and will be able to claim the

credit when they fle their 2009 income tax returns.

Tax relie will also continue to beneft Canadian businesses in the comingyear. The measures included in Canadas Economic Action Plan, as wellas actions taken by this Government since 2006, are positioning Canadianbusinesses to emerge stronger and better equipped to compete globally asthe economy recovers.

The Government is lowering the ederal general corporate income tax

rate rom 22.12 per cent (including the corporate surtax) in 2007 to15 per cent in 2012. Canadas business tax advantage is being strengthenedas the Government o Canada, provinces and territories progress towardthe goal o a 25-per-cent combined ederal-provincial corporate income taxrate. These broad-based corporate income tax reductions oster investmentand help build a strong oundation or job creation and higher rates oproductivity growth. As a result o these actions, Canada will have thelowest corporate income tax rate in the G7 in 2012.


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48

Chapter 3.1

Canada will have the lowest corporate income tax

rate in the G7 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 atwork and achieve our priority in reinvesting in the business or uture growth inour company.

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

Edmonton Journal, September 23, 2009


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49


Tax Achievements Since 2006

The Government has reduced taxes on individuals, amilies and businessesby an estimated $220 billion over 200809 and the ollowing fve fscal years.

The Governments tax reduction eorts began in 2006well beore theintroduction o Canadas Economic Action Plan.

Individuals and amilies at all income levels are benefting rom tax relie, withproportionately greater savings or those with lower incomes. For example:

income taxare benefting rom 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 benefts annually or low- andmodest-income Canadians.

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

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

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

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

raising children.

bursary and ellowship income in support o 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, uniorms and supplies.


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50

Chapter 3.1

Tax Achievements Since 2006 (contd)

fnancial security and well-being o 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 rom 22.12 per cent (including the

reduced ederal income tax rate to $500,000 eective January 2009,ollowing an earlier increase to $400,000 rom $300,000as well asa reduction o the ederal income tax rate applying to qualiying smallbusiness income to 11 per cent eective January 2008.

o assets, including non-residential buildings, computers, railwaylocomotives, carbon dioxide pipelines, natural gas distribution pipelines,and liquefed natural gas acilities, to better reect their useul liethisboth reduces the tax burden on investment and ensures neutral taxtreatment o dierent 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 fnancialinstitutions with a minimum tax. All provincial general capital taxes willbe eliminated by 2012.

research and development perormers, which was announced in 2008.

The expenditure limit or the enhanced reundable Scientifc Researchand Experimental Development Investment Tax Credit was increased

access to this beneft 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 benefts, training opportunities and Employment Insurance(EI) premium relie to help unemployed Canadians through this difcultperiod, and help ensure that they are equipped to re-enter the workorceand prosper in the uture.

The Government is providing $1.6 billion in 201011 to strengthenbenefts or the unemployed. This support includes providing up to anextra fve weeks o EI regular benefts or all EI-eligible claimants, providinggreater access to EI regular benefts or long-tenured workers, and extendingthe duration and the scope o the work-sharing program.

The Government is providing almost $1.0 billion in 201011 to enhancetraining opportunities or 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 oering more opportunities to Aboriginal Canadians.

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

When the temporary reeze o EI premiums is lited in 2011, premium rateswill be set by an independent armss length Crown corporation, the CanadaEmployment Insurance Financing Board (CEIFB). Under the EI fnancingregime 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 EI defcitsresulting rom the beneft and training enhancements announced inBudget 2009.


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52

Chapter 3.1

Freeze in EI premium rate leaves money in the

hands o 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 reeze 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.

providing them with additional benefts and expanded access to training

Strengthening Benets$2.7 Billion

Enhancing Availability o Training$1.9 Billion

Employment Insurance Premium Rates$2.4 Billion

o insurable earnings or 2010


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54

Chapter 3.1

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

In 201011, the Economic Action Plan will invest more than $4 billionin provincial, territorial and municipal inrastructure, $285 million inFirst Nations community inrastructure and $780 million in priority ederalprojects. These investments will create jobs and ensure that Canada emergesrom the economic downturn with a more modernand greener inrastructure.

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

persons with disabilities. The Action Plan also invests in First Nationsand northern housing.


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55


Inrastructure investments will continue

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

Immediate Action to Build Inrastructure$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 o TomorrowIn designing Canadas Economic Action Plan, the Government incorporatedmeasures to help create the economy o tomorrow. In 201011, the

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

inrastructure, research, technology innovation, and environmentalprotection. This builds on 200910 investments o over $2.1 billion tosupport these strategic investments.

In 201011, the Government will provide $1 billion to support deerredmaintenance, repair and construction at Canadas colleges and universities.This investment will help keep Canadian research and educational acilitiesat the oreront o scientifc advancement and will help to ensure thathigh-paid jobs are maintained and created in Canada.

Funding to create the economy o tomorrow will also extend access tobroadband Internet in remote communities, develop carbon captureand storage technology, and und 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 aectedsectors, including orestry, agriculture, small business, tourism, shipbuildingand culture. These investments will help to maintain and create jobs acrossthe country.

Building on tari measures implemented in the Economic Action Plan,in this budget the Government is eliminating all remaining taris onmanuacturing inputs and machinery and equipment. This historic step willposition Canada as the frst among its G20 partners to establish itsel as atari-ree zone or manuacturers. Full details regarding tari reductions canbe ound 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

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

Strengthening Canadas Financial SectorThe Extraordinary Financing Framework (EFF) introduced as part oCanadas Economic Action Plan helped to ensure that credit continuedto be available in Canada throughout the fnancial 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 o

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

Budget 2010 builds on the strengths o Canadas fnancial sector, urther

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


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Table 3.1.1

Year 2 o Canadas Economic Action Plan$19 Billion

in New Stimulus in 201011

Year 1 Year 2

200910Stimulus

201011Stimulus

TotalAction Plan

(millions o dollarscash basis)

Reducing the Tax Burden or Canadians

Personal income tax relie or all taxpayers 1,885 1,950 3,835

supplement and the Canada Child 230 310 540

580 580 1,160

Targeted relie or seniors 325 340 665

TotalReducing the Tax Burdenor 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 o 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 Inrastructure to Create Jobs

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

230 285 515

Investments in ederal inrastructure projects

Support or home ownership and thehousing sector 3,340 425

Investments in social housingor Canadians 2,025 2,050

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


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Chapter 3.1

Table 3.1.1 (contd)

Year 2 o Canadas Economic Action Plan$19 Billion

in New Stimulus in 201011

Year 1 Year 2

200910Stimulus

201011Stimulus

TotalAction Plan

(millions o dollarscash basis)

Creating the Economy o 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 o Tomorrow 2,139 1,880 4,018

Supporting Industries and Communities

Support or industries 1,296

Support or 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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New Investments in Jobs and Economic GrowthSustaining Canadas Economic Advantage

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

global recession. These actions will also improve Canadas long-termeconomic growth and prosperity. By ensuring that Canada emerges romthe recession with a more modern inrastructure, a more skilled and exiblelabour orce, 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 or the economyin Advantage Canada. Advantage Canadais about building a strong

oundation or Canadas economic uture by ocusing on the main driverso productivity: human capital, physical capital, and sound regulatory,tax and fscal rameworks. To that end, the plan is centered on buildingfve key strategic advantages or Canada:

ATax Advantagereducing the tax burden on Canadians andCanadian businesses.

AKnowledge Advantageostering skills, training and education.

An Inrastructure Advantagebuilding a modern, world-class

inrastructure.An Entrepreneurial Advantagemaking product and fnancial marketsmore efcient.

AFiscal Advantagestrengthening Canadas fscal position or currentand uture generations.

Since 2006, the Government has made signifcant progress in implementingall elements oAdvantage Canada.

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

Action Plan has introduced over $20 billion in new tax relie in200809 and over the ollowing fve fscal years. This will bring totaltax relie or individuals, amilies and businesses rom measures introduced

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


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Chapter 3.2

Canada will emerge rom the recession with one o

the worlds most competitive tax systems

workorce in the world, the Government has made signifcant 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 o the labour market.

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

has signed bilateral ree trade agreements, implemented unilateral tarireductions and strengthened Canadas fnancial system.


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New Investments in Jobs and Economic GrowthSustaining Canadas Economic Advantage

Canada entered the recession with a total government net debt-to-GDPratio o 23.5 per cent. Looking ahead, Canadas net debt burden is2014. This compares to an expected increase o 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 o 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 increaserom 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 o targeted actions, at limited fscal

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 rom the eects o the globaleconomic recession by:

Temporarily extending the maximum length owork-sharing agreements to protect jobs.

Supporting the next generation o business leaders with$10 million in new unding or the Canadian YouthBusiness Foundation.

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

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

Committing $30 million to support better elementary andsecondary education outcomes or 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 fve years to establish a post-doctoralellowship program to help attract the research leaders o

tomorrow to Canada. Delivering $222 million in unding over fve years tostrengthen the world-leading research taking place at TRIUMF,Canadas premier national laboratory or nuclear and particlephysics research.

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

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

Doubling the budget o 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 or research, developmentand application o medical isotopes.

Providing a total o $497 million over fve 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 unding

or the regional development agencies to support innovationacross Canada.

Encouraging Investment and Trade to CreateJobs and Growth

Budget 2010 takes urther action to improve conditions orinvestment, enhance competition, and reduce barriers orbusinesses by:

Making Canada a tari-ree zone or industrial manuacturersby eliminating all remaining taris on machinery and equipmentand goods imported or urther manuacturing. When ullyimplemented, this will provide $300 million in annual dutysavings or Canadian business to support investment and growthand create jobs.

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

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

and seaood 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 our years to support thedevelopment, commercialization and implementation o advancedclean energy technologies in the orestry sector.

Modernizing the regulatory system or project reviews, and

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

investment in clean energy generation assets.

Modernizing Canadas Inrastructure

Budget 2010 strengthens the Governments already signifcantinvestments in Canadas inrastructure by:

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

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

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


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Chapter 3.3

Strengthening the Financial Sector

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

Moving orward with the majority o provinces and territoriesto establish a Canadian securities regulator within the nextthree years.

Extending access to fnancing through continuation o theBusiness Credit Availability Program (BCAP) and the creation othe Vehicle and Equipment Financing Partnership under BCAP.

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

Introducing a legislative ramework to enable credit unionsto incorporate and continue ederally, which will promote thecontinued growth and competitiveness o the sector and enhancefnancial stability.

Enhancing the fnancial consumer protection ramework throughnew measures to improve the business practices and disclosureregime or ederally regulated fnancial 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 urther improve Canadas economic advantage, supportincreased business investment and access to the international marketplace,create a more sustainable environment, modernize transportationinrastructure, and strengthen the fnancial 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 frst year o the Plan (200910), signifcantstimulus has been provided to protect and create jobs. Year 2 o the ActionPlan delivers $19 billion in new ederal stimulus spending, including$4 billion to create and protect jobs through additional EmploymentInsurance (EI) benefts by maintaining low EI premium rates and improvingaccess to training and skills development. The Economic Action Plan hascontributed to the stabilization o labour market conditions. Nevertheless,many Canadians are struggling to fnd jobs. In recognition o this,

Budget 2010 includes additional measures to support those workers.

Work-SharingWork-sharing avoids layos by oering Employment Insurance incomebenefts to qualiying workers willing to work a reduced work week whiletheir employer recovers. The Economic Action Plan extended work-sharingagreements by 14 weeks, to a maximum o 52 weeks, and increased accessto work-sharing agreements by providing greater exibility in the qualiying

criteria and streamlining processes or 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 o 78 weeks. Greater exibility in the qualiying criteria or new

work-sharing agreements will also continue to be provided. Both o 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 o experience. This extended enhancement to

work-sharing will continue to reduce the fnancial impact o the downturnon workers and their communities.


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Chapter 3.3

Building Skills or YouthYoung workers have been signifcantly aected by the recession.Budget 2010 invests $108 million over three years to assist young peoplelooking to gain skills and experience. This includes additional support orthe education o First Nations children and youth.

Youth Internships

Recent post-secondary graduates are acing 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 feld, Budget 2010 provides a one-year$30-million increase in unding or the Career Focus component o theYouth Employment Strategy. This measure will provide additional supportto Canadian employers and organizations willing to oer valuable career-related work experience to college and university graduates, including moreinternships in green sectors o the economy. This will allow more youngCanadians to get that vital frst job in their feld o study.

Supporting Young Entrepreneurs

The Canadian Youth Business Foundation is a national organization thathelps young Canadians become successul entrepreneurs by providingmentorship, learning resources and start-up fnancing where commerciallending is unavailable. Through its presence in communities acrossCanada, the Foundation supports the next generation o 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 o the Youth Employment Strategy wasdeveloped to assist youth in a range o 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 unding to organizations to help these youngCanadians develop the broad range o skills, knowledge and work experiencethey need to participate and succeed in the job market.

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


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Pathways to Education Canada

A gap continues to ex

Budget Plan Budget a Ire Eng

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