Budget in Brief 1998 -  1
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Archived - A Strong Economy and a Secure Society

The government's key priority is to build a strong economy and a secure society for the 21st century. These two goals are mutually reinforcing.

• A strong economy creates employment opportunities and generates the resources needed to maintain and enhance programs that contribute to a secure society.
• A secure society provides Canadians with the means and sense of security necessary to adapt to the changes in a modern economy.

This budget marks the start of a new fiscal era. The government is now planning on the basis of balanced budgets and a steady decline in the debt burden.

Highlights of the 1998 Budget

• The budget will be balanced in 1997-98 -- the first balanced budget since 1969-70.
• The budget will also be balanced in 1998-99 and 1999-2000 -- the first time in almost 50 years that the budget will be in balance for three consecutive years.
• Canada's debt burden will be put on a permanent downward track through sustained economic growth and a debt repayment plan.
• Program spending will continue to decline relative to the size of the economy. It is projected to fall to 11.5 per cent of gross domestic product (GDP) in 1999-2000 -- the lowest level in 50 years.
• The Canadian Opportunities Strategy will expand access for all Canadians to the knowledge, skills and learning they will need for jobs that deliver a better standard of living in the 21st century.
• Eighty per cent of the new spending initiatives reflect two of the highest priorities of Canadians -- access to knowledge and skills, and increased funding for health and education through increased transfers to the provinces.
• This budget marks the beginning of general tax relief, primarily for low- and middle-income Canadians.
• As part of the National Child Benefit System, a further increase in the Canada Child Tax Benefit will be phased in over two years.
• The child care expense deduction will be enriched, and other targeted tax assistance will be provided to promote a strong economy and secure society.
• Over the next three years, $7 billion in tax relief is being provided to Canadians.

Maintaining Sound Economic and Financial Management

Upon coming to office in 1993, the government set out a deliberate, measured and responsible plan to eliminate the deficit through program reforms that ensured permanent savings, while allowing Canadians and the economy time to adapt. Budget plans were based on two-year rolling deficit targets, using prudent economic assumptions and including a sizeable Contingency Reserve to handle unforeseen developments. Prudence in budget planning has meant that the Contingency Reserve has not been needed and deficit reduction targets have been consistently bettered in each and every year.

A Stronger Economy: The Payoff for All Canadians

The government's strategy is paying off.

Job creation has rebounded strongly. Over the last four years, the number of jobs has grown by over one million. In 1997 alone, 372,000 new jobs -- all full time and in the private sector -- were created.

In 1993, the unemployment rate stood at 11.2 per cent. It has fallen since then and is now below 9 per cent. While not satisfactory, the trend is clear.

Consumer confidence has rebounded. The economic recovery is now supported by strong domestic demand. Business confidence has hit record levels. Investment is surging.

Stimulated by lower interest rates and renewed confidence, economic growth reached a level in excess of 3.5 per cent last year. This year, continued strength is projected. This would mean the best back-to-back economic performance for Canada in over 10 years, the strongest performance of any Group of Seven (G-7) nation.

Balancing the Books

In 1993-94, the deficit stood at $42 billion. In 1997-98, the budget will be balanced for the first time since 1969-70.

The budget will also be balanced for 1998-99 and 1999-2000 -- the first time in almost 50 years that the federal government will have balanced its books for three years in a row.

As a share of GDP, program spending will continue to fall, to 11.5 per cent by 1999-2000, the lowest level in 50 years.

Many industrial countries use financial requirements as the measure of their deficits. By this measure, Canada had a surplus in 1996-97 -- the only G-7 country to do so -- and will continue to run financial surpluses.

The Debt Repayment Plan

Canada's remaining fiscal challenge is to significantly lower the government's debt burden -- measured as the ratio of net public debt to GDP.

This has already begun to occur. In 1996-97 Canada's debt-to-GDP ratio -- what we owe in relation to what we produce -- recorded a significant decline for the first time in more than 20 years. It will fall again this year even more. Over the next two years, this improvement will continue, with the ratio projected to fall to about 63 per cent from almost 72 per cent in 1995-96.

Table 1
Summary statement of transactions: fiscal outlook with budget measures

	1993-94	1994-95	1995-96	1996-97	1997-98	1998-99	1999-00
	(billions of dollars)
Budgetary revenues	116.0	123.3	130.3	140.9	147.5	151.0	155.0
Program spending	120.0	118.7	112.0	104.8	106.0	104.5	107.0
Operating balance	-4.0	4.6	18.3	36.1	41.5	46.5	48.0
Public debt charges	38.0	42.0	46.9	45.0	41.5	43.5	45.0
Underlying balance	-42.0	-37.5	-28.6	-8.9	0.0	3.0	3.0
Contingency Reserve						3.0	3.0
Budgetary balance	-42.0	-37.5	-28.6	-8.9	0.0	0.0	0.0
Net public debt	508.2	545.7	574.3	583.2	583.2	583.2	583.2
Non-budgetary transactions	12.2	11.6	11.4	10.2	12.0	6.0	9.0
Financial  requirements/ surplus (excluding  foreign exchange  transactions)	-29.8	-25.8	-17.2	1.3	12.0	6.0	9.0
Per cent of GDP
Budgetary revenues	16.0	16.2	16.3	17.2	17.2	16.9	16.7
Program spending	16.6	15.6	14.0	12.8	12.4	11.7	11.5
Operating balance	-0.6	0.6	2.3	4.4	4.8	5.2	5.2
Public debt charges	5.2	5.5	5.9	5.5	4.8	4.9	4.9
Budgetary balance	-5.8	-4.9	-3.6	-1.1	0.0	0.0	0.0
Net public debt	70.2	71.6	71.9	71.1	68.1	65.4	62.9
Financial requirements/ surplus	-4.1	-3.4	-2.2	0.2	1.4	0.7	1.0

The government is committed to keeping the debt burden going down -- steadily, permanently, irrevocably. This will be done through a two-track strategy: the government will continue to follow policies that will pay off in better economic growth, and it will bring down the absolute level of debt itself through a debt repayment plan.

This plan is based on three key elements:

• The government will continue, as before, to present two-year fiscal plans based on prudent economic planning assumptions that are consistently more cautious than private sector forecasts. The current plan commits to back-to-back balanced budgets in 1998-99 and 1999-2000.
• The fiscal plan will continue to include a Contingency Reserve of $3 billion in each year to handle unforeseen developments.

If, as in each of the last three years, the Contingency Reserve is not needed, it will go directly to paying down the debt.

This will ensure that the debt-to-GDP ratio is put on a permanent downward track.

The commitment to balanced budgets in both 1998-99 and 1999-2000 also means that there will be ongoing financial surpluses and a steady repayment of the federal government's market debt -- the debt it had to borrow on financial markets. So far this year, the government has paid down almost $13 billion of its market debt.

Preserving the Gains From Low Inflation

One of the cornerstones of sound economic and financial management is controlling the rate of inflation. The government and the Bank of Canada have agreed to extend the current inflation control targets, which keep inflation within a range of 1 per cent to 3 per cent, until the end of 2001. This will help to keep Canada's inflation rate among the lowest in the world, which in turn will help to maintain Canada's low interest rates.

Summary of Spending and Tax Actions

Table 2 outlines the cumulative fiscal impact (1997-98 to 2000-01) of the spending and tax actions since the 1997 budget.

Over the four years 1997-98 to 2000-01, the net fiscal impact of the new investments and tax relief amounts to $18.1 billion. Of this amount, $10.9 billion represents spending initiatives. Most of the increased spending is for the Canadian Opportunities Strategy ($4.7 billion or 43 per cent) and for an increase in the Canada Health and Social Transfer to the provinces and territories ($4.1 billion or 38 per cent). As a result, 80 per cent of the spending initiatives reflect two of the highest priorities of Canadians -- access to knowledge and skills, and increased funding for health and education through increased transfers to provinces and territories.

The targeted and general tax relief actions in the budget amount to $7 billion over the next three years.

Under The Debt Repayment Plan, the Contingency Reserve, if not required, will be used to pay down the public debt. Over the next three years, up to $9 billion could be used for this purpose.

Table 2
Spending and tax initiatives since the 1997 budget

	1997-98	1998-99	1999-00	2000-01	Cumulative total
	(millions of dollars)
Spending Initiatives
The Canadian Opportunites Strategy
Canada Millennium Scholarships	2500				2500
Other initiatives	55	530	725	850	2160
Building a Secure Society
Increased CHST cash transfers	200	900	1500	1500	4100
Other initiatives	480	466	491	461	1898
Other "Securing our Future Together"	3	85	85	83	256
Total	3238	1981	2801	2894	10914
Targeted and general tax relief
The Canadian Opportunities Strategy		120	360	380	860
Building a secure society		130	610	1065	1805
General tax relief		880	1445	1680	4005
Tax Fairness Measures		-5	-25	30	0
Actions before budget	235	395	-70	-70	490
Total	235	1520	2320	3085	7160
Total spending and tax initiatives	3473	3501	5121	5979	18074
The Debt Repayment Plan: up to		3000	3000	3000	9000
(Assuming that Contingency Reserve not required)

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