The Honourable Paul Martin P.C., M.P.
Minister of Finance
Monday, February 28, 2000
Also published as Chapter 1 of the Budget Plan.
Canada is now in an era of budget surpluses.
When the Government first took office in 1993, it set out a plan to restore the nation’s finances, build a stronger, more innovative economy and improve the quality of life for all Canadians. The plan is working.
The deficit is eliminated, the debt burden is falling, our unemployment rate is at its lowest level in more than 20 years and disposable income is rising.
With a growing economy and our nation’s finances in order, this budget charts a course to greater prosperity for all Canadians in the 21st century. Today’s better finances will be used to help build better lives for all Canadians, now and for future generations.
Crucial to a higher quality of life is ensuring that we continue to increase resources for post-secondary education and improve our system of universal health care.
A key component of the Government’s plan is to cut taxes. This will mean more money in the pockets of Canadians, stronger economic growth and enhanced job creation.
Canadians know that much of our future success hinges on building a stronger, more innovative economy. Developing the know-how, products, skills and services to keep the economy growing is essential to improving our quality of life.
That is why this budget:
For further information on budget measures other than those explained in this booklet, please contact the Distribution Centre at the address provided on the last page, or visit the Department of Finance Canada Web site at www.fin.gc.ca.
This budget sets out the federal government’s plan for Canada in the 21st century. The economy of today is global, increasingly knowledge-intensive and built on instant communication. The federal government’s plan is designed to make Canada a leader in this new economy in order to increase the standard of living and the quality of life of all Canadians.
The plan is based on maintaining sound financial management, providing tax relief, building an innovative economy and investing in skills and knowledge to ensure Canadians have the tools they need for better jobs now and in the future. It strengthens post-secondary education and health care and helps children get the best possible start in life.
This budget provides:
a series of initiatives, totalling $4.1 billion between 1999-2000 and 2002-03, to promote innovation and leading-edge research, develop environmental technologies and practices, and strengthen federal, provincial and municipal infrastructure.
The actions set out in this budget to improve the quality of life of Canadians and their children are part of an overall four-part plan:
Maintaining Sound Financial Management
The Government is committed to low inflation, balanced or surplus budgets and a declining public debt burden. These are fundamental conditions for sustained economic growth and job creation, which in turn enable the Government to make investments in key priorities and provide substantial tax relief.
Providing Tax Relief
The Government believes that tax reduction is essential to improving living standards. It increases productivity, creates jobs and leaves more money in the pockets of Canadians.
Making Canada’s Economy More Innovative
In the modern global economy, the nations that thrive will be those that excel at innovation. That is why the Government is increasing its support for the kind of groundbreaking research that will provide new ideas, products and services and generate continued economic growth in Canada.
Investing in Skills and Knowledge
Skills and knowledge are the best guarantees of higher incomes, greater job security and expanding opportunity for all Canadians. The Government is increasing its support of university research and providing further tax assistance to students on scholarships.
The Government’s commitment to sound financial management – maintaining low inflation, keeping the budget in balance or surplus and reducing the debt burden – has allowed the Canadian economy to expand at a healthy pace and exceed the expectations of virtually all forecasters.
The economy grew strongly in 1999, with real GDP growth estimated to have averaged 3.8 per cent.
Private sector forecasters expect continued robust economic growth in 2000 and 2001.
Both the International Monetary Fund and the Organisation for Economic Co-operation and Development expect Canada to post the second fastest economic growth among the Group of Seven (G-7) major industrial countries in 2000 and to lead in job creation.
Last year marked the third consecutive year of strong job growth, with 427,000 jobs created during the year and almost 1.3 million jobs created since the end of 1996.
By the end of 1999, the unemployment rate was down to 6.8 per cent, its lowest level in almost 24 years.
The strong job market performance has contributed to solid personal income growth. Real after-tax income improved for the third consecutive year in 1999. It has risen about 3 per cent in per capita terms since 1996, and private sector forecasters project that it will continue to increase significantly in the years ahead.
Inflation has picked up somewhat in recent months, mainly reflecting higher fuel prices due to a strong increase in world oil prices. In December 1999, the year-over-year consumer price index inflation rate was 2.6 per cent while the inflation rate (which excludes the impact of food and energy) was 1.6 per cent. Inflation is expected to return to the mid-point of the 1-to-3 per cent target band set jointly by the Government and the Bank of Canada.
Domestic demand has been buoyed by strong employment and income growth, which, together with low interest rates, have boosted consumer confidence. Business confidence has bounced back sharply since the end of 1998 and is now equal to the record high reached in mid-1997.
Canada recorded the largest improvement in its financial balance of all G-7 countries from 1992 to 1999.
In the fall of 1999, the Government promised Canadians in both the Speech from the Throne and The Economic and Fiscal Update that it would set out a multi-year plan for further tax reductions. With significant planning surpluses now available, this budget delivers on that commitment by making the most important structural changes to the Canadian federal tax system in more than a decade, with a special emphasis on the needs of families with children.
The Five-Year Tax Reduction Plan will also help Canada become more competitive internationally by making the tax system more conducive to investment and innovation.
- reduces the capital gains inclusion rate from three-quarters to two-thirds;
- postpones the taxation of gains on qualifying stock options to when the shares are sold rather than when the options are exercised; and
- allows a tax-free rollover of capital gains on qualified investments from one small business to another.
The Plan will reduce taxes by a cumulative amount of at least $58 billion over the next five years.
On an annual basis, the Plan will reduce personal income taxes by an average of 15 per cent by 2004-05.