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The 1998 Budget - Overview

The government's plan for a strong economy and a secure society is paying off. With the budget deficit about to be eliminated, the next fiscal challenge is to bring down the debt.

• The 1998 budget continues sound economic and financial management, including a new debt repayment plan.
• It proposes the Canadian Opportunities Strategy to provide Canadians with greater access to the knowledge and skills needed for the job opportunities of the 21st century.
• This budget marks the beginning of general tax relief, starting with those who need it most. Over the next three years, $7 billion in general and targeted tax relief will be provided, primarily to low- and middle-income Canadians.
• Eighty per cent of new spending initiatives in this budget reflect two of the highest priorities of Canadians -- access to knowledge and skills, and support for health and education through increased transfers to provinces.

A Strong Economy

Eliminating the Deficit

• The budget will be balanced in 1997-98 for the first time since 1969-70.
• The budgets for 1998-99 and 1999-2000 will also be balanced. This will mark the first time in almost 50 years that the federal government will have balanced its books for three consecutive years.
• Using comparable measures, Canada has the best fiscal balance among the Group of Seven (G-7) countries.

Reducing the Debt Burden

• The remaining fiscal challenge is to bring down the debt burden. Although the debt-to-GDP ratio -- what is owed relative to what is produced -- has started to fall, it is still too high.
• In 1996-97, Canada's debt-to-GDP ratio recorded its first significant decline in 25 years, falling to 71.1 per cent from 71.9 per cent in 1995-96. This decline means that economic growth began to outpace the growth of the debt, thereby reducing the burden of the debt on the economy. The debt-to-GDP ratio will decrease again in 1997-98 and will continue to do so in 1998-99 and 1999-2000.
• The 1998 budget proposes to put the debt-to-GDP ratio on a permanent downward track by using a two-track strategy: continued investments to support strong economic growth, and a debt repayment plan that will bring down the absolute level of the debt.

The Debt Repayment Plan

The Debt Repayment Plan is based on three key elements:

• as before, two-year fiscal plans based on prudent economic planning assumptions; the current plan commits to balanced budgets in 1998-99 and 1999-2000;
• the inclusion in the fiscal plan of a Contingency Reserve of $3 billion in each year; and
• the use of the Contingency Reserve, when it is not needed, to pay down the public debt. By 2000-01, up to $9 billion in debt could be repaid.

Inflation Targets

To preserve the gains of low inflation, the federal government and the Bank of Canada have agreed to extend the current inflation control targets -- which are to hold inflation inside the 1- to 3-per-cent range -- until the end of 2001. Together with the sound public finances now in place, this will help maintain the low interest rates that have revived job creation and economic growth in Canada.

The Canadian Opportunities Strategy

This budget builds on actions taken in previous budgets to provide Canadians with greater opportunities to acquire the knowledge and skills needed to access better jobs now and in the future. The proposed Canadian Opportunities Strategy will make the knowledge and skills Canadians will need for better jobs and a better life in the 21st century more accessible and affordable.

The Strategy takes action on seven fronts by:

• providing more than 100,000 students with Canada Millennium Scholarships averaging $3,000 a year, and up to 25,000 students who are in financial need and have children or other dependants with new Canada Study Grants;
• increasing assistance for advanced research and for graduate students through increased funding for the three granting councils;
• helping graduates manage their student debt loans by providing tax relief on interest payments on student loans, and through improvements to the Canada Student Loans Program;
• helping Canadians upgrade their skills throughout their working lives by allowing tax-free withdrawals from their registered retirement savings plans (RRSPs) for lifelong learning, and by extending the education tax credit and the child care expense deduction to part-time students;
• ensuring that families can better save for their children's future education by providing stronger incentives through a new Canada Education Savings Grant -- a grant of 20 per cent on the first $2,000 of contributions made each year to registered education savings plans (RESPs);
• supporting youth employment by more than doubling funding for youth at risk who lack basic education and job skills, and by providing employers with an employment insurance premium holiday for additional young Canadians hired in 1999 and 2000; and
• increasing funding for SchoolNet, the Community Access Program, and the Canadian Network for the Advancement of Research, Industry and Education (CANARIE) to help bring the benefits of information technology into more classrooms and communities across Canada.

A Secure Society

The 1998 budget also proposes new initiatives to help build a secure society including:

• support for families with children through a further increase in the Canada Child Tax Benefit;
• additional help for families with child care expenses;
• support for individuals caring for infirm or elderly family members;
• assistance for persons with disabilities;
• assistance for unincorporated self-employed individuals who pay health and dental insurance premiums;
• support for communities and the voluntary sector;
• measures to address environmental challenges; and
• resources to further international co-operation.

The budget confirms funding for commitments made in Securing Our Future Together and for other policy initiatives announced over the past year including funding to:

• renew Canada's blood system in partnership with the provinces;
• implement the international treaty on the prohibition and destruction of anti-personnel landmines;
• build a new partnership with aboriginal peoples; and
• support Canadian culture.

General Tax Relief for Canadians

This budget marks the beginning of general tax relief, starting with those who need it most -- low- and middle-income Canadians.

• The amount of income that low-income Canadians can receive on a tax-free basis will be increased by $500, taking 400,000 low-income Canadians off the tax rolls completely.
• The 3-per-cent general surtax will be eliminated for almost 13 million taxpayers with incomes up to about $50,000, and reduced for an additional one million taxpayers, earning between $50,000 and about $65,000.

Overall Fiscal Impacts

• New initiatives announced in this budget amount to $2.6 billion for 1997-98, $1.8 billion in 1998-99, $3.2 billion in 1999-2000 and $4.1 billion in 2000-01.
• Funding for other initiatives announced since the 1997 budget, including those listed in Securing Our Future Together, totals $828 million in 1997-98, $1.7 billion in 1998-99 and to $1.9 billion in each of 1999-2000 and 2000-01.
• Of the $10.9 billion in new spending, $4.7 billion (or 43 per cent) will go to the Canadian Opportunities Strategy and $4.1 billion (or 38 per cent) will go to increased funding for health and education through cash transfers to provinces under the Canada Health and Social Transfer (CHST). This means that about $9 billion or 80 per cent of all spending initiatives reflect two of the highest priorities of Canadians -- access to knowledge and skills, and increased support for health and education through increased transfers to provinces.
• General and targeted tax relief total $7 billion over the next three years, primarily for low- and middle-income Canadians.

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