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Annex 1
Canadian Economic and Fiscal Progress: The Last Ten Years^[1]

Highlights

The Government has recorded six consecutive budget surpluses since 1997-98 and has reduced the federal debt by more than $52 billion. This has freed up some $3 billion a year in interest savings, which can now be used for other priorities. Canada's fiscal turnaround exceeds that of any other Group of Seven (G-7) country. As a result, Canada's total debt burden moved from being the second highest in the G-7 in the mid-1990s to the second lowest.
Thanks to fiscal discipline, the Government was able to implement the largest tax cut in Canadian history and to create a growing tax advantage for Canadian businesses that will foster economic growth and job creation. Canada's fiscal achievement, combined with its low and stable inflation record, helped to keep interest rates low and stimulate investment and productivity.
To support an increasingly knowledge-intensive economy, the federal government has made significant investments in education and skills, research and development, and knowledge creation.
Over the last six years Canada has been a G-7 leader in labour productivity growth. Furthermore, the Canadian economy has created more than 2 million jobs since 1996, the best job creation record in the G-7, narrowing Canada's unemployment gap with the United States from nearly 5 percentage points in 1996 to 2 percentage points today.
A strong economic performance is key to the sustainability of Canada's social safety net and to the ability of governments to invest in priority areas.
The federal government has made significant investments in Canada's social programs through increased cash transfers to the provinces, income assistance for children in lower-income families, and initiatives to promote healthy communities. Canada has also achieved major successes in putting the "three pillar" retirement income system on a sustainable financial footing.
Improved fundamentals have led to renewed strength in gross domestic product (GDP) growth since the second half of the 1990s. After slowing through the 1970s and 1980s and virtually stalling in the early 1990s, real GDP per capita rose by 20 per cent over the 1997 to 2002 period.

Introduction Fiscal and Monetary Progress Chronic deficits have become sustained surpluses Debt placed on a downward track Inflation targeting generated low and stable inflation Fiscal and monetary policy credibility led to lower interest rates Policy Progress Investments in key social and growth initiatives $100-billion tax reduction Canada Pension Plan/Quebec Pension Plan put on an actuarially sound foundation Investments in research and innovation Economic Progress Stronger productivity growth supported by investment in human and physical capital Reduced unemployment and higher job creation Renewed growth in the economy and living standards of Canadians

The 20 years between the mid-1970s and the mid-1990s were characterized by declining growth rates of real GDP, productivity and real household income. Inflation soared in the 1970s and 1980s along with a simultaneous rise in the unemployment rate. Years of chronic government deficits pushed Canada's debt-to-GDP ratio to levels well above the G-7 average.
Key reforms in the 1990s created a stable fiscal and monetary climate in Canada. Large and growing deficits were replaced by sustained surpluses through expenditure reduction and prudent budget planning. After rising for more than 20 years, Canada's total government debt burden was placed on a permanent downward track. Today, of the G-7 countries, only Canada remains in a surplus position, while only the United Kingdom has a lower debt burden.
Monetary policy reform in 1991, when the Bank of Canada and the Government of Canada agreed to adopt inflation targets, has complemented and strengthened policy reform elsewhere. The resulting low and stable inflation facilitated long-term planning and encouraged business investment that ultimately contributed to higher productivity growth.
These macroeconomic reforms supported and enabled important microeconomic reforms that further fuelled economic growth and job creation, and provided the resources to allow us to invest in strengthening a society that Canadians value. The changes involved substantial tax reductions, improved labour market policies, a sustainable public pension system, reforms to business subsidies and business framework policies, financial sector reform and reduced barriers to trade. At the same time, important investments have been made in families and their communities, the health care system, skills development, and research and innovation.
The macroeconomic and microeconomic reforms implemented in Canada, together with favourable economic conditions, have contributed to higher productivity growth and a stronger labour market. These developments have led to renewed growth in Canadian living standards and will continue to raise the quality of life of Canadians.

Canada's fiscal progress - six consecutive federal budget surpluses since 1997-98

Federal Budgetary Balance

From the early 1980s to the mid-1990s the federal deficit was stuck at around $30 billion or more per year. However, with the structural reforms introduced principally in the 1995 and 1996 budgets, the deficit was eliminated and a surplus was recorded in 1997-98 - the first surplus after 27 consecutive years of deficits.
The federal government has now posted six consecutive annual surpluses since 1997-98. Only once before has this been accomplished - in the period following World War II (1945-46 to 1951-52).

Federal debt-to-GDP ratio on a downward track

As a result of these surpluses, the federal debt (accumulated deficit) has been reduced by $52.3 billion since 1997-98.
The federal debt-to-GDP ratio fell to 44.2 per cent in 2002-03. It has come down almost 25 percentage points from its peak of 68.4 per cent in 1995-96.

Decline in federal program expenses a major contributor to fiscal consolidation

The federal program expenses-to-GDP ratio has declined significantly, from 15.7 per cent in 1993-94 to 11.5 per cent in 2002-03. This decline is largely attributable to the expenditure reduction initiatives, announced in the 1995 and 1996 budgets, aimed at eliminating the deficit.
The decline in program expenses as a percentage of the economy was the major contributor to the elimination of the deficit and the emergence of six consecutive years of budgetary surpluses.
Between 1993-94 and 2002-03 program expenses as a share of GDP fell by 4.2 percentage points, while public debt charges as a share of GDP were reduced by 2.3 percentage points. The resulting 6.5-percentage-point improvement in the budget balance as a share of GDP was partially offset by a 0.6-percentage-point reduction in revenues as a share of GDP.
In total, the improvement in the budgetary balance as a percentage of GDP between 1993-94 and 2002-03 was 5.9 percentage points - moving from a deficit of 5.3 per cent to a surplus of 0.6 per cent.

Reduction in federal debt means more resources for other priorities

The federal debt has been reduced by $52.3 billion over the last six years, resulting in ongoing savings in public debt charges of about $3 billion annually.
In 1995-96 37.6 cents of each revenue dollar went to service the debt. Today it has dropped to 21 cents.
This means that more of each revenue dollar can be used to address the key priorities of Canadians.

Relative fiscal performance: Canada has maintained fiscal surpluses despite global slowdown; large deficits in U.S.

In 2000-01 both Canada and the United States recorded surpluses.
However, the federal government in the United States posted large deficits in both 2001-02 and 2002-03, and is expected to record another deficit in 2003-04.
In contrast, Canada's fiscal situation remained in surplus in both 2001-02 and 2002-03, and a balanced budget or better is expected in 2003-04.

Both the federal and provincial-territorial governments have contributed to the significant improvement in Canada's fiscal situation

Both the federal and provincial-territorial governments have contributed to turning Canada's fiscal situation around.
For the federal-provincial-territorial governments as a group, a combined deficit of nearly $60 billion in 1993-94 turned to surplus in 1998-99 and has remained in surplus since.
This improved fiscal performance has helped underpin Canada's solid economic performance, and allowed the Canadian economy to better withstand the global shocks that occurred over this period.

Canada's total government fiscal turnaround exceeds that of any other G-7 country

The improvement in Canada's fiscal performance has exceeded that of the U.S. and all other G-7 countries over the last 10 years.
In 1992 Canada's total government deficit,^[2] measured on a National Accounts basis (the measure commonly used to make comparisons across countries), peaked at 9.1 per cent of GDP, almost double the G-7 average. By 1997, however, significant fiscal improvements at all levels of government and measures to reform the Canada Pension Plan and Quebec Pension Plan enabled Canada's total government sector to post a surplus, and to remain in surplus each year since.
Canada has recorded six consecutive surpluses. The Organisation for Economic Co-operation and Development (OECD) currently expects that Canada will post a seventh consecutive total government surplus in 2003, equal to 1.1 per cent of GDP. The G-7 countries, on average, are expected to post a deficit of 4.4 per cent of GDP.

Canada is the only G-7 country to maintain a financial surplus despite the global slowdown

The strength of Canada's fiscal and economic position was demonstrated during the global economic slowdown that began in 2001, when most G-7 countries experienced considerable pressure on their finances.
Indeed, Canada was the only G-7 country to record a surplus in 2002 and is expected to be the only one to post a total government surplus again this year and next, according to OECD estimates.

Canada's debt burden has fallen from second highest to second lowest among G-7 countries

Given the sharp turnaround in Canada's fiscal situation relative to the other G-7 countries, it is not surprising that Canada has also achieved the largest decline in government debt among G-7 countries.
Between 1995 and 2002 Canada's total government sector debt-to-GDP ratio fell by 27.6 percentage points to 40.4 per cent of GDP.
As a result, according to the OECD, Canada's total government debt burden moved from being the second highest in the G-7 in 1995 to the second lowest in 2003, lower than that of the U.S. Only the United Kingdom is expected to have a lower total government sector net debt burden than Canada this year.

Thanks to fiscal discipline, the Government has delivered significant tax relief to all Canadians

Federal Five-Year Tax Reduction Plan


	2000-01	2001-02	2002-03	2003-04	2004-05	Total

	(billions of dollars)
Personal income tax	6.2	12.7	15.6	18.3	22.3	75.2
Corporate income tax	-	0.6	1.9	3.2	4.4	10.1
Employment insurance	1.5	2.5	3.0	3.8	4.4	15.2

Total	7.7	15.9	20.5	25.3	31.1	100.5

Note: Numbers may not add due to rounding.

The Government began to deliver broad-based tax relief when the deficit was eliminated.
In 2000 it introduced a $100-billion Five-Year Tax Reduction Plan - the largest tax cuts in Canadian history. This plan significantly reduces the tax burden of Canadian families and individuals.

About three quarters of the tax relief provided under this plan goes toward reducing the tax burden of Canadian families and individuals.
All tax rates have been reduced and the Canada Child Tax Benefit (CCTB) has been enhanced.
By 2004-05 the plan will have reduced the personal income tax burden by 21 per cent on average. Families with children benefit even more - with average tax savings of 27 per cent.
The employment insurance premium rate was reduced from $2.55 in 1999 to $2.10 in 2003. The rate is scheduled to fall to $1.98 in 2004, resulting in ongoing annual savings to employers and employees.

The 2003 budget built on the Five-Year Tax Reduction Plan and enhanced support for Canadian families.

The CCTB has been further enhanced to support families with children. The maximum annual benefit for a first child under the CCTB will have more than doubled from $1,520 in 1996 to $3,243 in 2007.

The 2003 budget also introduced a new Child Disability Benefit for low- and modest-income families.

As a result of the tax changes introduced since 1997:

A typical one-earner family of four earning $40,000 will pay $3,238 less in net federal personal income tax in 2007 - a savings of 83 per cent.
A typical two-earner family of four earning $60,000 will pay $3,059 less in net federal personal income tax - a savings of 48 per cent.
Over 1.5 million Canadians will have been removed from the tax rolls.

The Government has also been able to create a tax advantage for Canadian businesses and entrepreneurs

The Five-Year Tax Reduction Plan and Budget 2003 have contributed to a Canadian tax advantage:

The Five-Year Tax Reduction Plan reduces the general federal corporate tax rate from 28 to 21 per cent by 2004.

Further to the 2003 budget, the elimination of the federal capital tax over five years has been legislated.

The 2003 budget also introduced a new taxation regime for the resource sector.

By 2008 the average Canadian corporate tax rate will be significantly lower than the average U.S. rate.
The investment climate for entrepreneurs and small businesses has also been improved.

The Five-Year Tax Reduction Plan reduced the capital gains inclusion rate from three quarters to one half and introduced a measure that allows individuals to defer the tax on capital gains from the sale of shares in an eligible small business corporation where proceeds are reinvested in another eligible small business.
The 2003 budget increased the amount of annual income eligible for the 12-per-cent small business rate from $200,000 to $300,000.

Canada has achieved a consistent record of low and stable inflation.

A new monetary framework has complemented and strengthened reform on the fiscal front. In 1991 the Bank of Canada and the Government of Canada agreed to adopt an inflation-targeting regime. The target range was reduced to between 1 and 3 per cent and was extended several times, most recently in May 2001 to the end of 2006.
Over the 1993 to 2002 period average inflation in Canada was 1.8 per cent - one of the lowest rates among G-7 countries and very close to the mid-point of the target range of 1 to 3 per cent.
Low and stable inflation has facilitated long-term planning and encouraged business investment that has ultimately contributed to higher productivity growth. Equally important, the inflation-control targets have contributed to macroeconomic stability, preventing a recurrence of the inflationary "boom-and-bust" cycles of the early 1980s and early 1990s.

.which, together with fiscal discipline, has contributed to lower interest rates

The credibility of Canada's monetary policy, complemented by a sharp improvement in the fiscal situation, increased the Bank of Canada's flexibility to respond quickly and decisively to changing economic conditions.
The 1995 budget announced major reductions and restructuring of federal spending. It established a credible path toward the elimination of the deficit and set the debt-to-GDP ratio on a clear downward track.
By eliminating the deficit and moving to sustained fiscal surpluses after 1997, Canada improved its international fiscal credibility, leading to reductions in risk premiums and interest rates.
Lower interest rates have in turn reduced the debt burden, while providing strong support to interest-sensitive sectors such as housing, consumer expenditures and business investment.

Budget surpluses have reduced borrowing in capital markets, freeing resources for the private sector

Net Borrowings in Capital Markets


	1992-93	2001-02	Change

	(average) (billions of dollars)
Government¹	+45.1	-10.3	-55.4
Business²	+22.0	+59.1	+37.1

Note: Net borrowings in Canada and abroad. ¹ Net issues of total government bonds. ² Net issues of corporate bonds, equities and trust units. Source: Bank of Canada.

With the elimination of budget deficits by federal and provincial governments, the government sector became a net lender in capital markets by 2001-02 after borrowing heavily in the early 1990s. At that time businesses, crowded out of the market by the financial needs of governments, borrowed much less for investment purposes.
With the government sector no longer a net borrower on capital markets, a much larger pool of savings has become available for the private sector to invest in productive endeavours.

Greater access to capital, lower interest rates and an improved fiscal environment have led to a rebound in business investment

Encouraged by greater access to capital, lower and more stable interest rates, and a strong economic and fiscal environment, growth in business investment rebounded strongly to an average of 5.7 per cent per year over the 1997 to 2002 period, compared to 0.3 per cent during the first half of the 1990s.
The increase in business investment, in turn, provided the foundation for job creation, productivity growth and a stronger economy.
The recovery in business investment was led by rapid growth in real machinery and equipment (M&E) spending. Higher investment in information and communications technologies (ICT) was an important source of this recent growth. The share of ICT investment in total business investment doubled between 1981 and 2002.
Investment in M&E, particularly ICT, frequently embodies new technologies and, as such, is an important element in productivity gains in the long run.

Since balancing the budget, the federal government has invested substantial resources in research and development (R&D) and knowledge creation

Innovation and R&D Initiatives Canada Foundation for Innovation and Genome Canada Canadian Institutes of Health Research Federal granting councils Indirect costs of research 2,000 Canada Research Chairs National Research Council: Industrial Research Assistance Program, regional innovation centres and Technology Partnerships Canada Investments in the Business Development Bank of Canada in support of venture capital Connecting Canadians through SchoolNet, the Community Access Program, Government On-Line and other initiatives

Between 1998-99 and 2004-05 the Government increased funding on R&D and innovation by a cumulative total of $12.7 billion.
Major investments have included:

The creation of the Canada Foundation for Innovation to support leading-edge research equipment and facilities.
The creation of the Canadian Institutes of Health Research, and the provision of substantial new resources to it and the other federal research granting councils.
The creation of the Canada Research Chairs Program to help universities attract and retain high-quality researchers.
The introduction of an ongoing program to support the indirect costs of federally sponsored research at universities, colleges and research hospitals.
Additional investment in Industry Canada, Technology Partnerships Canada and the National Research Council to encourage R&D, and in the Business Development Bank of Canada for venture capital to help knowledge-based companies grow and prosper.

Significant funding for programs aimed at connecting Canadians to sources of information and knowledge, including SchoolNet, the Community Access Program and Government On-Line.

Canada's scientific research and experimental development (SR&ED) tax incentive program to promote spending on R&D is available to every industrial sector and is one of the most advantageous R&D tax systems in the industrialized world.

In response to these federal initiatives, both universities and business have engaged more actively in R&D

Supported by a stronger foundation for growth and government support for research and development, the growth rate of real R&D investment has improved since 1997.
Overall, real R&D expenditures have grown from $12.0 billion in 1997 to $15.9 billion in 2002. The number of full-time equivalent R&D researchers also increased to more than 90,000 in 1999 from fewer than 70,000 in the early 1990s.
Furthermore, a growing proportion of R&D is now performed by the business sector and universities. Business enterprises also made the largest contribution to the growth in the number of R&D researchers over the past two decades.
Increased R&D spending is generating innovative new products, services and technologies and providing Canadians with leading-edge skills.

Canada has become the most open economy in the G-7

Between 1990 and 2002 Canada's exposure to foreign trade increased more than any other G-7 country. Indeed, as a share of the economy, Canada exported more than 40 per cent of its goods and services in 2002, making it the most open of all G-7 economies.
Canada has a long history of successfully embracing global markets. In 1989 Canada signed the Canada-U.S. Free Trade Agreement with the United States.
In 1994 the Canada-U.S. Free Trade Agreement was expanded to include Mexico, creating the North American Free Trade Agreement.
Since the implementation of the Canada-U.S. Free Trade Agreement, Canadian exports to the U.S. as a share of GDP have increased from 19.1 per cent in 1988 to 33.1 per cent in 2002.
This expansion of trade has not only promoted employment and growth, but has also increased Canadians' access to products from around the world and improved the allocation of resources, which in turn has contributed to progress in improving growth in productivity and living standards.

Canada's increased economic competitiveness and improved fiscal position have contributed to a current account surplus and a sharp reduction in net foreign debt

Canada's improved business competitiveness in recent years can also be seen in our current account balance, which has gone from large deficits through the 1980s and most of the 1990s to large surpluses today, despite the U.S. economic slowdown.
As a result, Canada's net foreign debt^[3] as a per cent of GDP fell from 44 per cent in the early 1990s to 16 per cent in 2002 - the lowest level in more than 50 years. This means that more of the income that Canadians earn is staying in Canada.
Canada's net foreign debt is now below that of the U.S. for the first time ever. With continuing budgetary and current account surpluses expected in Canada, and continuing deficits anticipated in the U.S., Canada's net foreign indebtedness should continue to fall and the gap vis-à-vis the U.S. continue to widen.

Improved fundamentals have supported a more productive economy.

Fiscal and monetary credibility, the embracing of global markets by Canadian business and improved investment have contributed to a rebound in labour productivity growth since 1997.
Labour productivity growth in Canada, particularly in the business sector, had slowed markedly in the 20 years following the mid-1970s. Measured as real GDP per hour worked, labour productivity growth in the Canadian economy rose from an average of 1.2 per cent per year over the 1990 to 1996 period to 2.1 per cent per year over the 1997 to 2002 period, surpassing the rate recorded during the 1970s.

.making Canada a leader in productivity growth

The sharp improvement in labour productivity growth in the late 1990s has made Canada a G-7 leader in this area over the last six years. Over the 1997 to 2002 period Canada's growth in real GDP per worker was the same as in the U.S.- a sharp improvement from the 1980 to 1996 period.
However, a sizeable gap still exists between the level of productivity performance in Canada and the U.S. In 2002 real GDP per worker in Canada is estimated at 78.2 per cent of the U.S. level.^[4]

Most of the improvement in productivity growth over the late 1990s occurred in ICT-intensive industries

Labour Productivity Growth in Canada by ICT Intensity


	1990-1996	1997-2000	Change

	(per cent, average annual growth)
Private sector¹	1.1	1.7	0.6
ICT-intensive industries	1.9	3.2	1.3
Non-ICT-intensive industries	0.5	0.5	0.0
of which :
Manufacturing	2.7	1.8	-0.9
ICT-intensive industries	4.7	8.6	3.9
Non-ICT-intensive industries	2.6	1.1	-1.5
Services	0.7	1.6	0.9
ICT-intensive industries	1.7	3.0	1.3
Non-ICT-intensive industries	-0.5	-0.7	-0.2

Note: Labour productivity here is measured as real GDP at basic prices per worker. Intensive users of ICT include ICT manufacturing (computer and electronic products), business services (professional, scientific, technical and administrative services), information services, wholesale trade, retail trade, finance, insurance and real estate. ¹ Total economy minus public administration. Sources: Statistics Canada and Department of Finance calculations.

The increase in productivity growth in Canada appears to have been focused primarily in industries that intensively use information and communications technologies. This is true in both the manufacturing and services sectors of the economy.
In fact, within the private sector, only ICT-intensive industries experienced a pickup in labour productivity growth over the 1997 to 2000 period.

Increased productivity growth has gone hand-in-hand with faster job creation.

Along with business investment and productivity growth, job creation slowed during the 20 years following the mid-1970s. In particular, Canada experienced a more severe decline in employment than the U.S. during the recessions of the early 1980s and early 1990s.
However, with the recovery in investment and productivity, employment growth has rebounded strongly since 1997, reflecting improved economic and policy fundamentals. Following average growth of 0.5 per cent per year over the 1990 to 1996 period, employment increased by 2.3 per cent per year on average over the 1997 to 2002 period, exceeding the growth rates in other G-7 economies. Today there are 3 million more people working in Canada than in 1993.
Most of the newly created jobs were full time, with job gains in most sectors of the economy and in all regions of Canada. All age groups benefited from the strong growth in job creation, including youths and adults over the age of 55 - two groups that often face difficulties finding employment.

.with the Canadian participation rate moving above that in the U.S.

Healthy job growth has increased Canadians' confidence regarding labour market prospects, leading to a strong rise in the share of the working-age population that is either working or actively looking for work - the participation rate - since 1997.
In September 2003 the Canadian participation rate reached 67.6 per cent, up substantially from a low of 64.5 per cent in 1996, and has surpassed that of the U.S. since the middle of 2002.
The rebound in employment growth and in the participation rate since 1997 was especially evident among youths and older workers - the two groups particularly hard hit by the economic weakness of the early 1990s.

Despite the large increase in the participation rate, the unemployment rate has fallen, narrowing Canada's unemployment rate gap with the U.S.

Despite a strong rise in the participation rate, the Canadian unemployment rate fell from nearly 10 per cent in late 1996 to 8 per cent in September 2003, narrowing the Canada-U.S. unemployment rate gap from close to 5 percentage points to about 2 percentage points. If the Canadian unemployment rate were measured according to the U.S. definition, the gap would be 1.1 percentage points.
Strong employment gains in Canada have raised the proportion of the working-age population holding a job - the employment rate - since 1997, bringing it to a level similar to that in the U.S. for the first time since 1982.
A healthy labour market since 1997 has generated strong income gains, bolstered consumer confidence and supported domestic demand in Canada.

Canadians are becoming more skilled, supporting an increasingly knowledge-intensive economy

Technology use, innovation and human capital are all interconnected. A knowledge-based economy requires a well-educated and skilled workforce able to make the most of a changing economic environment.
The share of the population with university or college education has increased markedly. Reflecting the rapid shift towards more knowledge-intensive jobs in all sectors of the economy, most of the new job openings in the 1990s were concentrated in sectors requiring a post-secondary degree or diploma, such as health, natural and applied sciences, social sciences, business and finance. In contrast, job opportunities have deteriorated for those with less than a high school diploma.

The Government has made new investments to help Canadians acquire new skills at all stages of life.

Skills-Related Initiatives The Government has invested in a wide range of initiatives to directly support and encourage Canadians in acquiring the skills needed to be successful in the knowledge-based economy, including: Canada Millennium Scholarships Canada Graduate Scholarships Canada Study Grants for students with dependants Improvements to the Canada Student Loans Program Increased support for the National Literacy Secretariat Canada Education Savings Grant and registered education savings plans Enhanced education tax credit Tax relief for interest on student loans Tax-free registered retirement savings plan withdrawals for lifelong learning

To compete internationally and to provide a better standard of living for its citizens, the Government has invested to make its workforce increasingly well-educated, adaptable and skilled.
In 1998 it introduced the Canadian Opportunities Strategy to better assist Canadians in accessing knowledge and skills. As part of the Strategy, the Government introduced the Canada Millennium Scholarships and the Canada Education Savings Grant to help students fund their education and to encourage and assist families in saving for their children's higher education.
Building on the Strategy, the Government has made further investments to encourage the acquisition of skills and learning by Canadians. For example, the education tax credit was extended to better support lifelong learning, while the creation of the Canada Graduate Scholarships and improvements to the Canada Student Loans Program help broaden access to post-secondary education and graduate studies.

.and to support lower-income Canadian families and their children

Social Initiatives The Government has made significant investments in support of Canadian families and their children, including: The introduction of the Canada Child Tax Benefit and subsequent enhancements An investment of $2.2 billion over five years under the Early Childhood Development Agreement to expand early childhood development programs Additional support to enhance the early childhood development of First Nations children $900 million over five years to provincial and territorial governments to improve access to quality regulated early child care services Extended tax assistance for persons with disabilities and their families, including a new Child Disability Benefit Enhancement of employment insurance maternity and parental benefits

Only through integrated and complementary economic and social progress will Canada achieve its goal of strong and sustainable living standards growth along with a better quality of life for all Canadians. Since 1997 the Government has invested in measures in support of low- and modest-income families with children to improve the chance that Canadian children will grow up to be healthy, contributing members of society.
These measures, when combined with strong economic growth and job creation, are essential to reducing poverty and ensuring that families have the resources they need to care for their children.

Income assistance for children in lower-income families ensures that the benefits of economic growth are shared among all Canadians

A balanced budget and renewed economic growth have provided the resources to make new investments in key areas of social policy. The Government has acted to ensure that the benefits of strong economic growth are shared among all Canadians.
A key element of the Government's agenda has been to combine good social policy with good economic policy. For example, the National Child Benefit (NCB) initiative reduces financial disincentives to leave social assistance by protecting child-related benefits and services when parents leave social assistance to enter the workforce, thereby increasing the rewards from work and reducing child poverty.
Currently the Canada Child Tax Benefit (CCTB) provides over $8.4 billion in assistance to low- and middle-income families with children. With the enrichments to the NCB supplement announced in the 2003 budget, assistance under the CCTB is projected to reach over $10 billion in 2007, an increase of over 100 per cent since 1996.
In 1996 the CCTB provided maximum annual benefits of $2,753 for a family with two children, of which one was under 7 years of age. By 2007 maximum annual benefits are projected to increase to $6,511 per family.

New social investment has promoted healthier, vibrant communities

Strong Communities To help strengthen safe communities and encourage cultural diversity and strong local economies, the Government has made a number of important, strategic investments, including: Affordable housing agreements with provinces and territories The National Homelessness Initiative Housing renovation programs Infrastructure support, including $3 billion in Budget 2003 Measures to strengthen Aboriginal communities.

To improve and sustain economic growth in Canada and to ensure the well-being of Canadians, our cities and communities must be vibrant and competitive.
All governments must participate in building and strengthening our communities to ensure robust local economies that are well managed, with safe neighbourhoods, modern infrastructure and a productive labour force.
In support of this objective, the Government has made significant investments to promote healthy communities. For example, in Budgets 2001 and 2003, the Government invested $1 billion on affordable housing over six years to reduce problems of affordability and supply of rental housing, particularly in major urban centres. In Budget 2003 the Government also announced a 10-year $3-billion investment in municipal and strategic infrastructure. This brings the Government's total investment in infrastructure since 1994 to $12 billion. For First Nations on reserves, the Government provides funding for basic services such as education, social services and infrastructure.

The federal government has made significant reinvestments in Canada's health care system through cash transfers to the provinces and territories

Canada's publicly funded health care system plays an important role in building the society Canadians value. It is vital to our quality of life and exemplifies complementary economic and social policies. In this context, it helps provide Canada with the distinct economic advantage of a healthy, productive workforce.
Transfers to the provinces and territories in support of health and social programs constitute a significant share of federal program spending.
Since balancing the budget in 1997-98 the federal government has increased funding to the provinces and territories. Cash transfers supporting health and other social services, over $20 billion today, are set to double over 10 years, from $15.5 billion in 2000-01 to $31.5 billion in 2010-11.
In addition, tax transfers will continue to be an important element of the growing and predictable support provided to the provinces and territories. The tax transfer is approximately $17 billion this year and will continue to grow in line with the economy.

Through sound economic and fiscal management, the "three pillars" of Canada's retirement income system have been placed on a solid footing

Canada's retirement income system is based on three pillars:

The federal government-funded Old Age Security and Guaranteed Income Supplement (OAS/GIS) programs provide a basic, minimum guarantee for seniors.
The Canada Pension Plan and the Quebec Pension Plan (CPP/QPP), funded through payroll contributions, ensure a basic level of earnings replacement in retirement for all working Canadians.

Private tax-assisted retirement savings in registered retirement savings plans (RRSPs) and registered pension plans (RPPs) help and encourage Canadians to save for retirement to supplement their public pensions.

By balancing the budget and putting the debt-to-GDP ratio on a downward track and through continued prudent budget planning, the Government has ensured the stability of the first pillar of the retirement income system.
The 1997 CPP/QPP reforms placed the second pillar on a solid financial footing, and it is now actuarially sound for the next 50 years. Canada is one of the very few countries in the world with an actuarially balanced public pension plan.
Finally, having secured the first two pillars, the Government has moved to strengthen the third pillar by increasing the RPP and RRSP limits and indexing them.

Integrated and complementary economic and social progress has fuelled growth in GDP and living standards

The result of improved fundamentals - fiscal, monetary and microeconomic - has been renewed strength in GDP growth since the second half of the 1990s.
During the 1990-1991 recession, Canada was particularly hard hit and recovered far more slowly that the U.S. In contrast, Canada not only avoided the recession that hit the U.S. economy during 2001, but was able to outperform most other countries in the face of global weakness and uncertainty. As a result, Canada led the G-7 in growth in each of the last three years.
Canada's success in raising productivity and in creating more and better jobs for Canadians has led to a strong rebound in standard of living growth since 1997, which is the goal of Canada's economic policy.
After slowing through the 1970s and 1980s and having virtually stalled in the early 1990s, real GDP per capita, the widely used measure of living standards, rose by 3.1 per cent per year on average over the 1997 to 2002 period, surpassing the rate observed in the 1970s.
This means that Canada's real GDP per capita, or standard of living, has increased 20 per cent over the past six years.

¹ Incorporates data available up to October 28, 2003. [Return]

² Includes federal, provincial-territorial and local governments as well as the Canada Pension Plan and Quebec Pension Plan.[Return]

³ Net foreign debt is the sum of all financial liabilities to foreigners of Canadian firms, governments and households, net of all foreign assets of Canadian firms, governments and households.[Return]

⁴ Measured in 2002 U.S. dollars using OECD multilateral purchasing power parity.[Return]

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