Archived - Canada, An Economic Snapshot
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By any measure, the Canadian economy is strong.
Our jobless rate is the lowest in 33 years, with more Canadians working than ever before.
Our budget is balanced and we are reducing the federal debt – the only Group of Seven country in such a position.
This is translating into real gains in our standard of living.
Let’s go over this in more detail.
At 5.9%, Canada’s unemployment rate is near a 33-year low.
In the first eleven months of 2007, the economy created close to 400,000 new jobs.
And more Canadians are entering the job market than ever before, with almost two-thirds of men and women holding jobs.
Our healthy finances have allowed us to shrink the federal debt.
This year, the Government plans to reduce this debt by $10 billion, cutting the federal debt burden by about $1,570 per Canadian since 2005.
However, the federal debt level is still substantial at $467 billion in 2006-07.
As a result of strong economic growth and debt reduction, our standard of living has risen.
Canada’s real income per capita has risen by over 20% since the end of 2001, more than double the US gains over this period.
Despite our current success, our future standard of living will depend to a great extent on how well we manage the risks and challenges ahead.
- An economic slowdown in the U.S. and continuing turmoil on financial markets;
- The ongoing need to adjust to a higher Canadian dollar and increasing global competition; and
- The aging of the Canadian population.
Increasing Canada’s productivity will be key to our success in the coming decade.
Let’s explore some of these issues in more detail.
For Canada, a key development has been the steady rise of our dollar and its recent volatility.
This rise reflects the strength of the Canadian economy and rising prices for the commodities we produce, such as wheat, base metals and crude oil.
However, a high dollar makes Canadian exports more expensive for foreigners to buy, which puts pressure on some sectors of our economy, such as manufacturing and forestry.
The rise in the dollar, along with increasing global competition, is leading to big changes in what many Canadians do for a living.
For example, many jobs are shifting away from manufacturing and such primary industries as fishing and logging, towards the service sector.
For50 years, our labour supply grew at an extraordinary pace, thanks to the so-called Baby Boom.
But now Baby Boomers are retiring and the growth in our labour supply will slow down dramatically. This will reduce our economic growth potential.
With the challenges ahead, such as fewer workers, improvements to our standard of living will increasingly depend on working smarter and using technology to make our economy more competitive.
Last Fall the Government released Advantage Canada, a comprehensive long-term economic plan to boost productivity and living standards.
This plan was centered on building five key strategic advantages for Canada:
- Tax, and
Significant actions have already been taken place in each of these areas.
The 2007 budget took action to support a Knowledge Advantage in Canada with the following measures:
- Investing an additional $800 million a year in post-secondary education.
- Funding 1,000 more Canada Graduate Scholarships.
- Removing the contribution limits to registered education savings plans.
- Investing $500 million per year in labour market training.
- Providing $510 million to modernize research facilities at universities, colleges, hospitals and other institutions and an additional $350 million to support commercialization of ideas.
We are building an Infrastructure Advantage.
Combined with investments in Budget 2006, the federal government is providing $33 billion over seven years to building infrastructure such as roads, sewers and green energy – the largest such investment in Canadian history.
And we want to leverage this investment by using partnerships with the private sector more effectively.
We are also taking steps toward an Entrepreneurial Advantage by creating a more competitive business environment.
- Implementing our plan to succeed in global capital markets, including the creation of a common securities regulator.
- Reducing the paper burden on small business.
- Creating a new projects office to streamline the review of large resource projects.
- Introducing policy to support new environmental and energy technologies.
To build a Tax Advantage, the recent 2007 Economic Statement announced $60 billion of tax relief for this and the next five years.
- Reducing the federal corporate income tax rate to 15 per cent by 2012.
- Accelerating the reduction in the small business rate to 11 percent by one year, to 2008.
- Reducing the GST to 5 per cent and maintaining the GST credit for low- and modest-income Canadians at its current level.
- Reducing the lowest personal income tax rate to 15% from 15.5%, and
- Increasing the basic personal amount to $9,600 for 2007 and 2008, and to $10,100 for 2009.
Canada already has a strong fiscal advantage.
The Government is planning debt reductions of $10 billion in 2007-08 and at least $3 billion each year after that.
All Canadians have a direct stake in reducing debt. Under the Tax Back Guarantee, the Government uses the interest savings from a lower debt burden to reduce personal income taxes.
By 2013, this tax relief will rise to $2.5 billion and the federal debt will fall below 25 per cent of our GDP, marking the lowest debt burden since the late 1970s.
The government is committed to carefully managing spending with a new Expenditure Management to limit spending growth.
For a more complete picture of government spending, please visit the Where Your Tax Dollar Goes feature on this website.
How are Canada’s books looking for the years ahead?
Once the current tax reductions are accounted for, we expect a surplus of $11.6 billion this fiscal year, and just over $4 billion during the next two years.
The Government plans to reduce the federal debt by $10 billion in 2007-08 and $3 billion in each year thereafter.
That leaves about $1.5 billion a year for the current and next two years.
To sum up, we currently are enjoying very strong economic and fiscal fundamentals.
The question is how to secure our prosperity for the future amid the risks and challenges we face today.
The Governments’ action plan is Advantage Canada.
We have already begun, with bold action to cut corporate taxes and bolster our productivity.
Given the challenges ahead, it will become increasingly important to enhance productivity even more.
This means choices will have to be made.