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Chapter 5
A Plan for Growth and Prosperity

Highlights

• The Government of Canada has released
• A Plan for Growth and Prosperity as a companion document to this Update. This comprehensive multi-year plan will shape Canada's response to key economic challenges and opportunities. The Plan will contribute to the realization of a vision of Canada where quality of life is second to none. It builds on four pillars: creating opportunities for all Canadians, advancing Canada as an innovative economy, positioning Canada at the centre of global commerce and networks, and building the right environment for private investment. The Update proposes a number of initiatives for inclusion in Budget 2006 in order to begin to implement this Plan. Two of these initiatives will be effective from the beginning of 2005-increasing the basic personal amount by $500 and reducing the lowest marginal personal tax rate from 16 per cent to 15 per cent. These two measures will be tabled in the House of Commons through a Notice of Ways and Means Motion at the earliest opportunity.

Creating Opportunities for All Canadians

The Government is taking steps to ensure that every Canadian has the opportunity to acquire the necessary skills and no Canadian faces insurmountable barriers to achieve personal fulfillment through work.

To ensure that Canada has a world-class workforce, the Government proposes:

• $550 million over five years to provide grants for post-secondary education to an additional 55,000 students from low-income families per year covering up to four years of undergraduate study.
• $2.2 billion over five years to help make post-secondary education more affordable for low- and middle-income Canadians through reform of Canada's system of student financial assistance such as grants, loans and improved debt management measures, including interest rates.
• $210 million over five years to encourage graduate studies through a 50-per-cent increase in the number of Canada Graduate Scholarships (CGS) offered by the granting councils. The new funding will increase the number of CGS awards to 6,000 per year, with a total of 2,400 being dedicated to sciences and engineering.
• $150 million over the next five years to encourage Canadians to study abroad and foreign students to study in Canada, and support the participation of Canadian post-secondary institutions in international networks.
• $1 billion in 2005-06 in a Post-Secondary Education Innovation Fund for urgent investments in universities and community colleges.
• $3.5 billion over this year and the next five years to increase workplace-based and employer-led training by providing apprenticeship opportunities, improving literacy and essential skills, developing workplace skills and enhancing workforce participation of Aboriginal people, persons with disabilities and new immigrants.
• $65 million over the next five years to improve labour market information available to Canadians and further reduce barriers to labour mobility across the country.

To meet the demographic challenge, the Government proposes:

• $265 million over five years to assist Canadians with disabilities in participating in the workforce and help low- and modest-income families with members with disabilities.
• $1.3 billion over five years to improve settlement and integration services for new immigrants.

To create opportunities for Aboriginal Canadians, the Government proposes:

• To give priority to closing the gap in living standards and life choices between Aboriginal and non-Aboriginal Canadians. The First Ministers' Meeting with Aboriginal leaders provides an historic opportunity to transform approaches with respect to health, housing, economic development and, above all, education.

Advancing an Innovative Economy

Innovation improves the quality of life of Canadians and is essential to prosper in the global knowledge-based economy. To enhance further Canada's innovative capacity, the Government of Canada will build on its past investments through additional support for research excellence and advanced training, technology development, and commercialization.

To maintain Canada's leadership in university-based research, the Government proposes:

• More than $2.1 billion in new funding starting in 2005-06 and over the next five years to increase support for the granting councils, the Indirect Costs of Research program, the Canada Foundation for Innovation and the Canadian Institute for Advanced Research. These measures will support cutting-edge research and strengthen international research networks.

To strengthen international research networks, the Government proposes:

• To put forth initiatives in Budget 2006 that will move the Government toward its goal of devoting 5 per cent of federal R&D to priorities of the developing world and strengthen Canada's partnerships with developing countries, particularly in the areas of education, health and governance.

To accelerate commercialization and private research and development (R&D), the Government proposes:

• To invest close to $200 million over the next five years in funding to provide up to 3,500 R&D internships for natural and health sciences and engineering graduates; to provide up to 100 scholarships each year to engineering and natural and health sciences graduate students who wish to obtain a Master of Business Administration (M.B.A.); and to support knowledge-based clusters to enhance the capability of firms to perform R&D, adopt new technologies and commercialize discoveries.

At the Centre of Global Commerce and Networks

To fully benefit from emerging global opportunities, Canada must be at the centre of global commerce and networks by strengthening its status as one of the world's most open economies through fair and effective trade liberalization, facilitating inward and outward flows of foreign investments, positioning Canadian firms in priority markets, and enhancing transportation and communication networks to link Canadians to opportunities around the world.

To position Canada in global business networks, the Government proposes:

• $485 million over five years to implement a new international commerce strategy-CAN-Trade-to better position up to 5,000 Canadian firms, particularly small and medium-sized enterprises, in priority markets such as China and India.

To create world-class gateways, the Government proposes:

• $590 million over the next five years in support of transportation infrastructure investments and other initiatives to enhance Canada's Pacific gateway. Additional investment in other gateways, including Windsor, will be forthcoming in the next budget when the Border Infrastructure Fund is renewed.
• An additional $100 million over the next five years to continue its support for broadband deployment in rural, remote and First Nations communities to improve the access of all Canadians to global telecommunication networks.

Building the Right Investment Environment

The Government is committed to creating the right investment environment for prosperity through prudent fiscal and sound monetary policies, competitive, efficient and fair taxation, smart regulation, efficient financial markets, a deeper Canadian economic union, a more productive government, and a sustainable environment.

To maintain Canada's macroeconomic advantage, the Government:

• Reiterates its commitment to balanced budget or better each and every year and sets a new objective of reducing the debt-to-GDP (gross domestic product) ratio to 20 per cent by 2020 to ensure future fiscal flexibility and help address the economic and fiscal pressures associated with an aging population.

To improve the fairness, competitiveness and efficiency of Canada's personal tax system, the Government proposes:

• To introduce a new major personal income tax reduction plan which will improve the rewards from working, investing and saving. Specifically, the plan proposes to:

To create a climate for investment and job creation, the Plan proposes:

• To confirm the general corporate income tax rate reductions and the elimination of the corporate surtax for all corporations, as proposed in Budget 2005; eliminate the federal capital tax as of 2006, two years earlier than originally planned; extend carry-forward periods for business losses and investment tax credits to provide additional support to businesses undertaking risky ventures.
• To accelerate the capital cost allowance (CCA) for certain forestry bioenergy equipment to support additional investment in technology that contributes to a reduction in greenhouse gases and air pollutants, while helping to improve the international competitiveness of Canadian pulp and paper mills. This is the latest instalment of the Government's commitment to accelerate CCA for green technology. The Government will identify additional measures in future budgets, as appropriate.

The new tax reduction plan reaffirms the Government's commitment to a fair, efficient and competitive tax system. It will deliver more than $30 billion in personal and corporate income tax relief over the current and next five years, including immediate personal income tax relief of up to $325 for all taxpayers for 2005 and further relief in later years as other tax reductions are phased in. The corporate tax measures will establish important statutory tax rate and overall tax advantages for Canadian businesses vis-à-vis the United States, which will promote job creation and investments.

It builds on $22 billion of tax reduction measures set out in Budget 2005 and the Government's strong record of tax reductions since balancing the budget. As in the past, the Government will deliver more, sooner, as fiscal resources permit.

To promote regulatory and administrative efficiency, the Government proposes:

• $90 million over the next five years to use the Internet to substantially reduce the administrative burden on small business and to improve entrepreneurs' access to information, advice and referrals on programs and services across all levels of government to improve and streamline the regulatory framework in which businesses operate in Canada.
• $50 million for Canada Health Infoway to develop tools and systems to better manage wait times.

To promote energy efficiency and environmental sustainability, the Government proposes:

• To expand the Renewable Power Production Incentive by $50 million to support thermal cogeneration projects.

Introduction

Building on Canada's unequalled economic and fiscal performance over the last decade, the Government of Canada reaffirms its commitment to fostering jobs, economic growth and sustainable prosperity in the companion document A Plan for Growth and Prosperity. This comprehensive multi-year plan presents broad policy directions to shape Canada's response to emerging economic challenges and opportunities. In combination with other major initiatives launched over the past two years, the Plan will help realize the vision of Canada where quality of life is second to none.

The environment, culture, national security, global citizenship, health and living standards are all essential contributors to a nation's quality of life. Part of the Government's broader policy framework, the Plan focuses on putting into place the necessary conditions to ensure continued improvements in Canadians' living standards, while creating the resources for ongoing investments in the other determinants of quality of life.

Over the next decades, Canada will experience the rapid aging of its population, as the baby boom generation enters retirement age and is replaced by fewer younger workers. This poses challenges to Canada's economic and fiscal prospects that need to be addressed now. Moreover, the world is changing rapidly, invigorated by the emergence of economic giants such as China and India and the widespread use of leading-edge technologies. This provides Canada with unprecedented opportunities to penetrate new markets and secure its position in the high-value segments of global supply chains.

With its highly skilled population, openness to the world, immense resource potential and robust financial health, Canada is well positioned to meet these challenges and seize these opportunities. Indeed, Canadians can aspire to have an economy that supports a quality of life that is second to none. To attain this goal, the Government's Plan for raising living standards outlines a framework based on four pillars:

Creating opportunities for all Canadians

by making sure that every Canadian has the opportunity to acquire the necessary skills and no Canadian faces insurmountable barriers to achieve personal fulfillment through work.

Advancing an innovative economy

to take greater advantage of Canada's human potential and primary research excellence, the ever-increasing pace of technological changes, and growing commercialization opportunities.

Positioning Canada at the centre of global commerce and networks

by strengthening Canada's status as one of the world's most open economies through fair and effective trade liberalization, facilitating inward and outward flows of foreign investments, positioning Canadian firms in priority markets, and enhancing transportation and communication networks that link Canadians to opportunities around the world.

Building the right investment environment

for prosperity through prudent fiscal and sound monetary policies, competitive, efficient and fair taxation, smart regulation, efficient financial markets, a deeper Canadian economic union, more productive government, and a sustainable environment.

This Update proposes initiatives for inclusion in Budget 2006 to begin the implementation of this Plan.

Creating Opportunities for All Canadians

A highly skilled, flexible workforce is a prerequisite for success in today's knowledge-based economy. This can only be achieved if all Canadians have the opportunity to acquire the skills and knowledge that they require to reach their full potential. More than ever, Canada requires a workforce that is flexible, adaptable and embraces lifelong learning to ensure its long-term economic prosperity.

Canada's world-class workforce must be able to realize its full potential. To that end, the Government reinforces its commitment to excellence in and access to post-secondary education. To meet the forthcoming demographic challenge, the Government will work with its partners to increase the workforce participation and employment opportunities of currently under-represented groups such as older Canadians and persons with disabilities, and of Aboriginal Canadians by improving incentives and removing insurmountable barriers to work, specifically for low-income Canadians (see the section ";Building the Right Investment Environment";). It will also work towards improving the processing, settlement and integration of immigrants before increasing the immigration levels for skilled and educated workers. In addition, it will work to reduce barriers to labour mobility and improve the timeliness and quality of labour market information.

Proposed Policy Actions

Enhancing Canada's World-Class Workforce

In an age of emerging economic giants and global mass education, the Canadian workforce must compete on quality. This means ensuring access both to post-secondary education of the highest quality, as well as appropriate adult skills development and training. To ensure that Canadians can acquire the skills they need, this Update proposes to invest $7.6 billion over this year and the next five years to ensure Canada continues to benefit from a world-class learning system. This funding will contribute to addressing short-term gaps in the learning environment in post-secondary institutions, ensuring that there are no barriers to access (notably through increased financial assistance for students), enhancing workplace-based skills development and supporting research in post-secondary institutions.

Improving Access-Canada Access Grant

The Canada Access Grant currently provides grants covering half of first-year tuition, up to a maximum of $3,000, to eligible students from low-income families. As a further investment resulting from the May 7, 2005, announcement of an agreement between the Prime Minister and the Premier of Ontario with respect to post-secondary education, the Government proposes to extend the Canada Access Grant to provide similar grants covering up to four years of undergraduate study for eligible students, beginning in 2006-07. Extending the Canada Access Grant represents an additional investment of $110 million per year, and will benefit an additional 55,000 students each year.

Improving Access-Improvements to Student Financial Assistance

The Canada Student Loans Program (CSLP) is the primary instrument of the Government for promoting access to post-secondary education through the provision of loans and grants to students with a demonstrated financial need.

The CSLP has been very effective in promoting access to post-secondary education over the years, as evidenced by the fact that Canadians have the highest attainment rate with respect to post-secondary education in the world. In recent budgets the Government has introduced a number of important enhancements to the CSLP, reflecting its ongoing commitment to ensure that the program keeps pace with the evolving financial realities confronting students and their families and thus remains effective in promoting access for all Canadians. These measures will help make post-secondary education more affordable for lower- and middle-income Canadians.

Federal Support for Students In recent years the Government of Canada has made a number of enhancements to the federal system of student financial assistance to reflect the evolving needs of students and their families, including: New up-front Canada Access Grants of up to $3,000 to ease the transition into post-secondary education for first-year students from low-income families and $2,000 for students with disabilities, providing about $32 million in assistance to some 22,000 students. The enhancement of Canada Study Grants to improve access for students. Each year, the Canada Study Grants provide about $75 million in non-repayable assistance to some 55,000 students. Increases in the weekly loan ceiling under the Canada Student Loans Program from $165 per week to $210 per week starting August 1, 2005, to reflect changes in the cost of post-secondary education. The Canada Student Loans Program provides $1.5 billion annually in loans to nearly 330,000 students. Expansion of Canada Student Loans Program eligibility to roughly 40,000 more students by reducing the amount that moderate- and middle-income parents are required to contribute. Enhancements to federal debt management measures to further assist borrowers encountering financial difficulty in repaying their Canada Student Loans, including an extension of the loan repayment period to 15 years from 10 years, amendments to Interest Relief eligibility to allow more borrowers to access the program, and increases to loan forgiveness amounts (up to $26,000 over two years) under Debt Reduction in Repayment. Enhancements to education-related tax measures nearly every year since 1996, including a five-fold increase in the full-time education amount and the introduction of a tax credit for interest on student loans, a part-time education amount and a carry-forward for unused tuition and education credits. Tax measures for students provide over $1.5 billion in tax relief annually. The introduction of the Canada Learning Bond to provide up to $2,000 of education savings by age 16 for children in families entitled to the National Child Benefit supplement, and enhancements to the Canada Education Savings Grant matching rate in order to help low- and middle-income families save for their children's education.

This Update proposes to invest $2.2 billion over the next five years to secure and build on the success of Canada's system of student financial assistance in promoting access to post-secondary education. This will require a review in close collaboration with provinces and territories, as well as other partners, in order to identify the areas where additional investments are needed, and to ensure that students from middle-income families and students with dependants do not face barriers to post-secondary education. The review will examine a range of potential measures such as grants, loans, and improved debt management measures, including interest rates.

Improving Access-Canada Graduate Scholarships

The Canada Graduate Scholarships (CGS) program was introduced in Budget 2003 to support the best students in pursuing graduate studies in Canadian institutions. The program is delivered by the three granting councils, and in 2006-07 will support 2,000 master's and 2,000 doctoral students.

Employers are increasingly demanding highly skilled individuals to undertake research and development, absorb and apply new ideas from universities and other sources, and quickly adopt new technologies. Canadians with advanced degrees will also be needed to help replace retiring faculty members in universities.

This Update proposes to provide new resources totalling $210 million over the next five years to support a 50-per-cent increase in the number of CGS awards in all disciplines, including science and engineering. The new awards will be distributed equally among master's and doctoral students. When fully phased in, the CGS program will support 6,000 students each year, with a total of 2,400 awards dedicated to sciences and engineering.

Improving Access-International Education

Colleges and universities are key contributors to maintaining Canada's standing and reputation in the world. Helping institutions and students to remain connected to the most recent developments in their areas of expertise contributes to improving the quality of Canadian institutions and programs. Similarly, encouraging the international mobility of Canadian students broadens their horizons, and allows them to acquire diversified skills they can then apply in a Canadian context. However, studying abroad usually entails significant additional costs for Canadians wanting to study out of the country and for foreigners wishing to study in Canada. This Update proposes to invest $150 million over five years to improve access to international education and to enable institutions to participate in international networks, notably through the establishment of scholarship programs to enable young Canadians to study and pursue research opportunities in other countries by providing them with financial assistance. Measures to encourage more foreign students to study in Canada will also be developed. These initiatives will also contribute to the Plan's objective of positioning Canada at the heart of global networks.

Improving Access-Post-Secondary Education Innovation Fund

One way to enhance access to post-secondary education is to ensure that Canada's post-secondary infrastructure keeps up with growing enrolment and students' learning needs. Universities and colleges can sometimes have constraints, as they struggle to meet the demands of increasing enrolment, aging infrastructure, changes in learning technology, and out-of-date equipment. To that end, the Government of Canada proposes to make $1 billion available to provinces and territories in support of urgent investments to promote changes necessary for educational innovation and skills development. The fund will help modernize and improve post-secondary infrastructure such as libraries and technological equipment, enhance learning environments in northern and Aboriginal institutions, and improve access for persons with disabilities. Funds will be paid into a third-party trust upon agreement of operating principles and passage of enabling legislation. Provinces and territories will have the flexibility to draw down the funds on a per capita basis, as they require.

Workplace-Based Skills Development

The Government of Canada is committed to working with its provincial, territorial, business and labour partners to enhance workplace-based skills development across the country. To that end, and building on the May 2005 announcement with the Government of Ontario, this Update proposes to provide $3.5 billion over this year and the next five years to support new Labour Market Partnership Agreements with provinces and territories. These agreements will include clear objectives, outcomes-based performance measures and public reporting on the results of the investment.

These agreements will focus on increasing workplace-based and employer-led training in the following six jointly established priority areas: apprenticeship; literacy and essential skills; workplace skills development; enhanced workforce participation of Aboriginal people; labour market integration of immigrants; and enhanced workforce participation of persons with disabilities and other under-represented groups. These programs will directly address priorities identified in the Plan.

Examples of possible initiatives include bridge-to-work programs for recent immigrants, partnerships with employers to promote literacy and essential skills in the workplace, internships for Aboriginal Canadians and persons with disabilities, and the development of a national strategy for apprenticeship training.

These new funds will complement the employment benefits and support measures provided to eligible unemployed workers under the Employment Insurance Program. In addition, work will continue with partners on developing a comprehensive national literacy strategy.

Meeting the Demographic Challenge

Older Canadians

With population aging, older workers who wish to remain in the workforce will represent an ever-increasing source of experienced and skilled labour. However, current institutional and financial arrangements often encourage workers to retire fairly early from the workforce, as the relatively lower employment rate of Canadians aged 55-64 compared to that of a number of countries, notably the United States, suggests. One of the disincentives for older workers who wish to remain in the workforce are mandatory retirement provisions.

The Government will remove, where appropriate, any remaining provisions that allow mandatory retirement in federal legislation, to ensure that Canadians who want to work beyond the ";normal"; retirement age can do so. The Government of Canada will also encourage provinces and territories where mandatory retirement provisions are in place to consider taking similar action to remove them, except where there are safety and security reasons for maintaining age limits.

Persons With Disabilities

Canadians with disabilities often face barriers to entry into the workforce, and may find it difficult to remain active participants. The Government is committed to working with its partners-provincial and territorial governments, employers and communities-to assist Canadians with disabilities to participate in the workforce. For example, under the Multilateral Framework for Labour Market Agreements for Persons with Disabilities, the Government of Canada supports provinces and territories that have agreed to provide employment assistance programming for persons with disabilities. Building on recent initiatives, this Update proposes an additional $30 million in 2006-07 and subsequent fiscal years for the Multilateral Framework, bringing the Government of Canada's contribution to this program to $253 million per year. In order to ensure that the funds are targeted at areas of greatest need, a small portion of the increase proposed in this Update will be used to improve information about program effectiveness.

In Budget 2005, the Government took significant steps to improve tax fairness for persons with disabilities by acting on virtually all of the recommendations of the Technical Advisory Committee on Tax Measures for Persons with Disabilities. This Update proposes two additional measures based on the Committee's recommendations. With these two measures, the Government has fully responded to the Committee's policy recommendations.

First, this Update proposes to increase the maximum annual Child Disability Benefit (CDB), a supplement of the Canada Child Tax Benefit payable in respect of children in low- and modest-income families who meet the eligibility criteria for the disability tax credit, to $2,300 from $2,044 for the 2006-07 benefit year. Together with the increase announced in Budget 2005, this will represent a cumulative increase in the annual maximum CDB of almost $600, as recommended by the Technical Advisory Committee. This measure will increase benefits by an estimated $10 million in 2006-07.

Second, the Update proposes to increase the maximum amount of the refundable medical expense supplement (RMES) to $1,000 from $750, as recommended by the Technical Advisory Committee. The RMES helps offset the loss of benefits under provincial social assistance programs by providing assistance for above-average medical and disability-related expenses to low-income working Canadians, therefore improving work incentives for Canadians with disabilities. This proposed measure will apply for the 2006 and subsequent taxation years, and will increase assistance by an estimated $10 million in 2006-07.

In addition to these initiatives, the proposed Post-Secondary Education Innovation Fund will provide one-time funding to provinces and territories to fill some immediate gaps for, among other things, improving access for persons with disabilities to post-secondary institutions. Workplace-based skills development for Canadians with disabilities will also be one of the six priority areas of the new Labour Market Partnership Agreements, to be negotiated with provinces and territories.

Immigrants

The majority of immigrants who settle in Canada are well educated and highly skilled. However, they often face challenges integrating into a new community, labour market and country. Settlement and integration programs and services can help ease the transition. This Update proposes to provide a total of $1.3 billion over this year and the next five years to enhance settlement and integration programs (funding to Quebec is provided through a separate immigration accord). This initiative builds on the May 2005 announcement with the Government of Ontario and on the $298 million for immigrant integration provided in Budget 2005. The enhanced services and supports that will be provided through this investment will improve labour market integration, address localized labour shortages and facilitate labour market adjustment in years to come, most notably through better language training. To ensure that such programs are effective, the Government will engage the provinces and territories on the best ways to improve immigrants' settlement and integration, recognize the foreign credentials of immigrants and broaden the regional distribution of immigrants.

Improving integration outcomes is only one of the challenges that need to be addressed. The immigration system will be streamlined as a prerequisite for any significant increase in immigration levels in order to ensure that it efficiently processes the immigrants needed, is responsive to changing labour market needs and makes an effective contribution to growth and prosperity.

Creating Opportunity for Aboriginal Canadians

The unemployment rate of Aboriginal Canadians is generally higher than that of the rest of the Canadian population, while their participation rate in the labour market is lower. In addition, young Aboriginal Canadians are less likely to hold university degrees or college diplomas. Even though important improvements and investments have been made recently, closing the education and employment gaps of Aboriginal Canadians remains a priority for the federal, provincial and territorial governments.

On November 24 and 25, 2005, First Ministers and National Aboriginal leaders will be engaged in an unprecedented meeting to ensure that First Nations, Inuit and Metis peoples benefit from and contribute to Canada's prosperity wherever they may live in the country. It is expected that First Ministers and Aboriginal leaders will agree to serious reforms and make concrete commitments and investments to improve the lives of First Nations, Inuit and Metis peoples and, most importantly, the untapped potential of Aboriginal youth. Measures to track progress over the next 10 years will be established to improve educational outcomes, housing conditions, health status and economic opportunities of Aboriginal peoples. First Ministers and Aboriginal leaders will develop a shared Aboriginal agenda and ensure that any new investments will be predicated upon modern governance and accountability systems that support transformative change.

Improving Labour Mobility and Labour Market Efficiency

Labour Market Information

To make informed decisions, Canadians need better information on the labour market. In order to improve the quality and timeliness of this information, this Update proposes new investments of $40 million over the next five years to expand and enhance data collection for labour market information and forecasting capacity. This will enable the collection and dissemination of more information at the regional level. It will help Canadians improve their career choices, enhance labour market mobility, and result in a better match between workers and employers in different regions of the country.

Mobility Initiative

In the same vein, the Government of Canada will continue to work with its provincial and territorial counterparts, employers, labour and regulatory bodies to reduce barriers to labour mobility across Canada. In support of this effort, this Update proposes to invest $5 million annually to facilitate necessary actions, such as accelerating progress under the Red Seal Program and encouraging provinces to develop mutual recognition standards. The Government will continue to explore opportunities to remove other barriers to labour mobility.

Table 5.1
Creating Opportunities for All Canadians

	2005-06	2006-07	2007-08	2008-09	2009-10	2010-11	Total
	(millions of dollars)
Enhancing Canada's World-Class Workforce
Canada Access Grant		110	110	110	110	110	550
Improvements to student financial assistance			480	577	567	567	2,190
Canada Graduate Scholarships		17	34	53	53	53	210
International education		20	20	30	40	40	150
Post-Secondary Education Innovation Fund	1,000						1,000
Workplace-based skills development	77	476	553	798	809	809	3,522
Meeting the Demographic Challenge
Assistance for persons with disabilities		30	30	30	30	30	150
Child Disability Benefit		10	10	10	10	10	50
Refundable medical expense supplement	5	10	10	10	15	15	65
Immigration settlement and integration	29	111	196	266	342	342	1,286
Improving Labour Mobility and Labour Market Efficiency
Labour market information		5	5	10	10	10	40
Mobility initiative		5	5	5	5	5	25
Total	1,112	794	1,453	1,899	1,991	1,991	9,238
Note: Totals may not add due to rounding.

Advancing an Innovative Economy

Innovation is at the core of Canada's economic success, increasing the efficiency of Canadian firms and resulting in the entry of new products and services into new markets. As the global economy becomes increasingly integrated and shaped by the adoption and use of the latest technologies, Canada must position itself as a leader of innovation.

Canada's leadership in public research creates a strong foundation for building a more innovative economy. The Government commits to maintain Canada's Group of Seven (G7) leadership in university-based research and make major ongoing investments to build world-leading equipment and facilities, attract the best researchers and support primary research. The Government will support innovation by creating a favourable environment for private investment, a more competitive tax system, and more open and efficient markets. The Government will also target support to stimulating private sector investment in R&D, technology adoption and improved commercialization performance.

Proposed Policy Actions

Leadership in University-Based Research

Increasing Support for Research

The three federal granting councils-the Canadian Institutes of Health Research (CIHR), the Natural Sciences and Engineering Research Council of Canada (NSERC) and the Social Sciences and Humanities Research Council of Canada (SSHRC)-fund basic research that enriches Canada's understanding of the world around us and creates new ideas that can fuel business innovation. The granting councils' support also contributes to the training of the highly qualified workers increasingly needed by the private sector.

The Government has allocated significant new resources to the granting councils in every budget since 1998, bringing their combined base budgets to $1.6 billion in 2005-06, more than double their level of 1997-98. These investments have helped Canada rank first in the G7 in terms of research performed in the higher education sector as a share of the economy.

In order to sustain Canada's leadership in university research, the Government proposes to increase the annual budgets of the granting councils by $85 million, starting in 2006-07. This will translate into an increase of $35 million each for CIHR and NSERC, and $15 million for SSHRC.

The granting councils will also develop and report annually on a standardized set of measures that better tracks the outcomes of the Government's research investments, including publication and citation rates flowing from council-supported research, patents and licensing revenues, and research opportunities for graduate students.

The Indirect Costs of Research

Leadership in research excellence requires not only direct funding for university research, but also a rich and supportive environment that enables researchers to realize the full potential of their work. Recognizing this, the Government of Canada also provides universities and research hospitals with funding for the indirect costs of the federally sponsored research they conduct. These costs can include operating and maintaining facilities, managing and safeguarding information, meeting regulatory requirements and supporting commercialization. In 2005-06, institutions will receive $260 million under the Indirect Costs of Research program to help them meet these expenses.

The Government proposes to provide almost $1.2 billion in additional funding over the next five years for the Indirect Costs of Research program. Building on the May 2005 announcement with the Government of Ontario, annual funding under the program will rise to $510 million in 2007-08, bringing indirect cost payments to institutions to over 40 per cent of direct federal research funding.

To ensure that these new resources lead to an improved research and learning environment, the Government will work with the Association of Universities and Colleges of Canada to improve reporting by institutions on such important measures as the quantity and quality of research, graduation rates, and the average time to complete degrees.

Investing in Research Equipment and Facilities

The Canada Foundation for Innovation (CFI) was established in 1997 to support the modernization of research infrastructure at Canadian universities and colleges, research hospitals and other non-profit research institutions across Canada. To date, the Government has contributed $3.65 billion to the CFI, of which nearly $3 billion has already been committed and will be disbursed over the next few years. Investing in partnership with the provinces, institutions and other stakeholders, the CFI has supported more than 4,300 projects in over 120 institutions across Canada. By 2010, the amount invested by the CFI and its partners is expected to exceed $11 billion.

The Government is committed to ensuring that universities and research hospitals have access to leading-edge equipment and facilities and that Canada continues to build a globally competitive research environment. The Government therefore proposes to invest an additional $500 million in 2005-06 in the CFI to sustain its activities over the next five years.

Table 5.2
Anticipated CFI Disbursements to Institutions in Coming Years¹

2005-06	2006-07	2007-08	2008-09	2009-10	Total
(millions of dollars)
435	455	525	525	515	2,455
1 These amounts represent anticipated disbursements related to the $3.65 billion provided to the CFI through previous budgets.

The Public Sector Accounting Board of the Canadian Institute of Chartered Accountants has recently revised its standards on the government reporting entity. These standards come into effect in 2005-06 and may affect the accounting treatment of some foundations such as the CFI. The Government will continue its discussions with the Office of the Auditor General on how to apply these standards and will report on the outcome of these discussions in Budget 2006.

Strengthening International Research Networks

Canadian Institute for Advanced Research (CIAR)

Research linkages between Canadian researchers and those from other nations provide Canada with access to the leading-edge knowledge being generated in other countries, leveraging domestic research investments. In particular, in recent years there has been tremendous growth in high-quality research being undertaken in emerging giants such as China and India. It is important that Canada be able to tap into these rich new sources of knowledge.

CIAR is a private, non-profit organization that links Canadians to leading-edge research in other nations. For example, CIAR is leading research collaborations in such important fields as evolutionary biology and nanoelectronics, and links Canadian researchers with their colleagues in countries such as the United States, Japan and the United Kingdom.

The Government proposes to provide an immediate $30 million in 2005-06 to sustain and strengthen CIAR's international research networks, and to support new collaborations with the leading researchers in emerging economies, such as China and India, over the next five years.

A Commitment to R&D Priorities for Developing Countries

The Government intends to meet its commitment, expressed in the International Policy Statement, to devote at least 5 per cent of federal R&D to the research priorities of the developing world, including health and environmental technologies. Budget 2006 will put forth initiatives that will move the Government toward this 5-per-cent goal.

Accelerating the Commercialization of New Technologies

Industry R&D Internships

Hiring recent university graduates is one of the most effective means by which a firm can access the latest research knowledge from universities and increase its technology know-how. Improving collaboration and the links between universities and companies help researchers gain better insight into the needs and interests of the private sector and may encourage students to pursue a research career in the private sector.

The Government proposes to invest $21 million over the next five years, starting in 2006-07, to enable students at the master's level in engineering and natural and health sciences to acquire hands-on experience working on R&D projects in the private sector during the course of their studies. This initiative will support up to 3,500 internships over the next five years.

Linking Business and Science Skills

The growth of Canada's technology-intensive firms depends in large measure on individuals who possess not only strong technical and scientific expertise, but also the business skills and experience needed to identify target markets, assess customer needs and raise capital. The same mix of science and business skills is also needed by Canada's financial industry, especially venture capitalists, to help identify the most promising new knowledge-based companies.

The Government proposes to provide $18 million over the next five years to SSHRC to increase support available for students studying in M.B.A. programs. The support will be directed to graduates of master's programs in engineering and the natural and health sciences so that they can pursue M.B.A. studies at a Canadian institution. When fully phased in, this initiative will support up to 100 M.B.A. students each year.

Accelerating Commercialization in Knowledge-Based Clusters

Integrated facilities that bring together innovative firms with university researchers promote research collaboration, enhance private sector access to university research discoveries, and can accelerate the commercialization of new knowledge-based products. Co-locating university technology transfer functions with business incubators, innovative companies and specialized intellectual property and financing services can accelerate the commercialization of discoveries. Collaborative facilities provide a bridge between the private sector and university cultures, making university researchers more aware of the private sector's research needs and strengthening the development of knowledge-based industrial clusters.

One example of such an integrated facility is the Medical and Related Sciences discovery district, which has built on Toronto's concentration of medical research facilities and vibrant business community by bringing together fast-growing start-ups, an incubator facility, laboratories, venture capitalists and business service providers. Another example is Vancouver's Accelerator Centre, a joint partnership between Discovery Parks, an independent not-for-profit organization, and the University of British Columbia (UBC). Located on the UBC campus, the Centre helps small research-oriented firms link to the knowledge and expertise of UBC's research community.

The Update proposes to provide $160 million over the next five years to support the creation of large-scale integrated facilities that bring together university and private sector researchers and accelerate the commercialization of university-based discoveries. Industry Canada will manage this fund and allocate it through a competitive process, receiving recommendations from a private sector-led panel. Successful projects will be eligible for a federal investment of up to $20 million, ensuring that at least eight projects could be supported over the next five years.

These three initiatives will help accelerate the commercialization of research knowledge flowing from Canadian universities. In coming months, Industry Canada also expects to receive recommendations from the Expert Panel on Commercialization. The Government will act on these recommendations, as appropriate, in subsequent budgets.

Table 5.3
Advancing an Innovative Economy

	2005-06	2006-07	2007-08	2008-09	2009-10	2010-11	Total
	(millions of dollars)
Leadership in University-Based Research
Granting councils		85	85	85	85	85	425
Indirect Costs program		190	250	250	250	250	1,190
Canada Foundation for Innovation	500						500
Strengthening International Research Networks
Canadian Institute for Advanced Research	30						30
Accelerating the Commercialization of New Technologies
Research internships		2	3	5	6	6	21
M.B.A. scholarships		2	4	4	4	4	18
Knowledge-based clusters		20	40	40	40	20	160
Total	530	299	382	384	385	365	2,344
Note: Totals may not add due to rounding.

At the Centre of Global Commerce and Networks

Openness to trade and investment creates the most favourable environment for economic growth and standards of living improvement by increasing incentives to innovate and stimulating efficiency gains. An open trade and investment regime also encourages firms to connect to global supply networks, which constitute a powerful catalyst for the adoption of the latest technologies and improved management practices. To realize its full potential in global markets, Canada must continue to strengthen its status as a trading nation in facilitating the global reach of Canadian businesses and in enhancing the gateways that connect us to the world.

Proposed Policy Actions

Positioning Canada in Global Business Networks

The Government proposes to invest $485 million over the next five years to implement CAN-Trade, a comprehensive network of services and programs. This new trade promotion strategy will better position Canadian firms, particularly small and medium-sized enterprises (SMEs), in priority markets such as China and India. This strategy is based on four pillars: communicating the challenge, showcasing Canada to the world, securing international markets and winning in the global marketplace. CAN-Trade will include new programming under each of these four pillars as follows:

Communicating the Challenge

The Government proposes to provide $7 million over five years to increase business awareness of the opportunities and risks presented by today's rapidly evolving global commerce environment, as well as to inform Canadian firms, especially SMEs, of the tools that the Government can provide to help them succeed internationally.

Showcasing Canada to the World

In order to raise Canada's profile and visibility as a nation of dynamic and innovative businesses, the Government proposes to allocate $60 million over the next five years to better showcase Canada abroad through additional missions in key markets, enhanced presence at international events and new training and marketing tools for Trade Commissioners. These initiatives will help Canadian SMEs build commercial relationships with key foreign partners.

Securing International Markets

The Government will build on its trade and investment agreements. To that effect, the Update proposes an additional $12 million to broaden Canada's advocacy efforts in key markets including through activities aimed at establishing institutional linkages and joint research in support of Canada's trade and economic interests.

Winning in the Global Marketplace

The fourth pillar is the cornerstone of the CAN-Trade strategy. It includes five initiatives, which will assist Canadian businesses with on-the-ground, real-time and accessible services to compete successfully in key markets.

First, to effectively access emerging markets, Canadian firms, especially SMEs, need support in foreign markets. Therefore, the Update proposes an additional $109 million over the next five years to expand the Trade Commissioner Service of International Trade Canada in priority markets, including China, India and Brazil.

Second, because these additional resources will increase the flow of commercial intelligence and help pave the way for business networking, the Government proposes to invest $20 million over five years to develop commercial strategies for emerging markets, beginning with China, India and Brazil. Combined with an expanded Trade Commissioner Service, these commercial strategies will increase the Government's capacity to provide advice to SMEs on successful business strategies in emerging markets.

Third, to enhance the ability of SMEs to link to global supply networks, the Government also proposes to invest $250 million over the next five years in a new financing facility-the Global Success Fund. The Fund will provide contributions on a matching basis to support the implementation of three-year business plans of SMEs with annual revenues of less than $25 million that want to expand their activities into priority markets. Over the next five years, the Global Success Fund is expected to assist more than 5,000 SMEs. The achievements of these firms will create new commercial opportunities at home and abroad by strengthening Canada's connection to fast-changing global commercial networks.

Fourth, to ensure that Canadian activities in emerging markets foster social and environmental as well as economic goals, the Government proposes to allocate $12 million over five years to create a Corporate Social Responsibility Centre which will, in partnership with the private sector, provide advice to Canadian business on corporate social responsibility issues. Budget 2006 will also enhance the implementation of the Government's International Policy Statement priorities by providing resources to strengthen Canada's partnerships with developing countries, particularly in the areas of education, health and governance.

Finally, the Sustainable Cities Initiative was launched in 1999 to link Canadian companies to opportunities for improving the sustainability of major cities in developing nations. Since its inception, the initiative has led to agreements with 16 cities in developing nations, helping them address critical needs while providing new business opportunities for innovative Canadian firms in fields such as environmental technologies, urban infrastructure and municipal service management. The Government proposes to invest an additional $15 million over the next five years for the Sustainable Cities Initiative to continue its work under existing agreements and initiate new agreements with cities in emerging markets.

Creating World-Class Gateways

Pacific Gateway

Canada's trade with the rest of the world flows through ";gateways"; (e.g., major border crossings and ports) where transportation networks converge to connect centres of economic activity. Canada's economic prosperity depends on the ability to move goods and people in a seamless and efficient fashion via these gateways.

Using the $600 million announced in Budget 2001 for the Border Infrastructure Fund, the Government has made important investments (e.g., improving access roads) throughout Canada to help address concerns that inadequate infrastructure at our border crossings with the United States acts as a barrier to trade. This includes $150 million for the Windsor gateway. In Budget 2005, the Government announced that it would renew and extend into the future this key program, as it expires (Budget 2005 set out the same commitment for the Canada Strategic Infrastructure Fund). This will allow the Government to make additional investments, including in the Windsor gateway. Details on the renewal of the Border Infrastructure Fund (and the Canada Strategic Infrastructure Fund) will be announced in the next budget.

Canada's Pacific gateway represents an important opportunity to enhance our nation's economic potential, as it provides excellent access to the rapidly growing Asia-Pacific region. To capitalize on this opportunity, the Government proposes to invest a total of $590 million over the next five years in Pacific gateway initiatives. These initiatives will support the flow of goods, services and people between Canada and the Asia-Pacific region, thereby helping to facilitate trade, create new jobs and improve the standard of living of Canadians.

Initiatives already announced include $125 million for immediate road and rail infrastructure projects to help address congestion concerns, $20 million to maintain secure and efficient border services at Canada's Pacific gateway, and $10 million to harmonize standards with China. The Government will also provide a total of up to $35 million in operational funding over five years to Canada's Pacific Gateway Council in support of its work in developing advice on issues related to Canada's Pacific gateway and to federal departments that will interact with the new council. An additional $400 million has been identified for future strategic investments, including those in response to recommendations of Canada's Pacific Gateway Council.

Extending Access to Broadband Services

Broadband Internet services can link Canadians in rural, remote and Aboriginal communities to educational, cultural and business information and services at home and across the world.

Since its launch in 2002, the Government's Broadband for Rural and Northern Development Pilot Program (BRAND) has helped accelerate the deployment of broadband services in close to 900 rural and remote communities, including over 100 First Nations communities.

The Government proposes to provide an additional $100 million over five years, starting in 2006-07, to extend the BRAND program and continue its support for broadband deployment in rural, remote and First Nations communities.

Table 5.4
At the Centre of Global Commerce and Networks

	2006-07	2007-08	2008-09	2009-10	2010-11	Total
	(millions of dollars)
Positioning Canada in Global Business Networks
Awareness campaign	1	2	2	2	2	7
Showcasing Canada to the world	4	14	14	14	14	60
Advocacy	2	3	3	2	3	12
Trade Commissioners	11	22	25	26	26	109
Countries' commercial strategies	1	3	5	6	6	20
Global Success Fund	25	45	55	60	65	250
Corporate Social Responsibility Centre	2	3	3	3	3	12
Sustainable Cities Initiative	3	3	3	3	3	15
Creating World-Class Gateways
Canada's Pacific gateway	73	138	140	131	109	590
Rural and Aboriginal broadband	20	20	20	2 0	20	100
Total	142	251	268	265	249	1,175
Note: Totals may not add due to rounding.

Building the Right Investment Environment

More than ever, businesses are investing where they can find the best combination of skills, investment and business environment. Similarly, skilled workers are locating where they will be able to fully achieve their aspirations. In this respect, the Government's role is to put into place the right policy framework to encourage private investment in education, training and skills, capital and innovation, the key sources of long-term economic prosperity. This includes a sound macroeconomic environment, fair, competitive and efficient taxation, a sustainable environment and effective structural policies that address regulation, financial markets, competition and openness, and government efficiency.

Proposed Policy Actions

Maintaining Canada's Macroeconomic Advantage

The Government of Canada reiterates its commitment to maintain each and every year balanced budget or better and to continue to reduce the debt burden. Keeping the federal debt-to-GDP ratio on a downward track will create future fiscal flexibility and help to address the pressures associated with an aging population. As indicated in Chapter 3, the Government of Canada is setting a new objective of reducing the federal debt-to-GDP ratio to 20 per cent by 2020. This would mean that less than 10 cents of every revenue dollar would go to service the debt, compared to about 17 cents in 2004-05.

A More Competitive Tax System:
A New Proposed Tax Reduction Plan

This Update proposes a new tax reduction plan designed to fuel growth and prosperity for all Canadians, with measures for individuals and businesses that will help Canada achieve faster economic growth, more job creation and rising standards of living. The new plan will make it more attractive for Canadians to join the workforce, to stay working, and to save, while also making Canada a more attractive place to live and work for highly skilled and specialized workers from around the world. It will directly increase Canadians' standards of living by letting them keep more of what they earn. It will also encourage the creation and growth of enterprises, and investment in new, innovative technologies that will help workers be as productive and efficient as possible, paving the way for higher wages and better living standards.

Over the current and next five fiscal years, the new plan proposes over $30 billion in personal and corporate tax reductions, in addition to the $22 billion in tax relief from measures announced in Budget 2005. It builds on the Government's strong track record of tax relief since balancing the books in 1997-98, including the $100-billion Five-Year Tax Reduction Plan announced in 2000. Further personal income tax relief could arise from future unanticipated surpluses.

The plan accelerates the personal income tax cuts set out in Budget 2005, particularly benefiting those with low incomes, and it eliminates the federal capital tax as of 2006, two years earlier than originally planned. Consistent with fiscal sustainability, new measures are being put in place when they are affordable. As in the past, the Government will do more, sooner, if the fiscal situation permits.

The Update proposes a number of initiatives for inclusion in Budget 2006 in order to begin to implement this plan. Two of these initiatives will be effective from the beginning of 2005-increasing the basic personal amount by $500 and reducing the lowest marginal personal tax rate from 16 per cent to 15 per cent. These two measures will be tabled in the House of Commons through a Notice of Ways and Means Motion at the earliest opportunity.

Making Work Pay for Low-Income Canadians

Increasing workforce participation is key to economic growth, improving our standard of living and addressing our demographic challenge. We need to reduce the barriers that have prevented many low-income Canadians from participating fully in the workforce, help them achieve self-sufficiency and contribute to higher standards of living for everyone in the long run. The new tax reduction plan responds to this challenge by proposing a Working Income Tax Benefit that will help make work pay for low-income Canadians.

Participation in the workforce is a challenge for many low- and modest-income Canadians. Social assistance recipients, in particular, face significant financial barriers to paid employment: moving into the workforce often means facing a series of obstacles that may make them financially worse off. A typical single parent who takes a low-income job could lose almost 80 cents for each dollar earned because of higher taxes and reduced income support. He or she could also lose in-kind benefits such as subsidized housing and prescription drugs, and will probably incur new work-related expenses. This situation is often referred to as the ";welfare wall.";

Progress has been made in lowering the welfare wall in recent years, notably for families with children, through the federal-provincial-territorial National Child Benefit initiative. However, significant work disincentives remain. In this context, the proposed new tax reduction plan will improve incentives to work for low-income Canadians by introducing a Working Income Tax Benefit (WITB), with annual funding starting at $500 million in 2008 and 2009, and increasing to $1 billion for the 2010 and later taxation years (see box below for a description of a WITB). The objective of the WITB is to reduce the effective marginal tax rate for the lowest-income Canadians to levels consistent with those experienced by middle-income Canadians. The WITB could be expanded in the future depending on fiscal resources.

Because provinces and territories play a key role in providing basic income support to low-income Canadians and these programs have a significant impact on work incentives, introducing a WITB will require coordinated action and consultation between the federal government, provinces and territories. In particular, it will be important to ensure that any steps taken translate into increased incomes and work incentives for low-income workers, in a context where each province and territory has its own structure for income support programs and income taxes.

What Is a Working Income Tax Benefit? A Working Income Tax Benefit (WITB) supplements the earnings of low-income workers to help "make work pay." Benefits under a WITB are generally determined as a percentage of an individual's earnings, to a maximum benefit amount, and are income-tested on the basis of family income. WITBs are generally delivered through the tax system as a refundable tax credit-this ensures that the benefit is not restricted to those who pay income taxes.The effects of a WITB are to encourage individuals to move from social assistance to the labour force by allowing them to keep more of the money they earn, that is by lowering the "welfare wall." WITB-type programs already exist in some provinces (such as the Work Premium in Quebec and the Working Income Supplement in New Brunswick) and in other countries, including the United Kingdom, the United States, France and Ireland. The precise structure of a WITB would be the subject of consultation, but a typical structure is illustrated below. In this example, the WITB would be phased in at a rate of 30 per cent of annual earnings in excess of $3,000. The maximum annual benefit of $1,000 would be reached at earnings of $6,333. The WITB would be reduced by 10 per cent of net family income in excess of $18,000, and reach zero for net family incomes of $28,000 and above. This means that a single parent earning $10,000 per year would receive a WITB of $1,000 per year while a single parent with earnings of $22,000 would receive a WITB of $600 per year.

Reducing Personal Income Taxes Across the Board

Broad-based personal income tax relief will leave significantly more income in the pockets of all taxpayers, while also making it more attractive for Canadians to work and save. This includes significant immediate tax relief:

• The basic personal amount-the amount of income that all Canadians can earn without paying federal income tax-will be increased faster than originally proposed in Budget 2005. This includes an immediate $500 increase, effective January 1, 2005, and a further $200 increase in 2006 ($100 more than scheduled under Budget 2005), accelerating increases that otherwise would not have taken effect until 2008 and 2009.
• The 16-per-cent tax rate that applies to income under $35,595 will be reduced by 1 percentage point, effective January 1, 2005. This measure will provide almost $3 billion in annual, ongoing personal tax relief to all Canadian taxpayers.

In addition, special relief is being provided under the proposed Energy Cost Benefit (see box below) and through enhancements to tax measures for persons with disabilities, as described earlier in this chapter.

Proposed Tax Relief In 2006, all taxpayers will receive the benefits from measures that take effect January 1, 2005: the immediate $500 increase in the basic personal amount and the 1-percentage-point reduction in the lowest 16-per-cent rate to 15 per cent. They will benefit again from these changes in 2006, and will also benefit from a further $200 increase in the basic personal amount, effective January 1, 2006 ($100 more than scheduled under Budget 2005). As a result of these measures, the combined 2005 and 2006 relief, delivered in 2006, will be: About $934 for a two-earner family of four with a combined income of $60,000 a year. About $700 for a single parent with one child and an income of $50,000 a year. These measures will particularly benefit those with low and modest incomes, immediately removing at least 500,000 lower-income Canadians from the tax rolls. The proposed Energy Cost Benefit will also provide additional special relief. Families receiving the National Child Benefit supplement in January 2006 will receive $250, senior couples where both spouses are receiving the Guaranteed Income Supplement or Allowance in the first quarter of 2006 will receive $250, and single seniors receiving the Guaranteed Income Supplement or Allowance will receive $125. In total, the 3.1 million payments under the Energy Cost Benefit will provide about $565 million in disposable income to low-income Canadians this winter.

Significant tax relief is also proposed through reductions in the middle personal income tax rates and an increase in the taxable income threshold at which the top tax rate begins to apply. Specifically:

• The two middle rates-22 per cent on incomes between $35,595 and $71,190, and 26 per cent on incomes between $71,190 and $115,739-will be reduced by 1 percentage point effective January 1, 2010.
• The taxable income threshold at which the top 29-per-cent rate begins to apply will be increased to $200,000 effective January 1, 2010. This amount will be indexed for inflation, as is the case for all bracket thresholds and other parameters of the personal income tax system.

These measures will reward all Canadians who work and make Canada a more attractive place to live and work for highly skilled individuals. When implemented, they will result in tax savings of about $3,300 over the current and next five years for a two-earner family of four with a $60,000 annual income.

Making Canada More Attractive for Highly Skilled Workers Lower taxes, combined with other quality-of-life considerations, can influence the location decisions of highly skilled Canadians looking at jobs abroad, or of potential new Canadians. The new tax reduction plan will make Canada's personal income tax much more competitive with other G7 nations: when fully phased in, it will effectively reduce the top marginal tax rate by 4 percentage points and the average tax rate by 2 percentage points for those with incomes between about $130,000 and $200,000. For example, this would reduce the taxes of a highly skilled worker earning $150,000 a year-such as a specialized software engineer emigrating from India-by about $2,300 per year (about 1.5 percentage points), reducing the tax gap by about 20 per cent with countries like the United States and the United Kingdom, where average personal income tax rates are low.

Preserving the Progressivity of the Tax System

The new plan preserves the progressivity of the existing personal income tax system while providing significant tax relief and improving incentives to work, save and invest. In fact, the proportion of net personal income tax paid by those with less than $60,000 in income will fall slightly once the plan is fully implemented.

Table 5.5
Shares of Net Personal Income Tax Paid Before and After the Proposed New Tax Plan (2010)¹

Income Group	Proportion of Tax Filers	Share of Relief Under New Plan	Share of Taxes Paid Currently	Share of Taxes Paid Under New Plan
	(per cent)
Under $30,000	52	25	-6	-8
$30,000 - $60,000	28	39	25	25
$60,000 - $100,000	14	22	33	34
Over $100,000	6	14	48	49
1 Net personal income tax includes benefits delivered through the tax system such as the Canada Child Tax Benefit. As a result, net personal income tax can be negative. This table only includes impacts of the new tax reduction plan, and not Budget 2005 personal income tax relief that will come into effect over the same time period (these previously announced changes are treated as part of the base tax structure).

Further Personal Income Tax Relief: Future Unanticipated Surpluses

The personal income tax relief provided by this plan could be increased even further should the Government have future unanticipated surpluses. Under proposed legislation, one-third of any surplus in excess of the $3-billion Contingency Reserve at the time of the closing of the books for a fiscal year would be used to deliver immediate tax relief to all taxpayers in the form of a one-time tax credit. In the following years, this same amount could then be used to provide permanent tax relief by increasing the basic personal amount and making corresponding changes to the other personal amounts-as long as this was determined by the Minister of Finance to be fiscally sustainable.

Committing to An Internationally Competitive Corporate Tax System

Creating an internationally competitive tax system for businesses has been, and continues to be, a key part of the Government's plan to build a stronger economy and improve living standards. In today's global economy, where capital is highly mobile internationally, a competitive tax system is essential to encourage the investment that helps workers become more productive and efficient, which is the cornerstone of higher wages and better living standards. It is particularly important that Canada's corporate tax system be competitive vis-à-vis the United States system because of the close economic ties between the two countries. For example, two-thirds of foreign direct investment in Canada is from United States investors, and about 40 per cent of Canada's outbound direct foreign investment is made in the United States. Since corporate taxes were reduced in 2001, the Canadian economy has created almost one and a half million net new jobs and the unemployment rate has fallen to a 30-year low.

In 2004, the United States announced corporate tax reductions that would significantly diminish Canada's tax rate advantage in the absence of additional Canadian tax reductions. This Update reconfirms the 2-percentage-point reduction in the general corporate income tax rate to 19 per cent by 2010 and the elimination of the corporate surtax for all corporations in 2008, as proposed in Budget 2005, to ensure that Canada maintains its corporate tax rate advantage over the United States. The elimination of the corporate surtax in 2008 has already been legislated for small and medium-sized corporations.

Table 5.6
Federal Corporate Income Tax Rates Proposed in Budget 2005

	2005	2006	2007	2008	2009	2010
	(per cent)
General corporate income tax rate	21.0	21.0	21.0	20.5	20.0	19.0
Corporate surtax	1.12	1.12	1.12	0.0	0.0	0.0

Together, these tax reductions will re-establish a solid corporate tax rate advantage for Canada over the United States-in particular, for manufacturing income, Canada's statutory tax rate advantage will be 4.7 percentage points in 2010.

Lower statutory tax rates encourage investment and are an important signal for investors, but other aspects of the corporate income tax system-capital cost allowances, for example-also affect Canada's attractiveness for new investment. It is important that Canada have not only a statutory tax rate advantage, but also an overall tax advantage. The reduction in the general corporate income tax rate and the elimination of the corporate surtax will give Canada an overall tax advantage for business investment over the United States by 2010, as measured by the marginal effective tax rate (METR) on investment.

This Update builds on these corporate tax rate reductions and also proposes certain other improvements to the corporate tax system that will promote investment in capital and technology that contributes to a reduction in greenhouse gases and air pollutants, and support businesses undertaking risky ventures.

Accelerating the Elimination of the Federal Capital Tax

Taxes are levied on the capital of corporations by both the federal and provincial governments in Canada. Unlike corporate income taxes, which are levied on taxable income, capital taxes must be paid even if the corporation is not profitable. Capital taxes increase the cost of raising and carrying capital in Canada and, therefore, are an impediment to investment and job growth.

Budget 2003 announced that the federal capital tax would be eliminated for smaller corporations by 2004 and would be completely eliminated by 2008. The Update proposes eliminating the federal capital tax as of January 1, 2006-two years earlier than was originally scheduled. As a result, none of the 13,200 corporations that would otherwise pay the tax in 2006 will have to do so, and Canada's overall tax advantage will immediately increase. With this proposal, the federal government removes a tax that discourages investment in machinery and equipment. Such investment is a key to the adoption of new technologies and an area where Canadian firms have fallen short relative to their peers in other major countries.

Capital taxes are also imposed by a number of provincial governments. Some provinces, like Ontario and Quebec, have recently taken steps to reduce or eliminate their capital taxes. The Government encourages those provinces that still impose capital taxes to consider reducing or eliminating them in order to encourage investment and strengthen Canada's overall tax advantage.

Extending Carry-Forward Periods for Business Losses and Investment Tax Credits

It can sometimes take many years before new businesses begin to earn profits. A fair and efficient tax system must recognize appropriately both profits and losses in determining tax liability. The current rules allow businesses to carry non-capital losses forward 10 years and backward 3 years. Small businesses have submitted that 10 years is not a long enough carry-forward period, particularly for new businesses undertaking risky ventures. To provide additional support, particularly to the small and innovative business sectors, this Update proposes extending the non-capital loss carry-forward period of all taxpayers to 20 years.

A similar concern exists with respect to investment tax credits (ITCs). ITCs provide considerable support for important economic activity such as scientific research and experimental development. Like non-capital losses, ITCs can currently be carried forward up to 10 years. However, some businesses, such as research-intensive companies, can realize little profit for extended periods, and may therefore not benefit fully from the ITC. To increase the ability of these companies to use ITCs, this Update also proposes to extend the ITC carry-forward period to 20 years.

Accelerating Capital Cost Allowance for Forestry Bioenergy

To promote better environmental outcomes, the Government has in recent years been using a variety of economic instruments, including the tax system. Budget 2005 announced that, going forward, new accelerated capital cost allowance (CCA) would only be considered for investments in green technology. Accelerated CCA is currently used to encourage firms that produce energy to invest in equipment that uses renewable energy sources or uses fossil fuel efficiently. The Update proposes to extend this incentive to cogeneration systems in the pulp and paper industry that produce both thermal energy and electricity using a biomass residue from the pulping process referred to as ";black liquor."; This will support additional investment in technology that contributes to a reduction in greenhouse gases and air pollutants, while helping to improve the international competitiveness of Canadian mills.

The Government will continue to explore other opportunities to provide accelerated CCA for green energy.

Reducing Personal and Corporate Taxes: Building on a Strong Record of Achievement Since eliminating the deficit in 1997-98, the Government of Canada has significantly reduced personal income taxes, particularly for low- and modest-income Canadians. Comparing today's tax system with the one in place in 1997, Canadians face lower marginal tax rates, earn more tax-free income and receive more generous family benefits. In addition, they are protected from tax increases due to inflation. The $100-billion Five-Year Tax Reduction Plan, introduced in 2000, reduced federal personal income taxes by 21 per cent on average, and 27 per cent for families with children. The new tax reduction plan will reduce the tax burden further: when fully implemented it will reduce taxes by 7 per cent on average, and by 10 per cent for families with children. With past relief and when the measures proposed in this Update are fully implemented, federal personal income taxes as a proportion of GDP will decline from 8 per cent in 1999-2000 to less than 7 per cent in 2009-10. To date, about 1 million low-income Canadians have been removed from the tax rolls, while also improving the tax system for students, persons with disabilities, registered charities and others. Personal income tax relief scheduled to take effect in the coming years will remove a further 860,000 people from the tax rolls, including about 240,000 seniors. The Government has also improved the tax system to encourage savings, entrepreneurship and innovation. Recent actions include increasing the limits on contributions and benefits under registered retirement savings plans and registered pension plans, reducing the capital gains inclusion rate to one-half from three-quarters, and creating a tax-free rollover from one small business investment to another. The Government's approach to improving the competitiveness of the business tax system has been to reduce corporate income tax rates while improving the tax structure. Corporate tax reductions since 2000 have created a corporate tax rate advantage for Canada relative to the United States. The tax structure has also been improved by phasing out the capital tax, establishing a common tax rate across all sectors, and bringing capital cost allowance rates more into line with the useful life of assets. The new tax reduction plan builds on these actions to further improve the efficiency and competitiveness of the corporate tax system and maintain Canada's tax rate advantage over the United States.

 

A Track Record of Acceleration The Government has proven that it will exceed its commitments, delivering more tax relief, sooner, as resources allow. For example: The $100-billion Five-Year Tax Reduction Plan of fall 2000 significantly deepened the personal tax relief and accelerated the schedule of corporate rate reductions proposed in Budget 2000. Budget 2004 accelerated the phased increase in the small business income threshold to $300,000 announced in Budget 2003 by one year in order to help small businesses retain more of their earnings for reinvestment and expansion. The new proposed tax plan will eliminate the federal capital tax two years earlier than originally proposed in Budget 2003, and the basic personal amount will be increased sooner than proposed in Budget 2005. Ongoing sound financial management may permit the Government to go further and faster with the new plan as well.

Improving the Competitiveness of Canada's Tax System: Fiscal Costs

In total, the Government proposes to provide over $30 billion in cumulative legislated tax relief over the current and next five years, including about $5 billion in personal income tax relief that takes effect January 1, 2005. In addition, the Employment Insurance Commission recently announced that the employment insurance premium rate for 2006 will be set at $1.87, down from $1.95 in 2005, which will amount to an additional savings of almost $4 billion over five years for businesses and employees.

Table 5.7
Proposed Tax Reduction Plan Measures

	2005-06	2006-07	2007-08	2008-09	2009-10	2010-11	Total
	(millions of dollars)
Personal Income Tax Measures
Accelerate basic personal    amount increases	1,880	1,800	1,620	790	125	130	6,345
Reduce 16% rate to 15%    (Jan. 1, 2005)1	3,225	2,670	2,705	2,780	2,835	2,890	17,105
Reduce 22% rate to 21%    (Jan. 1, 2010)	-	-	-	-	390	1,575	1,965
Reduce 26% rate to 25%    (Jan. 1, 2010)	-	-	-	-	110	450	560
Raise top bracket to $200,000    (Jan. 1, 2010)	-	-	-	-	180	730	910
Introduce a WITB    (Jan. 1, 2008)	-	-	125	500	625	1,000	2,250
Total	5,105	4,470	4,450	4,070	4,265	6,775	29,135
Corporate Tax Measures
Accelerate elimination of the    federal capital tax	225	570	225	-	-	-	1,020
Accelerate CCA for forestry    bioenergy	5	10	20	25	25	25	110
Extend carry-forward periods	-	-	-	-	-	-	-
Total	230	580	245	25	25	25	1,130
Update total	5,335	5,050	4,695	4,095	4,290	6,800	30,265
Note: Totals may not add due to rounding. 1 Includes impact on non-refundable tax credits.

Table 5.8
Budget 2005 Tax Measures

	2005-06	2006-07	2007-08	2008-09	2009-10	2010-11	Total
	(millions of dollars)
Personal income tax measures	272	587	1,157	2,497	3,892	3,919	12,324
Corporate tax measures	45	105	140	1,945	2,800	3,850	8,885
Sales, excise and other tax measures	102	122	147	171	196	200	938
Budget 2005 total	419	814	1,444	4,613	6,888	7,969	22,147
Note: Totals may not add due to rounding.

Table 5.9
Update 2005 and Budget 2005 Tax Measures

	2005-06	2006-07	2007-08	2008-09	2009-10	2010-11	Total
	(millions of dollars)
Personal income tax measures	5,377	5,057	5,607	6,567	8,157	10,694	41,459
% of total relief	93%	86%	91%	75%	73%	72%	79%
Corporate tax measures	275	685	385	1,970	2,825	3,875	10,015
% of total relief	5%	12%	6%	23%	25%	26%	19%
Sales, excise and other tax measures	102	122	147	171	196	200	938
% of total relief	2%	2%	2%	2%	2%	1%	2%
Update and Budget 2005 total	5,754	5,864	6,139	8,708	11,178	14,769	52,412
Note: Totals may not add due to rounding.

Promoting Regulatory Efficiency

Regulations help to protect the health and safety of Canadians, support a clean environment and underpin a well-functioning market system. Canada has one of the most effective regulatory systems in the world for both business and individuals, and the Government is committed to maintain and strengthen this advantage.

Smart Regulation

Given the dynamic nature of the domestic and global economies, the Government of Canada recognizes the need to review and update its approach to regulation to sustain the Government's high levels of regulatory performance. To this end, the government-wide Smart Regulation initiative is reviewing all aspects of Canada's regulatory system. To date, Health Canada has eliminated the backlog for new pharmaceutical review and substantially improved review times through the use of new management tools and increased review capacity, without compromising safety. Also, Natural Resources Canada is providing single-window access on the Internet to information and resources on federal regulations that affect the natural resource sectors.

As part of the Smart Regulation initiative, the Government is developing a new Government Directive on Regulating, which will improve regulatory effectiveness and governance through a life-cycle approach, and better integrate modern policy and management techniques into the regulation-making process. The new Directive will help ensure that Canada's regulatory system remains a competitive advantage while at the same time protecting the health and safety of Canadians and the environment.

Reducing the Administrative Burden for Small Business

BizPaL is a collaborative project that brings the federal, provincial-territorial and municipal governments together to streamline and harmonize permit and licence requirements to reduce regulatory complexity and overlap between jurisdictions and help simplify compliance procedures.

The cost of complying with the administrative requirements from all three levels of government disproportionately affects small and medium-sized enterprises (SMEs), taking small business owners away from their core activities: growing their businesses and creating jobs. Reducing the burden of government regulation is among the top priorities for SMEs.

The Government proposes to invest $15 million over five years to help refine and implement BizPaL, a web-based service that gives businesses easy access in one place to a customized list of permits and licences required from all levels of government for specific business activities.

Canada Business

Canada Business is the Government of Canada's primary source of business information, advice and referrals for entrepreneurs. It is a collaborative arrangement among 43 federal, provincial and territorial departments and, in some cases, not-for-profit organizations. It enables entrepreneurs to access information on the Internet, by telephone or in person at one of 13 Canada Business service centres across the country.

Canada Business reduces the time and complexity for small and medium-sized companies in dealing with governments, helping entrepreneurs grow their business. The Government proposes to provide an additional $75 million to sustain Canada Business over the next five years.

Managing Wait Times

Canada Health Infoway is working towards accelerating the development and adoption of compatible health information systems to optimize medical resources to meet patient needs. To further assist in managing wait times, this Update proposes to invest $50 million for Canada Health Infoway to work with partners on the development of tools and systems.

Building Canada's Communities

To build safe, creative and sustainable communities that are magnets for investment and support a quality of life second to none, the Government will build on recent major investments such as those made under the Government's infrastructure programs, the New Deal for Cities and Communities, the National Security Policy and Tomorrow Starts Today with new measures in Budget 2006.

Promoting Energy Efficiency and Environmental Sustainability

The Government of Canada is dedicated to promoting energy efficiency and environmental sustainability. Over the past year, it has implemented major reforms and launched significant initiatives to address these priorities. Additional measures will be forthcoming in Budget 2006.

Action taken by the Government of Canada in support of addressing climate change is a key example of its commitment to a healthier environment. In April 2005, the Government of Canada released Moving Forward on Climate Change: A Plan for Honouring Our Kyoto Commitment, which will be used to guide the federal government's approach to implementing measures to reduce greenhouse gas emissions. Budget 2005 targeted over $4 billion in investments over the next five years for key initiatives included in the Climate Change Plan. These measures include:

• An innovative $1-billion Climate Fund to encourage the most cost-effective projects to reduce greenhouse gas emissions by Canadians and industry and through projects in other countries.
• A Partnership Fund to deliver targeted support for large strategic projects that are jointly agreed priorities for the Government of Canada and provinces and territories.
• The expansion of the Wind Power Production Incentive and the establishment of a Renewable Power Production Incentive (RPPI) to encourage the production of electricity from clean, renewable power sources.
• A quadrupling of the number of homes made more energy-efficient under the EnerGuide for Houses Retrofit Incentive by 2010.
• A plan to develop, by the end of 2006, a Sustainable Energy Science and Technology Strategy with provinces and territories.

In recognition of the important role that energy efficiency plays in reducing greenhouse gas emissions, making the environment more sustainable, and protecting Canadian consumers and industry against high energy prices, the Government of Canada announced in October 2005 a further set of energy-efficiency initiatives which will support Canada's Climate Change Plan. These proposed measures include:

• A new $550-million EnerGuide for Low-Income Households program to help over 130,000 low-income Canadians make energy-efficiency retrofits.
• A $227-million enrichment of the EnerGuide for Houses Retrofit Incentive program to increase the total number of homes retrofitted under the program to over 900,000 by 2011.
• A $129-million High Efficiency Home Heating System Cost Relief Program to provide financial incentives for Canadians to install modern, energy-efficient heating systems.
• A $252-million renewal and expansion of programs targeting existing buildings, which includes incentives for energy-saving retrofits in community buildings and hospitals, schools, universities and other institutional buildings.

Partnerships are a key element to the success of the Climate Change Plan, particularly to develop and implement new technologies. Through the Partnership Fund, the Government will cost-share investments in the deployment of new technologies and infrastructure, contributing to significant reductions in greenhouse gas emissions. Projects could include a carbon dioxide capture and storage pipeline, clean coal, cellulosic ethanol plants and the construction of Canada's east-west electrical transmission infrastructure to bring hydro power to provinces that rely on fossil fuels. The Partnership Fund is currently resourced at $50 million per year for the next five years. Taking into consideration the potential emission reductions, and the likely timing of the projects, the size of the fund could grow to $2 billion to $3 billion through investments in Budget 2006 and future budgets.

The Government proposes to support bioenergy with an additional $50 million for expanding the RPPI to include incentives for thermal cogeneration. This will provide industry with an opportunity to reduce production costs, thereby helping improve productivity and competitiveness while also contributing to Canada's efforts to address climate change. The Government has also been using the tax system to promote environmental objectives. Exemptions from excise tax help encourage the production and use of alternative fuels such as ethanol and biodiesel. Accelerated CCA is used to encourage firms that produce energy to invest in equipment that uses renewable energy sources or uses fossil fuel efficiently. This is an explicit exception to the general principle of setting CCA rates to reflect the useful life of assets. Budget 2005 further accelerated the CCA rate for a broad range of renewable energy generation equipment and certain high-efficiency cogeneration equipment. It also extended the incentive to certain district energy and biogas production systems. As set out above in the section ";A More Competitive Tax System: A New Proposed Tax Reduction Plan,"; this Update proposes to extend accelerated CCA to promote investment in bioenergy in the pulp and paper sector.

The Government will continue to pursue other technologies for potential accelerated CCA treatment to ensure that appropriate incentives are provided for investment in green energy. It will also pursue other opportunities to use the tax system and other incentives to support environmental objectives.

Taken together, these measures will fundamentally shift our economy to be more efficient in its use of energy resources and increase the sustainability and international competitiveness of the Canadian economy.

Going forward, Canada will continue to demonstrate leadership in international fora, such as the United Nations Framework Convention on Climate Change and the G8, to address issues of importance to the global community in respect of climate change, including the promotion of technology adoption, market development and international cooperation.

The Climate Change Plan is the first phase of Project Green, a set of policies and programs aimed at supporting a sustainable environment and a more competitive economy. Project Green will also address a range of environmental issues, including biodiversity, contaminated sites, and water and air quality. The initiatives over the past year and those in forthcoming budgets will help secure an energy-efficient, environmentally sustainable economy that is essential to both our high living standards and quality of life.

Table 5.10
Building the Right Investment Environment

	2005-06	2006-07	2007-08	2008-09	2009-10	2010-11	Total
	(millions of dollars)
Improving the Competitiveness of Canada's Tax System
Tax reductions to support prosperity	5,335	5,050	4,695	4,095	4,290	6,800	30,265
Promoting Regulatory Efficiency
BizPal	3	3	3	3	3	3	15
Canada Business		15	15	15	15	15	75
Canada Health Infoway	50						50
Promoting energy efficiency		2	3	5	10	30	50
Total	5,385	5,070	4,716	4,118	4,318	6,848	30,455
Note: Totals may not add due to rounding.

Table 5.11
Summary: A Plan for Growth and Prosperity

	2005-06	2006-07	2007-08	2008-09	2009-10	2010-11	Total
	(millions of dollars)
Creating Opportunities for All Canadians
Enhancing Canada's World-Class Workforce	1,077	623	1,197	1,568	1,579	1,579	7,622
Meeting the Demographic Challenge	34	161	246	316	397	397	1,551
Improving Labour Mobility and Labour Market Efficiency		10	10	15	15	15	65
Total	1,112	794	1,453	1,899	1,991	1,991	9,238
Advancing an Innovative Economy
Leadership in University-Based Research	500	275	335	335	335	335	2,115
Strengthening International Research Networks	30						30
Accelerating the Commercialization of New Technologies		24	47	49	50	30	199
Total	530	299	382	384	385	365	2,344
At the Centre of Global Commerce and Networks
Positioning Canada in Global Business Networks		49	94	108	114	120	485
Creating World-Class Gateways		93	158	160	151	129	690
Total		142	251	268	265	249	1,175
Building the Right Investment Environment
Tax Reductions to Support Prosperity	5,335	5,050	4,695	4,095	4,290	6,800	30,265
Promoting Regulatory Efficiency	50	18	18	18	18	18	140
Promoting Energy Efficiency		2	3	5	10	30	50
Total	5,385	5,070	4,716	4,118	4,318	6,848	30,455
Total	7,027	6,305	6,802	6,669	6,959	9,452	43,213
Note: Totals may not add due to rounding.

Table 5.12
A Plan for Growth and Prosperity

Broad Policy Directions	Proposed Policy Actions
1. Creating Opportunities for All Canadians
1.1. Enhancing Canada's World-Class Workforce
Continue to minimize barriers to access and ensure that student financial assistance programs meet the needs of students.	Improve access to post-secondary education by extending the Canada Access Grant for students from low-income families to cover up to four years of undergraduate studies, benefiting an additional 55,000 students each year-a $550-million investment over five years.
	Invest an additional $2.2 billion over five years to further improve Canada's system of student financial assistance.
Encourage graduate study opportunities.	Increase by 50 per cent to 6,000 the number of Canada Graduate Scholarships each year provided by the three granting councils. This $210-million investment over five years will support 6,000 students each year in all disciplines, including science, engineering and management, when fully implemented.
Encourage international education opportunities.	Invest $150 million over five years to improve access to international education and enable institutions to participate in international networks.
Contribute to ensuring the capacity to provide high-quality post-secondary education.	Provide a $1-billion Post-Secondary Education Innovation Fund from which provinces and territories will be able to draw down funds on a per capita basis for urgent investments in Canada's universities and colleges.
Promote a culture of lifelong learning and skills upgrading by working with business, labour and provincial partners to enhance workplace-based skills development-including literacy, essential skills and apprenticeship.	$3.5 billion over this year and the next five years to increase workplace-based and employer-led training by providing apprenticeship opportunities, improving literacy and essential skills, developing workplace skills and enhancing workforce participation of Aboriginal people, persons with disabilities and new immigrants. Develop a national literacy strategy with provinces and territories.
1.2 Meeting the Demographic Challenge
Increase workforce participation of currently under-represented groups-such as older Canadians and persons with disabilities-by removing barriers to participation in the workforce and improving work incentives.	Remove, where appropriate, any remaining provisions in federal legislation that allow mandatory retirement. Encourage provinces and territories to consider similar actions. Increase funding by $150 million over five years for the Multilateral Framework for Labour Market Agreements for Persons with Disabilities to enhance employment assistance for persons with disabilities. Increase the maximum annual Child Disability Benefit to $2,300 for the 2006-07 benefit year, a $50-million investment over five years. Increase the refundable medical expense supplement to $1,000 at a cost of $65 million over the current year and the next five years.
Improve the efficiency and effectiveness of the immigration system and then increase immigration of skilled and educated workers.	Streamline the immigration system to ensure that it efficiently processes the immigrants needed, is responsive to the changing labour market needs, and makes an effective contribution to growth and prosperity.
Improve immigrant integration by working with the provinces and territories.	Increase funding by $1.3 billion over the current year and the next five years for settlement and integration programs.
Partner with provinces, businesses and professional associations to better match immigrants with skill requirements, broaden the regional distribution of immigrants and improve foreign credential recognition.	Engage provinces and territories on the best ways to improve immigrant settlement and integration, recognize the foreign credentials of immigrants and broaden the regional distribution of immigrants.
Reduce the work barriers faced by low-income Canadians.	Introduce a Working Income Tax Benefit in 2008, at an initial annual cost of $500 million, rising to $1 billion, to improve incentives to work for low-income Canadians.
1.3 Creating Aboriginal Opportunities
	Agree to transformative approaches to health, housing, economic development and education at the First Ministers' Meeting with Aboriginal leaders.
	On November 24 and 25, 2005, First Ministers and National Aboriginal leaders will be engaged in discussions of reforms and making concrete commitments and investments to improve the lives of First Nations, Inuit and Metis peoples.
1.4 Improving Labour Market Information and Efficiency
	Reduce barriers to labour mobility across the country, working with provinces, territories and stakeholders.
	Work with provincial and territorial governments, employers and regulatory bodies to reduce barriers to labour mobility across the country. These efforts will be supported by a $25-million investment over five years.
	Improve the quality and timeliness of labour market information.
	Improve collection of labour market information and forecasting capacity to help Canadians improve their career choices and enhance labour mobility by investing $40 million over the next five years.
	Ensure that the Employment Insurance Program, on an ongoing basis, effectively meets the changing needs of the workforce and the economy.
	Continue to monitor and report on the effectiveness of the Employment Insurance Program through the annual Monitoring and Assessment Report.

 

Broad Policy Directions	Proposed Policy Actions
2. Advancing an Innovative Economy
2.1 Leadership in University-Based Research
Maintain Canada's G7 leadership in university-based research through increased investment.	Increase funding by $425 million over five years to the Canadian Institutes of Health Research, the Natural Sciences and Engineering Research Council of Canada and the Social Sciences and Humanities Research Council of Canada (SSHRC) to support university-based research. Support research by increasing funding for the Indirect Costs of Research program by almost $1.2 billion over five years.
Make major ongoing investments to build world-leading equipment and facilities, attract the best researchers and support primary research.	Provide $500 million in 2005-06 to the Canada Foundation for Innovation to continue to modernize research infrastructure at Canadian universities and colleges, research hospitals and other non-profit research institutions across Canada.
Improve its monitoring of investments and strengthen reporting of research success.
2.2 Strengthening International Research Networks
Strengthen support for universities and researchers to develop international networks and participate in research partnerships that improve Canada's access to leading-edge research.	Provide $30 million in 2005-06 to the Canadian Institute for Advanced Research (CIAR) to sustain and strengthen CIAR's international research networks and support new research collaborations in emerging countries such as China and India.
Make it easier for the best and the brightest researchers from around the world to work in Canada.
Fulfill the commitment to devote 5 per cent of federal R&D to priorities of the developing world, including health and environmental technologies.	Budget 2006 will fund concrete initiatives to help fulfill the 5-per-cent commitment.
2.3 Encouraging Private Sector R&D and Technology Adoption
Build the right investment environment for private sector investment in R&D and technology.	See measures under ";Building the Right Investment Environment.";
Introduce new programs to enhance existing support for technology development and adoption.	Implement a new Transformative Technologies Program to support innovation and technology adoption by all sectors of the economy.
2.4 Accelerating the Commercialization of New Technologies
Respond to the recommendations of Industry Canada's Expert Panel on Commercialization. Specific measures will be taken to: -  Increase the commercialization capacity of established clusters of economic activity. -  Improve collaboration between university and private sector researchers. -  Strengthen the management and commercial capabilities of scientists and engineers.	Provide $21 million over the next five years to implement an internship program that will enable up to 3,500 master's students in engineering and the natural and health sciences to acquire hands-on experience working on private sector R&D projects. Allocate $18 million over five years to SSHRC to support up to 500 graduates of master's programs in engineering and the natural and health sciences pursuing an M.B.A. Provide $160 million over five years to strengthen knowledge-based industrial clusters with support for large-scale projects that bring together universities, private firms, venture capitalists and specialized business services, such as incubators.
Implement new models for managing government laboratories to strengthen clusters of university and private sector research excellence.

 

Broad Policy Directions	Proposed Policy Actions
3. At the Centre of Global Commerce and Networks
3.1 Opening Canada to the World
Review Canada's tariff regime to improve competitiveness and attract investment-for example, by reducing tariffs on manufacturing inputs-and ensure trade negotiations open key international markets for Canadian business.	Continue to negotiate improvements in market access for Canadian firms under the Doha Round of the World Trade Organization.
Move forward with the Security and Prosperity Partnership of North America and develop new avenues of cooperation with our North American partners to make our societies safer and more secure, our businesses more competitive and our economies more resilient.	Continue to implement initiatives to improve security and prosperity, including border measures.
Ramp up the Foreign Investment Promotion and Protection Agreement (FIPA) program to assist firms in connecting to global supply networks, especially with respect to priority markets such as India and China. Improve the trade and investment climate by concluding negotiations with the U.S. on tax treaty changes, reviewing Canada's restrictions on foreign investments in the air transportation sector, and acting on the findings of the Telecommunications Policy Review Panel.	Conclude FIPA negotiations with China, India and Peru.
3.2 Positioning Canada in Global Business Networks
Develop a government-wide network of services and programs to identify opportunities in key emerging markets, showcase Canadian strengths and achieve results through successful commercial strategies. Increase export promotion efforts, especially for small and medium-sized businesses. Work with Canadian businesses in emerging markets to promote issues of corporate social responsibility.	Invest $485 million over five years to implement CAN-Trade, a comprehensive network of services and programs. The CAN-Trade initiative includes: -  $7 million over five years to inform businesses, particularly small and medium-sized enterprises (SMEs), of global commerce opportunities and risks and the Government's tools that exist to help them succeed internationally. -  $60 million over five years to raise Canada's profile and visibility as a nation of dynamic and innovative businesses. -  $12 million over five years to broaden Canada's advocacy efforts in key markets. -  $109 million over five years to expand the Trade Commissioner Service of International Trade Canada in priority markets, including China, India and Brazil. -  $20 million over five years to develop commercial strategies for emerging markets, beginning with China, India and Brazil. -  $250 million over five years to create the Global Success Fund to enhance the ability of more than 5,000 SMEs over five years to link to global supply networks. -  $12 million over five years to create a Corporate Social Responsibility Centre which, in collaboration with the private sector, will provide advice to Canadian business on corporate social responsibility issues. -  $15 million over five years to support the already-established Sustainable Cities Initiative, which links Canadian businesses to opportunities to improve the sustainability of major cities in developed countries.
Further the integration of emerging economies into the global economy through bilateral initiatives and Canada's leadership position in the G7 and G20.
Facilitate global market opportunities for Canadian companies to develop and deploy environmental technologies through the United Nations Framework Convention on Climate Change and other international processes.
3.3 Creating World-Class Gateways
Promote trade with the United States and emerging Asia-Pacific economies by supporting the further development of Canada's Pacific gateway and the Windsor-Detroit corridor through infrastructure investment and supporting policy initiatives.	Invest $590 million over five years to improve Canada's Pacific gateway.
Explore further liberalization of Canada's air transport agreement with the United States and other countries.	The Government of Canada will attempt to acquire rights to accommodate the interests of Canadian carriers under bilateral air transport agreements.
Improve access to global telecommunications networks by investing to better connect remote, rural and Aboriginal communities to broadband networks where private service is lacking.	Allocate an additional $100 million over five years to extend the Government's Broadband for Rural and Northern Development Pilot Program to accelerate the deployment of broadband services in rural, remote and First Nations communities.

 

Broad Policy Directions	Proposed Policy Actions
4. -Building the Right Investment Environment
4.1 Maintaining Canada's Macroeconomic Advantage
Maintain balanced budgets or better and its balanced approach to the allocation of surpluses-including unanticipated surpluses in excess of the Contingency Reserve-and keep the debt-to-GDP ratio on a downward track.	The Government is committed to maintain each and every year a balanced budget or better and to continue to reduce the debt burden. Set a new objective of reducing the debt-to- GDP ratio to 20 per cent by 2020 to create future fiscal flexibility and to address the pressures associated with population aging. Legislation has been introduced to allocate any unanticipated surplus in excess of the $3-billion Contingency Reserve equally to investments in economic and social priorities, tax relief and debt reduction.
Maintain low, stable and predictable inflation by extending the Government's inflation target agreement with the Bank of Canada for a further five years in 2006.	Conclude a new inflation target agreement with the Bank of Canada in the first half of 2006.
4.2 Improving the Competitiveness of Canada's Tax System
The Government is committed to a fair, efficient and competitive income tax system for individuals and corporations by: -  Reducing personal income taxes at all income levels to make it more attractive for Canadians to join the workforce, to stay working and to save, with a specific focus on reducing marginal tax rates to improve incentives. -  Consulting with provinces and territories to design and introduce a new Working Income Tax Benefit to make work pay for low-income Canadians.	A new proposed tax reduction plan that will deliver more than $30 billion in personal and corporate income tax relief over the current and next five years, including immediate personal income tax relief of up to about $325 for all taxpayers for 2005 and further relief in later years as other tax reductions are phased in. The proposed new tax plan will: -  Introduce a Working Income Tax Benefit to reduce the barriers to work faced by low-income Canadians, starting in 2008. -  Provide an immediate increase of $500 to the basic personal amount-the amount of income that Canadians can earn without paying federal income tax-effective January 1, 2005, accelerating the increase scheduled under Budget 2005. -  Reduce personal income tax rates by reducing the lowest 16-per-cent rate to 15 per cent effective January 1, 2005, followed by reductions in each of the two middle rates by 2010. -  Improve the attractiveness of working in Canada for highly skilled and mobile workers by increasing the income level at which the top tax rate begins to apply, starting in 2010.
-  Ensuring that Canada has an internationally competitive corporate tax system, by establishing in particular a meaningful overall, or marginal effective tax rate, advantage vis-à-vis the United States, and to make the tax system as neutral as possible with respect to business structure, financing and investment.	-  Confirm the general corporate income tax rate reductions, and the elimination of the corporate surtax for all corporations, as proposed in Budget 2005, a key element of the growth and prosperity plan. -  Eliminate the federal capital tax as of 2006, two years earlier than originally planned, to eliminate an impediment to investment. -  Extend carry-forward periods for business losses and investment tax credits to provide additional support to businesses undertaking risky ventures. -  Accelerate capital cost allowance for certain forestry bioenergy equipment to support additional investment in technology that contributes to a reduction in greenhouse gases and air pollutants, while helping to improve the international competitiveness of Canadian pulp and paper mills.
-  Encourage Canadian investment abroad and foreign investment in Canada by, among other things, enhancing tax treaties with other countries and ensuring that those capital flows serve lawful and productive purposes.
4.3 Promoting Regulatory and Financial Market Efficiency
Reform the Government's regulatory system based on the principles of Smart Regulation.	Implement a new Government Directive on Regulating to improve regulatory effectiveness and governance and better integrate modern policy and management techniques into the regulation-making process.
Reduce the paper burden on Canadian business by working with the private sector and other orders of government to minimize complexity and duplication.	Provide $15 million over five years to help refine and implement BizPal, a web-based service that gives businesses easy access to a customized list of permits and licences from all levels of government for specific business activities. Provide $75 million over five years to Canada Business, a service aimed at reducing the time and complexity for SMEs in dealing with governments.
Ensure that the regulatory framework governing the financial sector, capital markets and pensions promotes soundness, efficiency and competitiveness, and serves the needs of individuals, businesses and the economy.	Release a white paper on the 2006 review of financial institution legislation. Issue proposals following on the consultation related to federally regulated defined benefit pension plans.
Continue discussions with the provinces and territories on a single securities regulator and other approaches to achieve a new, enhanced system of securities regulation.
4.4 Strengthening Canada's Economic Union
Encourage provinces to implement tax reforms that will enhance productivity, including eliminating provincial capital tax and reforming retail sales taxes.
Strengthen Canada's economic union through further development of the Agreement on Internal Trade with the provinces.	Work with the provinces to make further progress on strengthening internal trade through the Agreement on Internal Trade, including improving credential recognition and ratifying the energy chapter.
Enhance workplace-based skills development, including literacy, essential skills and apprenticeships with the provinces.	See 1.1
4.5 Driving Greater Productivity in Government
Update the Government's expenditure management system to better link spending to achievements and improve the quality of information for Parliament.	Work is underway on the development of the Expenditure Management Information System, which once implemented will improve the information available for linking program spending to intended outcomes.
Further professionalize the public service by investing in learning.	Invest up to $35 million per year for a new learning and development initiative in the career-long learning of the public service.
Strengthen internal audit and evaluation capacity across the public sector.	The Government will recruit up to 300 new auditors to ensure that each government department and agency has a Chief Audit Executive responsible for overseeing its new Policy on Internal Audit.
Perform ongoing reviews of major portfolios to create a culture of expenditure review.	Following completion of its review of climate change programs, the Government will provide recommendations to Ministers on the allocation of new funds starting in 2006. The Government will also review other priority areas, including public security, anti-terrorism programs, and programming for Aboriginal Canadians.
4.6. Promoting Energy Efficiency and Environmental Sustainability
Encourage the development and adoption of energy-efficient and environmentally sustainable technologies, situating Canada's industries at the forefront of a growing global market.
Use market mechanisms to tap greenhouse gas emissions potential across the Canadian economy, spurring innovation at a national level.	Establish the Climate Fund Agency and launch a new greenhouse gas offset system.
Encourage energy-efficiency improvements and other competitive structural changes for Canadian consumers, industry and governments.	Implement EnerGuide for Low-Income Households, enrichment of EnerGuide for Houses Retrofit Incentive and incentives for building retrofits, and High Efficiency Home Heating System Cost Relief Program.
Use the Government of Canada's purchasing power to improve its environmental performance.	Implement a Government of Canada green procurement policy and continue to put the federal house in order by building on achievements to date and ensuring that its internal operations are among the ";greenest"; in the world.
Provide leadership in international fora to promote technology adoption, market development and international cooperation.	Host the United Nations Climate Change Conference in Montréal in November 2005.
Pursue additional opportunities to use the tax system to support environmental objectives, where it would be an appropriate instrument.	Extend accelerated CCA to promote investment in bioenergy in the pulp and paper sector.

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