Canada's economic success has always depended on our ability to export our goods and services to other nations. Today, with the crisis in global financial markets and the economies of our major trading partners in steep decline, we face extraordinary difficulties, the likes of which have not been seen since the end of the Second World War.
While many economists believe a turnaround in 2010 is likely, difficult conditions are expected to remain for the coming months. Our economy faces three major challenges:
Fortunately, Canada has a number of structural strengths that should allow us to manage through this period of economic weakness better than other countries. First, our financial system is the strongest in the world. Second, Canadian households and businesses are in much stronger financial positions than in most other industrialized countries—largely because our lending practices and housing markets avoided the excesses that occurred in those other countries. Third, the fiscal position of governments in Canada remains structurally solid.
Despite these strengths, Canada is clearly being affected by the cyclical downturn in the global economy, with both employment and output now falling. Canada's Economic Action Plan is designed to protect Canadians from the downturn and pave the way to recovery.
The economic slowdown began in 2007 with the freezing up of large segments of the global financial market and a sharp fall in U.S. housing prices. From the outset of these difficulties, the Government of Canada has acted to minimize the harm to our economy while building for the future.
The Bank of Canada and the Government have acted throughout the period of economic weakness to improve access to financing for Canadian consumers, households and businesses. A significant milestone in this regard is the agreement to restructure non-bank asset-backed commercial paper in Canada, a singular achievement that enhances financial stability and the health of Canada's capital markets.
Canada was one of the first countries to inject major fiscal stimulus into its economy to offset the downturn and encourage continued growth. On October 30, 2007, the Government introduced $65 billion in permanent tax reductions over this and the next five fiscal years. At that time, the Government stated: "Given this global economic uncertainty, now is the time to act…to make broad-based tax reductions that will strengthen our economy, stimulate investment and create more and better jobs." These tax reductions took effect just at the moment they were most needed, when the U.S. entered recession in early 2008. The October 2007 permanent tax reductions continue to support growth and job creation today and will do so into the future.
The Canadian economy is also benefiting from previous investments in infrastructure and the resolution of fiscal balance between orders of government. For example, Budget 2007 set out a seven-year $33-billion plan to boost Canada's public infrastructure—things such as the roads, bridges, sewer, water and public transit systems that support commerce—and provided long-term, growing transfer support to provinces and territories. With current federal transfer support at an unprecedented level, governments are in a position to work together on the current economic challenges.
Most recently, on January 27, 2009, the Government presented Canada's Economic Action Plan—the earliest Budget in Canada's history—to ease the impact of deepening global challenges on our economy and provide the solutions we need to secure our long-term growth and prosperity.
Canada's Economic Action Plan is an important contribution to the global response to the current economic downturn. The world economy is highly globalized. It is only by acting together to boost global economic growth that countries can derive maximum impact from their actions.
Canada's Economic Action Plan comprises five main elements:
"[Budget 2009] provides the necessary support for economic stimulus and job creation."
"[Budget 2009 is] a clever package and hopefully it will win the support of the House. I am confident this will work."
"A clear strategy should help to restore consumer and investor confidence over the medium term. We believe it is an important step forward."
In total, Canada's Economic Action Plan will provide about $40 billion over the next two years to support the economy and help create jobs. When combined with funds from expected partnerships with provincial and territorial governments, the total stimulus provided by the Plan over the two years is almost $52 billion, or 3.2 per cent of gross domestic product (GDP).
Canada's Economic Action Plan meets Canada's commitments at the November 2008 Group of Twenty (G20) leaders' summit to provide timely stimulus to domestic demand, while maintaining long-run fiscal sustainability.
|(millions of dollars, cash basis)|
|Action to Help Canadians and Stimulate Spending||5,880||6,945||12,825|
|Action to Stimulate Housing Construction||5,365||2,395||7,760|
|Immediate Action to Build Infrastructure||6,224||5,605||11,829|
|Action to Support Businesses and Communities||5,272||2,255||7,527|
|Total federal stimulus||22,742||17,200||39,942|
|Total stimulus (with leverage)||29,298||22,316||51,613|
|As a share of GDP (%)|
|Total federal stimulus||1.5||1.1||2.5|
|Total stimulus (with leverage)||1.9||1.4||3.2|
|Notes: Totals may not add due to rounding. These cost estimates reflect projected cash expenditures over the next two years. The budgetary impact is somewhat smaller because certain of these expenditures represent assets to the federal government, including spending related to the construction and renovation of federal infrastructure and loans to third parties.|
Action to Help Canadians
and Stimulate Spending
Canada's Economic Action Plan includes $13.5 billion over three years to help those hardest hit, including enhancing Employment Insurance (EI) benefits, freezing EI rates and reducing personal income taxes.
"The investments in worker training through EI, the extension of the EI work-sharing program and support to communities that have been affected by the economic downturn, are welcome initiatives that will help more Canadians keep their jobs and employers hold onto talented workers."
"They're lowering the lowest and middle income tax brackets. They're boosting the working tax benefit and the personal exemption. These are very good things particularly for low income Canadians."
"These tax changes will put money back in the pockets of Canadians, boosting confidence and encouraging spending, which is critical to the retail sector and Canada's overall economic recovery."
Action to Stimulate
Canada's Economic Action Plan provides up to $7.8 billion in tax reductions and funding to support home ownership, to help stimulate the housing sector and to improve housing across Canada.
"[Budget 2009] helps keep skilled workers on the job at a time when home building starts are sagging. I think it‘s a great opportunity to stimulate the renovation business across Canada."
to Build Infrastructure
Canada's Economic Action Plan allocates close to $12 billion in new infrastructure funding over two years to create jobs across Canada and to ensure Canada emerges from the economic downturn with a more modern and greener infrastructure.
"FCM strongly supports the federal government's commitment to invest significant new dollars in infrastructure projects that will put Canadians to work in 2009 and 2010."
"Our industry is pleased the government recognized that the best and quickest way to get Canadians back to work is through investments in infrastructure—every billion dollars invested means more than 11,500 jobs."
Action to Support Businesses
Canada's Economic Action Plan protects jobs and supports structural adjustment during this extraordinary crisis with $7.5 billion in additional support for sectors, regions and communities.
Action to Improve Access to Financing and
Strengthen Canada's Financial System
Canada's Economic Action Plan provides up to $200 billion through the Extraordinary Financing Framework to improve access to financing for Canadian households and businesses.
"[We] support the budget initiatives that provide short-term support to Canadians and businesses, facilitate the flow of credit through the capital markets, and lay the foundation for recovery."
"The government took critical steps in the budget to stimulate liquidity, provide incentives that will encourage manufacturers to invest in machinery and equipment."
Canada's Economic Action Plan is designed to boost the economy when it is needed most: now and over the next 24 months. To achieve this, the Government has taken extraordinary steps using a wide range of policy levers, including the tax system, the Employment Insurance system, direct spending by the federal and provincial governments, and lending by financial Crown corporations.
In only 42 days since the Economic Action Plan was presented, the Government has done what it needs to do to make the Plan fully operational by April 1. This is 6 to 12 months ahead of the usual Budget timeframe (Table 2):
|Steps in the
|1. Tabling of Budget||Late February||January 27||1 month|
|2. Passage of Budget legislation||3-4 months after tabling||1½ months after tabling||1-2 months|
|3. Cabinet and Treasury Board approval of new initiatives||3-8 months||1-2 months||2-6 months|
|4. Appropriation of funding for new measures||4-10 months||Part of funding
by April (Main Estimates,
Act, 2009); remaining
supply 5 months
after the Budget
Following this approach, by April 1, 2009, the Government would have authority to proceed with providing about $20 billion in measures—representing close to 90 per cent of the stimulus described in the Economic Action Plan for 2009–10—key highlights of which are summarized later.
The Government will act aggressively to implement the remaining portions of the Plan, although doing so will depend on the degree of cooperation and engagement of our key partners.
The Economic Action Plan can only be fully effective with the full cooperation of national and international partners.
Parliament: None of the spending measures contained in the Economic Action Plan can proceed without approval by Parliament. The Budget Implementation Act, 2009 and the 2009–10 Main Estimates are currently before Parliament.
The rapid passage of the Budget and Estimates is necessary to ensure that the actions highlighted in this report—building roads and bridges, reducing taxes, supporting Canadians hardest hit by the economic downturn and helping communities and businesses adjust and grow—move forward now when they are needed most.
Supplementary Estimates will also be tabled in Parliament this spring to provide spending authority for most of the remaining measures in the Economic Action Plan. The Government anticipates that Parliament will approve the Supplementary Estimates by late June.
Provincial and Territorial Governments: Important elements of the Action Plan involve cooperation with partners in provincial and territorial governments. All governments will need to take innovative approaches to ensure that stimulus is provided in a timely manner and where it is most needed.
Provincial and territorial government approval and administrative processes may need to be accelerated—in similar fashion to recent action taken by the federal government—to ensure that economic stimulus is delivered in a timely fashion, is truly incremental to existing programs already underway or planned, and is administered in as transparent a manner as possible.
Building on the First Ministers' Meeting on January 16, 2009, all governments are committed to moving forward on infrastructure, housing and training programs. Negotiations and consultations are underway to secure final agreements on a range of measures, including increased training programs, social housing investments, the Working Income Tax Benefit and infrastructure funding enhancements. Many provincial governments will be tabling their budgets in the coming weeks. Federal, provincial and territorial Ministers of Finance will meet on May 25, 2009 to ensure efficient progress.
Canadians and Canadian Businesses: It is vitally important for the private sector to continue to work closely with governments to ensure that all have the necessary information to make full use of the Economic Action Plan. For example, the chartered banks are working with the Business Development Bank of Canada and Export Development Canada to maximize the flow of financing to businesses in Canada. The Government is concluding discussions with third-party organizations and finalizing funding agreements with private sector partners who will be delivering components of the Action Plan, such as the Institute for Quantum Computing, the Canada Youth Business Foundation, the YMCA/YWCA and the Canada Health Infoway.
The Government will continue to consult extensively with Canadians and businesses in implementing Action Plan initiatives. For example, the Economic Advisory Council to the Minister of Finance has met once since the Budget was tabled and will continue to provide the Minister with updates and advice on both the economic situation and progress in implementing the Economic Action Plan. In addition, the Minister of Finance is forming the Advisory Committee on Financing to advise the Minister on financing conditions and the design, scope and scale of initiatives under the $200-billion Extraordinary Financing Framework.
G20 Countries: The actions included in the Economic Action Plan fulfill Canada's commitments at the November 2008 G20 leaders' summit to provide timely stimulus to boost domestic demand, while maintaining the Government's strong fiscal position for the long term.
Stabilization of the global financial system is a precondition for economic recovery globally and in Canada. Since the beginning of the crisis, governments around the world have taken extraordinary measures to address the problems in financial markets. However, there is still work to be done. Decisions taken in the coming weeks in the United States and in other major economies to address problems in their financial sectors will be critical. The proper and timely implementation of such programs is the key to restoring confidence in financial markets.
G20 leaders are meeting in April to take stock of global economic conditions. In addition, leaders will review reports of working groups on financial sector regulatory issues, including the results of a working group co-chaired by Canada on enhancing sound regulation and strengthening transparency in the financial sector.
In the near term, the most important task at hand is passage of the Budget Implementation Act, 2009 in the Senate and passage of the Main Estimates in the House of Commons and Senate.
Looking ahead, the Government will report regularly to Canadians on the implementation of the Economic Action Plan. Further reports will be issued in June, September and December. These will focus on substantive milestones—dollars spent and outcomes achieved. In the 2009 Economic and Fiscal Update, the Government will provide a comprehensive analysis of the impact of coordinated policy actions across all G7 countries, including Canada's.