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Chapter 1
Overview

Introduction

All countries—including Canada—are feeling the impacts of the global recession. Many Canadian communities, businesses and workers have been seriously affected by the slowdown.

The Government has mobilized all of its resources and has engaged with all of its partners—internationally and within Canada—to put in place an unprecedented economic stimulus that will help Canadians weather the global recession and emerge with an even stronger economy.

Canada has done so from a position of relative strength. The global recession has put a spotlight on Canada's comparative strengths, including a real estate market that avoided the excesses seen in other countries, notably in the U.S., and a banking system that the World Economic Forum recognizes as the strongest in the world. Reflecting these strengths, Canada was the last Group of Seven (G7) country to enter recession and the International Monetary Fund (IMF) expects that we will have the strongest recovery.

Canada's relative economic strength has allowed us to put in place one of the most comprehensive stimulus packages in the world. We did this because we are concerned about the impact of the global recession on jobs in Canada and because we can afford to do so based on our relative strength.

Canada's Economic Action Plan is a vast set of initiatives that are being implemented in record time. This report indicates that 80 per cent of the measures are either flowing, or there are commitments in place that will allow the funds to flow to specific projects and initiatives. The Plan has been designed to get stimulus out as quickly and effectively as possible. That is why the Government has moved aggressively to deliver budget spending at an unprecedented rate.

As a result of the Action Plan and the global recession, the deficit is now projected to be $50.2 billion in 2009–10. This is larger than projected at the time of Budget 2009, reflecting lower tax revenues, higher Employment Insurance benefit payments and additional measures to stabilize our auto sector. This is a large deficit, but it is considerably smaller than in other countries and our deficit and our debt level are much lower than in any other G7 country.

The Government is committed to return to surplus in future years. This commitment is backed up by the Action Plan's focus on spending over the next two years and a "use it or lose it" approach.

The Government remains confident that this is the right plan for the current global crisis. Effectively implementing Canada's Economic Action Plan will enable Canada to emerge from this recession in a stronger position to the benefit of all Canadians.

Canada's Economic Action Plan

Canada's Economic Action Plan is the Government's response to the deepest global recession in generations. The Economic Action Plan aims to protect Canadian jobs and incomes by delivering a $62-billion shot in the arm to the economy.

These measures will provide a needed boost to the economy and employment today and represent an investment in our future. The Economic Action Plan:

• Reduces taxes permanently.
• Helps the unemployed through enhanced Employment Insurance and training programs.
• Avoids layoffs by enhancing the Employment Insurance work-sharing program.
• Creates jobs through a massive injection of infrastructure spending.
• Helps create the economy of tomorrow by improving infrastructure at colleges and universities and supporting research and technology.
• Supports industries and communities most affected by the global downturn.
• Improves access to and the affordability of financing for Canadian households and businesses.

Reflecting Canada's relative economic, financial and fiscal strength, the deterioration of the economy in Canada in late 2008 and early 2009 was less severe than in the rest of the world. The IMF also expects that the fall in economic activity will be less significant in Canada than in any other G7 country in 2009.

Just as importantly, Canada's low debt burden means that short-term deficits are manageable. This has allowed the Government to make permanent tax reductions in support of Canada's long-term economic growth, while other countries have provided only temporary relief. It also provides Canadians with the confidence that the Government can make the investments in the Economic Action Plan without incurring a permanent deficit.

The Economic Action Plan is Canada's contribution to a worldwide effort to stem the deepest and most widespread recession since the Second World War.

Just as the recession is global, the eventual recovery requires international action. The Canadian and global recoveries will depend on efforts to stabilize the global financial system and to effectively stimulate demand while needed adjustments take place in the economies of our major trading partners, particularly in the financial system of the United States.

Canada is helping the global recovery effort. We are playing an active role in G7 and G20 discussions on stabilizing the world economy and setting the stage for a return to growth. Canada remains a strong advocate for all countries to resist protectionism, expand trade and encourage prudent financial regulation as part of the global solution.

Developing an effective stimulus package that has a meaningful impact on job creation requires that governments in Canada act together. Approximately 40 per cent of the stimulus set out in the Action Plan consists of joint actions of federal, provincial, territorial and municipal governments. In January, we conservatively estimated that provincial and territorial governments would provide $11.7 billion in stimulus to complement our Plan.

For the most part, provincial and territorial governments have embraced the stimulus effort and have put in place stimulus measures that fully partner with federal joint funding.

The economic crisis has also required that governments take dynamic action beyond those initially set out in the Action Plan on January 27. This includes providing additional support for preserving jobs in the automotive industry in partnership with the Ontario government and the new U.S. administration. As a result of this support, the total value of the Economic Action Plan is now $62 billion. Canada has also participated in the G20-led global effort to make US$1 trillion in additional resources available to support emerging market economies experiencing financial crises and countries in need, and to ensure that trade keeps flowing.

Including additional actions from provincial and territorial governments, the overall stimulus supporting Canadian jobs this year and next will be as large as or larger than in any other G7 country, including the U.S. More importantly, federal and provincial governments are now working aggressively toward the common purpose of implementing stimulus measures as effectively as possible.

Table 1.1
Canada's Economic Action Plan

	2009–10	2010–11	Total
	(millions of dollars—cash basis)
Reducing the Tax Burden for Canadians	3,020	3,180	6,200
Helping the Unemployed	2,708	3,546	6,254
Building Infrastructure to Create Jobs	9,803	6,649	16,452
Creating the Economy of Tomorrow	2,371	1,664	4,035
Supporting Industries and Communities,   Including International Partnerships   to Support the Automotive Industry	11,493	2,178	13,671
Total federal stimulus measures	29,395	17,217	46,612
Assumed provincial and territorial actions1	9,835	5,115	14,950
Total Economic Action Plan stimulus	39,230	22,332	61,562
Reference
Provincial and territorial stimulus in   addition to that assumed in the   Economic Action Plan	8,398	9,673	18,071
Total stimulus	47,628	32,005	79,633
1Assumes Ontario component of support to automotive industry is proportional to federal component.

 

Timely Implementation

Canada's Economic Action Plan is designed to get stimulus out as quickly and effectively as possible in order to have the maximum impact on jobs. That is why the Government moved aggressively to deliver budget spending up to 14 months faster than the usual process (Table 1.2).

Canada's Economic Action Plan was tabled on January 27, the earliest budget in Canadian history. Authorizing legislation to put the main elements of the Plan into effect was tabled 10 days later and approved by Parliament on March 12. The Government pursued this expedited timetable in order to start flowing funds by April 1.

Table 1.2
Budget Implementation—The Usual Process vs.
Budget 2009 Accelerated Approach

		Timelines
Steps in the Process	Usual Process		Accelerated Approach		Time Savings
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 available at start of fiscal year (Main Estimates, Budget Implementation Act, 2009); remaining supply 5 months after the budget		2-5 months
Total time	10-22 months		4-8 months		6-14 months

This report marks progress through Day 72 of the first fiscal year of the Economic Action Plan. Much has been achieved. Large elements of the Economic Action Plan are already in place. The Government has taken action to enable funding for 80 per cent of the initiatives in the Economic Action Plan to flow.

Elements of the Plan directly controlled by the federal government are largely in effect. For example:

• The Home Renovation Tax Credit is available to homeowners for home renovations undertaken between January 27, 2009 and February 1, 2010. Canadians are now making use of the credit.
• Enhanced Employment Insurance benefits are available and flowing.
• Most federal infrastructure projects have been selected, contracts have been issued and work is underway on a number of projects.

For measures that are a shared responsibility with other governments or other partners, the Government has finalized a large number of agreements, enabling provinces, territories, municipalities and private sector partners to implement the measures. For example:

• The federal government has signed agreements with all provinces to deliver enhanced Employment Insurance (EI) training programs. Responsibility for implementation now rests with those provinces.
• In addition, arrangements have been put in place with all provinces to deliver enhanced training for workers who are not eligible for EI.
• Agreements are being negotiated or have been reached and infrastructure projects announced in every province and territory.
• Agreements have been reached with virtually all provinces and territories to deliver $1 billion in renovations and retrofits of social housing.

The rest of this chapter reviews progress made in implementing each of these elements of the Economic Action Plan, as summarized in Table 1.3.

Table 1.3
Progress in Implementing the Economic Action Plan

	2009–10 Stimulus Funding	2009–10 Funding Committed	Share of 2009–10 Funding Committed
	(billions of dollars—cash basis)		(per cent)
Reducing the Tax Burden for Canadians	3.0	2.4	81
Helping the Unemployed	2.7	2.6	95
Building Infrastructure to Create Jobs	9.8	7.1	73
Creating the Economy of Tomorrow	1.9	1.1	59
Canada Health Infoway1	0.5	–	–
Supporting Industries and Communities,   Including International Partnerships   to Support the Automotive Industry	11.5	10.3	90
Total—federal support	29.4	23.6	80
1 The Government is conducting further due diligence.

Reducing the Tax Burden for Canadians

The tax reductions in Canada's Economic Action Plan are an essential part of the Government's effort to stimulate the economy and to create or maintain jobs. Lower taxes help ease the financial pressure on individuals, families and businesses and help build a solid foundation for future economic growth. Lower taxes also stimulate individual spending, which helps to protect and create jobs. The tax reductions in the Plan reinforce the Government's ambitious agenda of tax relief aimed at creating a tax system that improves standards of living, and fuels job creation and investment in Canada.

Canada took early significant action in the October 2007 Economic Statement, anticipating the prospect of a weaker global economy. While the U.S. introduced one-time tax rebates, this Government put in place broad-based permanent tax reductions that are sustainable for the future. As a result of these actions, Canada is better positioned than most countries to withstand the effects of today's global economic challenges.

Actions taken by the Government since 2006, including those proposed in the Economic Action Plan, will reduce taxes on individuals, families and businesses by an estimated $220 billion over 2008–09 and the following five fiscal years. Of this amount, the tax relief proposed in the Economic Action Plan totals more than $20 billion.

Tax Relief for Individuals and Families

The Economic Action Plan introduced significant new personal income tax reductions that will provide immediate relief particularly for low- and middle-income Canadians, as well as measures to help Canadians purchase and improve their homes. For example:

• To encourage home ownership and renovation and to stimulate the construction and renovation industries, the temporary Home Renovation Tax Credit will provide Canadian families with up to $1,350 in tax relief, and the First-Time Home Buyers' Tax Credit will provide relief of up to $750. These measures will help Canadians invest in home ownership.
• The amount of income that Canadians can earn before having to pay federal income tax was further increased, and the top of the two lowest income tax brackets was increased so that Canadians can earn more income before being subject to higher tax rates. Canadians have already begun to benefit from this tax relief through, for example, reductions in the amount of tax withheld on their paycheques. These actions will put more money into the pockets of Canadians.
• Tax relief provided by the Working Income Tax Benefit, first introduced in Budget 2007, was effectively doubled to further strengthen work incentives for low-income Canadians already in the workforce, and to encourage low-income Canadians to enter the workforce.
• The Age Credit amount was increased by $1,000 to provide tax relief to low- and middle-income seniors. This means an additional annual tax savings of up to $150.

Actions the Government has taken since 2006 are providing important stimulus to the economy and job creation, with almost $160 billion in tax relief for individuals and families over 2008–09 and the following five fiscal years. Key actions include:

• All Canadians—even those who do not earn enough to pay personal income tax—are benefiting from the 2-percentage-point reduction in the Goods and Services Tax (GST) rate. Maintaining the GST credit level while reducing the GST rate by 2 percentage points translates into more than $1.1 billion in benefits annually for low- and modest-income Canadians, making purchases more affordable for these Canadians.
• All taxpayers are benefiting from the reduction in the lowest personal income tax rate to 15 per cent from 16 per cent.
• The new Tax-Free Savings Account, introduced in Budget 2008, is improving incentives to save through a flexible, registered general-purpose account that allows Canadians to earn tax-free investment income.
• The Government has also introduced relief measures targeted to help families, students, seniors and pensioners, workers, persons with disabilities, and communities.

 

Tax Relief for Canadian Businesses

A competitive business tax system is essential for creating an environment that encourages new investment, growth and job creation in Canada. The Economic Action Plan builds on corporate income tax reductions that are helping Canadian businesses be better positioned to weather the effects of today's global economic challenges, maintain and create jobs and emerge from the economic downturn even stronger:

• To help businesses adopt newer technology at a faster pace, a temporary two-year 100-per-cent capital cost allowance (CCA) rate for computers acquired after January 27, 2009 and before February 1, 2011 was introduced.
• To help businesses in manufacturing and processing industries to restructure and retool to position themselves for long-term success, the 50-per-cent straight-line accelerated CCA rate for investments in manufacturing or processing machinery and equipment was extended to include investments undertaken in 2010 and 2011.
• To help small businesses retain more of their earnings for reinvestment, expansion and job creation, the amount of small business income eligible for the reduced federal income tax rate was further increased to $500,000 effective January 1, 2009, following a previous increase to $400,000 from $300,000 as of January 1, 2007.
• To support mineral exploration activity across Canada, the temporary Mineral Exploration Tax Credit was extended for an additional year.

The Government has introduced significant tax relief for Canadian businesses since 2006, including measures in the Economic Action Plan, that total more than $60 billion over 2008–09 and the following five fiscal years:

• The general federal corporate income tax rate will be reduced to 15 per cent by 2012, including a reduction from 19.5 per cent in 2008 to 19 per cent as of January 1, 2009.
• The federal income tax rate applying to qualifying small business income was reduced to 11 per cent in 2008.
• CCA rates for a number of assets have been aligned to better reflect their useful life—this both reduces the tax burden on investment and ensures neutral tax treatment of CCA, encouraging investment to flow to its most productive uses.
• The federal capital tax, a particularly damaging tax for business investment, was eliminated in 2006 and a temporary financial incentive was introduced in 2007 to encourage provinces to eliminate their general capital taxes and to eliminate or replace their capital taxes on financial institutions with a minimum tax. All general provincial capital taxes will be eliminated by 2012.

All of these measures help businesses succeed and survive in these tough economic times, maintain and create jobs, and create an attractive investment climate.

Provinces and territories have also taken further action to enhance Canada's business tax advantage. Several have reduced or are reducing their corporate income tax rates, and the harmonization of Ontario's sales tax with the GST will also reduce taxes for businesses.

As a result of corporate income tax reductions introduced by federal, provincial and territorial governments, Canada will reach the goal of having the lowest overall tax rate on new business investment in the G7 by 2010 (Chart 1.4). Canada will also have the lowest statutory tax rate in the G7 by 2012. The competitiveness of our business tax system will encourage new investment in Canada, including direct investment from abroad. As a result of actions taken by federal, provincial and territorial governments to reduce taxes in recent years, Canada has a strong foundation for future economic growth, job creation and higher living standards for Canadians.

 

Helping the Unemployed

The ultimate objective of Canada's Economic Action Plan is to protect jobs and to support Canadians directly affected by the global recession. We are taking action to help those most affected by the recession by improving Employment Insurance (EI) benefits and enhancing worker retraining opportunities. In fact, this year the Government is investing an extra $5.5 billion in EI benefits.

While the situation is difficult, Canada's job market has been less affected than those in other countries. Employment in Canada continued to increase over much of 2008. This is in sharp contrast to the situation in the United States. The relatively strong Canadian performance in 2008 was due to a number of factors, including the soundness of Canadian housing and financial markets, activity related to the recent commodity price boom, as well as the tax reductions introduced by the Government in the October 2007 Economic Statement, which took effect in January 2008, just as the U.S. was entering recession.

However, in more recent months the global recession has clearly affected the Canadian economy and job markets. Employment in Canada has declined by 363,000 and the unemployment rate has risen to 8.4 per cent. The EI system has responded to weaker labour markets. This year, the Government will spend $5.5 billion more in EI benefits than last year. This money will go to help those who are coping with job loss.

In the Economic Action Plan, the Government froze EI contribution rates of employers and employees until 2010. In the absence of this action, contribution rates paid by businesses and Canadian workers would have risen to offset part of the rise in the benefit costs. With the sharper-than-expected drop in employment, the importance of the EI rate freeze has increased, benefiting businesses and employers. This is an important direct investment in EI benefits by the Government of Canada, and is one contributor to the size of the short-term budget deficit.

As labour markets weakened, four measures have acted to support workers.

First, the EI program's responsiveness to a weakening of the labour market has increased access to the program and led to a sharp increase in benefits.

Canadians in all regions affected by the economic downturn are being provided with increased access and longer benefit periods when they need it. In fact, between October 2008 and June 2009, 41 of 58 regions and over 85 per cent of Canadian workers had easier access to EI benefits and for longer periods of time. In all EI regions of Alberta, Ontario and British Columbia, the number of hours worked required to access EI have been reduced and benefits duration increased significantly. Increased accessibility and enhanced benefits have also taken place in most regions of Quebec and the Maritimes.

The second measure supporting the unemployed are enhancements to EI benefits introduced in Canada's Economic Action Plan to support workers and families hardest hit by the global recession.

• To assist the unemployed, the Economic Action Plan provides EI recipients with up to an extra 5 weeks of EI benefits, worth up to an additional $2,235 per recipient. This provides Canadians with additional income support while they try to find a new job.
• Further, the Government is ensuring that EI benefits are delivered quickly so that Canadians get the support they need. Additional staff members are available to process claims and more call centre agents are answering the questions of Canadians. Hours of operation in the EI call centres were extended to 6 p.m. and Saturday service was introduced.
• Starting this summer, long-tenured workers—those who worked for years, paying into EI and collecting very little or no EI but who are now losing their jobs—will be able to receive extended EI benefits while participating in longer-term training through the Career Transition Assistance initiative. This will ensure that these workers have support to retrain for a new job, possibly in an entirely different industry.

Third, the Economic Action Plan took action to preserve jobs that would otherwise be lost by helping firms and workers that are temporarily affected by the global slowdown.

Work-sharing, an innovative feature built into the EI system that helps to minimize layoffs during a temporary downturn in a business, has been expanded. Under the work-sharing program, the employees and the employer agree to a reduced work week, with each employee working fewer days in a week and receiving EI benefits for the days that they do not work. The number of Canadians benefiting from work-sharing arrangements are up more than fourfold since January to about 120,000 in May.

 

Fourth, the Economic Action Plan provides more training opportunities to help the unemployed reintegrate into the workforce.

• The Targeted Initiative for Older Workers, which provides enhanced support to help older workers and their families in vulnerable communities through skills upgrading and experience in new fields of work, has been expanded to cover smaller cities.
• The Government has significantly expanded funding for training available both for those who qualify for EI and for Canadians who do not qualify for EI, such as the self-employed. Agreements have been signed with nine provinces to expand their programs. Once all jurisdictions have signed, this new funding is expected to help 150,000 Canadians access skills training over the next two years. Examples of programs that this funding will support include Ontario's Second Career Strategy, B.C.'s SkillsPlus, Quebec's Pacte pour l'emploi and New Brunswick's Workforce Expansion Program.

Recent Government actions of $3.5 billion have been supplemented by actions in the Economic Action Plan to support employment, including:

• The Apprenticeship Completion Grant—providing a $2,000 grant to those who complete their apprenticeship in a Red Seal trade to encourage more young people to get the skills they need.
• The Aboriginal Skills and Employment Partnership initiative—supporting First Nations communities to create jobs and employment opportunities.
• The Canada Summer Jobs Program—creating summer work opportunities and valuable experience for students within the not-for-profit sector.

Building Infrastructure to Create Jobs

Maintaining and creating jobs is the Government's top priority. All elements of Canada's Economic Action Plan contribute to this overall goal. However, the most effective means of raising employment through public expenditure is through infrastructure spending. Every dollar in infrastructure spending generates $1.60 in economic activity. For this reason, more that 40 per cent of the total stimulus funding is devoted to infrastructure spending.

Further, a modernized infrastructure contributes to the overall competitiveness of the economy, providing a permanent boost to personal and business incomes. Infrastructure spending also targets two of the sectors most affected by the current economic downturn—construction and manufacturing. For every dollar spent on infrastructure, about 60 per cent of economic activity and jobs created are in the construction industry. The remaining 40 per cent of jobs created are in industries that support construction—notably manufacturing.

The Government has pursued as broad an approach as possible to boost infrastructure spending and job creation. This is a vast plan that will improve roads, bridges, border crossings, harbours, railways, federal buildings, First Nations infrastructure, social housing and the homes of Canadians. These funds are complemented by provincial and territorial spending on infrastructure, bringing total spending on infrastructure and housing to $24.7 billion over two years.

Our plan is focused on creating new investments and accelerating spending to create jobs now.

The Government has committed more than 70 per cent of the infrastructure and housing funds for 2009–10 and is working hard with provinces and territories, municipalities and private sector partners to get the remaining projects in place.

Accelerating Existing Provincial, Territorial and Municipal Infrastructure Funding

To support jobs now, we have accelerated existing funding to provinces, territories and municipalities for large strategic projects of national and regional significance. Close to $2 billion in funding has been committed to large strategic projects since January 2009. More will be committed in coming months. These are funds that will support jobs this year.

Additional Infrastructure Investments With Provinces and Territories

The Economic Action Plan builds on these investments by launching a new Infrastructure Stimulus Fund that will support federal and provincial/territorial investments of at least $8 billion in construction-ready projects in all regions, allowing for accelerated access to provincial/territorial base funding, topping up support to the Communities Component of the Building Canada Fund, and introducing a $1-billion Green Infrastructure Fund. These investments will renew public infrastructure, create jobs, and contribute to cleaner air, land and water.

Shovel-ready projects to repair and renovate provincial, territorial and municipal infrastructure and to create jobs have been identified in every jurisdiction in Canada. From coast to coast, agreements are being negotiated and concluded, and regulatory processes were streamlined to ensure projects get under way and jobs are created quickly.

Infrastructure Stimulus Fund: A number of provincial, territorial and municipal projects have been announced under the Infrastructure Stimulus Fund. For example:

• In British Columbia, over $300 million, of which $137 million is federal funding, has been committed for over 200 projects, including:
  • A $40-million project to construct a modern, three-lane bridge across the Capilano River in North and West Vancouver that will replace the existing two-lane "blue bridge." The new bridge will include priority access lanes to improve public transit.
  • A $28-million project in Prince George to construct a new four-lane bridge on Highway 97 that will replace the existing Stone Creek Bridge.
  • A $10.7-million project in Surrey to construct a cycling and pedestrian overpass and bicycle paths.
• Over $410 million has been committed for 116 projects across the Prairies. This includes:
  • $92 million in Saskatchewan, including close to $9 million for road and sewer repairs in Saskatoon
  • $109 million in Manitoba, which will help support three community projects costing $20 million including $3.3 million for a $10 million expansion of the United Way in Winnipeg.
  • $210 million in Alberta, including $15 million for the new home of Canada's Sports Hall of Fame in Calgary.
• In the Yukon, $7 million, of which $3.5 million is federal funding, has been committed for 11 projects to reconstruct and upgrade roads and highways, and rehabilitate bridges.
• In Ontario, over $900 million has been committed to support over 1,000 municipal infrastructure projects such as public transit, cultural facilities, roads, parks and municipal buildings.
• In Quebec, $936 million in federal funding has been committed, of which $350 million is for projects to repair water and sewer mains.
• In the Maritimes, $132.5 million has been committed to close to 200 projects including:
  • In Nova Scotia, $28 million in federal funding has been committed for 26 highway, parks and cultural projects and another $14 million for the City of Halifax and Cape Breton.
  • In P.E.I., 17 projects are being jointly funded, including restoration of Queen Street in Charlottetown and storm sewer upgrades in Summerside.
  • In New Brunswick, the Port of Belledune will see an important $61-million upgrade with $26 million in federal funding.
• In Newfoundland and Labrador, the federal government has committed over $51 million in funding to support 22 provincial and community infrastructure projects including:
  • $83 million of joint funding to improve the province's water and wastewater infrastructure.
  • $9 million for the Deer Lake Airport to extend its current runway and to improve the operating conditions for aircraft.

Accelerated Payments Under the Provincial/Territorial Base Funding Initiative: Further, several provinces are taking steps to accelerate funding under the Provincial/Territorial Base Funding Initiative. Since the launch of the Economic Action Plan, the Government of Canada has transferred $430 million under this initiative to construction projects.

Additional Funding for Community Projects: New funding is available to smaller communities to create jobs by building local infrastructure for water, wastewater, local roads and bridges, public transit, green energy, sports, culture and tourism over the next two years. Under the Building Canada Communities Component, $1 billion in federal funding has been approved for 971 projects in small communities under 100,000 people since January 2009. This includes $14 million that has been fully committed towards 38 projects in Nova Scotia under the top-up. $18 million has been committed to 22 projects in Manitoba under the top-up. In Newfoundland and Labrador, commitments totalling $7.4 million have been made to 18 projects. In Ontario, $194 million has been approved for 182 projects.

Green Infrastructure Fund: The Government is also making investments in green infrastructure to improve the quality of the environment and create a more sustainable economy over the longer term. It is contributing up to $71 million towards Yukon's Mayo B hydro and Carmacks-Stewart transmission project, which will enhance Yukon's electricity supply and security by providing additional sources of clean energy and creating a more dynamic and resilient integrated electrical power grid. This is part of the Government's $1-billion job-creating investment in green infrastructure that will include more projects focused on sustainable energy infrastructure across Canada.

First Nations Infrastructure

The Economic Action Plan is supporting job creation on reserve and in remote and rural communities through the construction and renovation of schools, water and wastewater projects and critical community infrastructure, such as health and police facilities. This will be an important source of new jobs in First Nations communities. It will mean new classrooms for students of all ages and needed facilities such as upgraded libraries and resource centres, science and computer rooms, auditoriums, soccer fields, tracks, landscaping and play facilities, as well as improved access to safe drinking water and health outcomes for First Nations communities.

Thirteen school projects to support First Nations students have been announced, for a total investment of $200 million. New schools and modern facilities are a key element to improving education outcomes on reserve which, in turn, is vital to improving economic opportunities for First Nations children. These improvements to education infrastructure are a valuable investment in the future of First Nations children and will help build more vibrant First Nations communities.

Eighteen water and wastewater projects in First Nations communities have been announced. These projects involve the construction of new sewage lagoons, water supply and treatment plants, a sludge system, a mechanical sewage treatment plant, and water distribution systems, with investments of $165 million.

Funding to Upgrade and Modernize Federal Infrastructure

Canada's Economic Action Plan is also supporting jobs by making investments to provide benefits to Canadians through better passenger rail services, safer bridges and highways, refurbished harbours for small craft and more efficient border crossings.

Job-creating federal infrastructure investments are taking place in the following six areas.

An Improved Rail System: VIA Rail is undertaking significant infrastructure and other capital improvements to permit higher train frequencies, enhance on-time performance, reduce trip times and support jobs. These investments are progressing very quickly.

Trans-Canada Highway: The completion of the twinning of the Trans-Canada Highway within Banff National Park will improve safety, reduce the potential for collisions with wildlife on this busy stretch of highway and support jobs.

Federal Bridges: Federal bridges support the efficient and safe movement of people and goods across Canada. Canada's Economic Action Plan invests in a number of bridge rehabilitation projects.

For example, The Jacques Cartier and Champlain Bridges Incorporated designed a comprehensive 10-year repair program for the Champlain Bridge in Montréal to ensure that the bridge remains safe. Canada's Economic Action Plan allocated $212 million to this project. All required approvals have been received, the contract was awarded and work started in April. Approximately 30 per cent of the planned work for the 2009–10 construction season is expected to be completed by June 30, 2009.

The Economic Action Plan identified $25 million in 2009–10 and $15 million in 2010–11 to accelerate needed repairs to four federal bridges managed by Public Works and Government Services Canada: the LaSalle Causeway in Kingston, Ontario; the Burlington Lift Bridge in Burlington, Ontario; and the Alexandra and Chaudière bridges in the National Capital Region. Over 70 per cent of the first year's funding is already under contract.

Small Craft Harbours: The Economic Action Plan provides $200 million over two years to support the repair and maintenance of Canada's core commercial fishing harbours and an additional $17 million to accelerate the construction of a small craft harbour in Pangnirtung, Nunavut. These investments will help accelerate required repair work and will help ensure that the commercial fishing industry has access over the long term to safe and functional harbours while creating jobs now.

In 2009–10, $82.3 million will be spent on contracts for repair, maintenance and dredging work at existing harbours, and $7 million will be used to advance the construction of the Pangnirtung harbour, Nunavut's first small craft harbour.

Federal Buildings: The Economic Action Plan committed significant funds to repair and renovate the federal government's building portfolio. Significant progress has been made in realizing over 1,200 small and large projects planned for across the country. Contracts have been issued for 60 per cent of this year's funding and Public Works and Government Services Canada has begun implementation of over 900 projects. In addition, funding was provided to enhance the accessibility of Crown-owned buildings for persons with disabilities. To date, 60 per cent or $12 million of the first year's funding has been allocated to specific projects across the country.

Federal Contaminated Sites: The Government is accelerating work to clean up federal contaminated sites, which is expected to result in up to $245 million in economic activity over the next two years. This work will create jobs and economic activity in communities across Canada over the next two years, while contributing to a cleaner environment and enabling long-term development. Projects have been selected, and work will begin in the 2009 construction season.

Supporting Home Ownership and Jobs in Housing Construction

Canada's Economic Action Plan provides powerful incentives for Canadians to invest in their homes and to support employment in the construction industry. For many Canadians, their homes are the most important investment of their lives.

The housing industry is an important source of economic activity and job creation in Canada. Unlike the experience in the U.S. and many other countries, the housing market in Canada remains reasonably stable. Initial reports are that take-up on our incentives is strong.

Canadians undertaking renovations to their homes before February 2010 will benefit from the temporary Home Renovation Tax Credit of up to $1,350. It is estimated that about 4.6 million families in Canada will take advantage of the credit, and, by doing so, will support jobs in the housing industry.

All homeowners are also able to benefit from the enhanced ecoENERGY Retrofit program should they choose to make energy efficiency improvements to their homes. The additional $300 million provided through the Action Plan is expected to support an estimated 200,000 home retrofits.

First-time home buyers will benefit from greater access to their Registered Retirement Savings Plan savings to purchase or build a home as well as up to $750 in tax relief from the First-Time Home Buyers' Tax Credit.

The Home Renovation Tax Credit and First-Time Home Buyers' Tax Credit, as well as the new Home Buyers' Plan withdrawal limits, are already being administered by the Canada Revenue Agency, and Canadians are already taking advantage of them.

Early indications are that the Home Renovation Tax Credit will help support and create jobs in the housing industry during the current global economic recession. Canadians have indicated that the availability of the credit is an important factor in their decision to renovate their homes, and high-profile advertising campaigns undertaken by major building material suppliers and retailers have also helped increase awareness of the Home Renovation Tax Credit. The Home Renovation Tax Credit will have an important effect on local economies. Increased renovation activity will also help small local renovation businesses, which are important contributors to job creation in Canada.

The enhanced ecoENERGY Retrofit program is encouraging the development and installation of next generation energy products, as well as fostering improved techniques in home construction and renovation. In April, the ecoEnergy Retrofit program certified 60 new Energy Advisors to conduct pre- and post-retrofit evaluations, bringing the total number to nearly 1,200.

Investments in Social Housing

Canada's Economic Action Plan provides significant support for social housing construction and renovation. This new funding will provide a significant boost to jobs and improve the quality and energy efficiency of up to 200,000 social housing units across Canada.

Support for social housing, including agreements with provinces and territories, will provide $2 billion for social housing construction, renovation and retrofits across Canada.

Up to $2 billion is now available in low-cost loans for municipalities to undertake housing-related infrastructure projects.

Creating the Economy of Tomorrow

The Government is helping to build a strong innovative economy through science, technology and research excellence. Investments in science, technology and research also help to train new generations of highly skilled individuals. Canada needs this new wave of highly qualified workers in order to compete and win as the global economy depends more and more on knowledge and innovation. Canadians are committed to learning how to do things in new and innovative ways that make us more competitive.

Before the Economic Action Plan, the Government had invested over $2.2 billion in new science and technology measures since 2006. Canada's investments in higher education research and development as a proportion of the economy are now the highest in the G7, and second in the Organisation for Economic Co-operation and Development.

The Government is committed to maintaining Canada's global leadership position in post-secondary research. Funding has been provided to support research excellence at Canadian post-secondary institutions, help Canadian scientists focus on areas where we can be world leaders, and link our research strengths to the opportunities and challenges facing the private sector.

In particular, the Government has provided significant additional resources to the three federal research granting councils, totalling about $400 million per year since 2006. This has included new funding for research competitions to identify the best ideas, advanced training, and the translation and application of new knowledge. Overall, the total planned spending of the granting councils will rise to about $2.7 billion in 2009–10, compared to actual spending of $2.2 billion in 2005–06. This represents an average annual increase in funding of 5 per cent.

Further, the Government has invested significant new resources to strengthen Canada's position in knowledge leadership and establish centres of excellence in key priority areas such as health, energy, the environment, and information and communication technologies. These investments are not only supporting jobs now, they will make us more competitive in the future. We are also ensuring that our investments in science are more responsive to the needs of the private sector, for example through practical research internships for graduate students in companies, support for college innovation, and the creation of business-led networks of centres of excellence. We have launched Automotive Partnership Canada, which will support major collaborative research projects that will lead to innovation and greater competitiveness in the Canadian automotive sector.

Building on these important measures, Canada's Economic Action Plan invests a further $5.1 billion in science and technology initiatives. This is an unprecedented investment that underlines our continued commitment to research excellence and the objectives of our science and technology strategy. This new funding supports two broad priorities.

The first priority area is post-secondary education and research, the centrepiece of which is a fund to deal with deferred maintenance, repair and construction at colleges and universities. This $2-billion investment in Canada's future will create the infrastructure needed to keep Canadian research and educational facilities at the forefront of scientific advancement. It is also providing important support for employment now.

Other actions in this area include an important expansion of awards for post-graduate scholarships, funding for quantum research, as well as significant upgrades to arctic research facilities dedicated to research on ways to create a healthier and more sustainable society and economy in Canada's North. All of these actions are supporting jobs now while contributing to a stronger future.

The second priority area is direct support for science and technology. This support consists of a series of measures to modernize federal laboratories, improve electronic health records and broadband access, and spur research in clean energy and space technology.

• Federal laboratories doing research in a wide array of fields, from health and food to natural resources, will be upgraded after several years in which maintenance has been delayed or deferred. This will include $19 million over two years for the National Research Council to modernize 28 of its facilities in seven provinces.
• The Economic Action Plan's commitment to extend rural access to broadband services will enable rural households, businesses and community institutions to make use of the Internet at levels similar to many of their urban counterparts. As a first step, an extensive mapping exercise is underway to identify currently unserved and underserved households. A call for applications is expected to be launched in late summer. Projects will be selected over the fall, with funding expected to begin flowing to projects early in 2010.
• The Economic Action Plan established the Clean Energy Fund, which will provide $1 billion over five years to support clean energy research and demonstration. This will include up to $150 million for clean energy research, and $850 million for clean energy demonstration projects, including carbon capture and storage technologies. The Clean Energy Fund will strengthen Canada's position as an energy superpower while stimulating new investments, creating new jobs in the energy sector and contributing to our climate change objectives.
• The Economic Action Plan also provided $110 million over three years to the Canadian Space Agency to support Canada's continued leadership in the design and construction of space robotics. This funding will help create new opportunities for innovative Canadian companies, provide jobs for highly skilled employees, and help prepare Canadian astronauts to participate in future international space missions, such as those that astronauts Robert Thirsk and Julie Payette are participating in.

 

Supporting Industries and Communities

The Economic Action Plan provides support for jobs in industries most affected by the global recession. This support covers a broad array of industries including resource industries like forestry, and tourism. The Plan also provides assistance to communities affected by the economic downturn.

Through the Economic Action Plan, $2.1 billion in support is provided in 2009 to jobs in industries and communities affected by the global slowdown.

The Government is helping vulnerable communities manage through the considerable transition caused by the global recession. The $1-billion Community Adjustment Fund is one such initiative, designed to help communities with fewer than 250,000 people deal with significant job losses and industrial restructurings. The Government is also supporting economic development in Canada's North and Southern Ontario and is establishing development agencies dedicated to these regions over the coming months.

 

The Government is also providing extensive support to affected industries, including the following:

Forestry: The global economic downturn and the collapse in the U.S. housing market have created challenges for the forestry sector. To date, a total of $70 million has been provided to Natural Resources Canada to support market diversification and innovation initiatives for the forestry sector, including research and demonstration projects on new forest products and initiatives to help forestry companies market innovative products internationally to protect and create jobs. This investment will be supplemented with a further $100 million next year. In addition, the federal government will provide $100 million over two years under the Community Adjustment Fund, to be matched by the Government of Quebec, for silviculture activities in the province including reforestation in areas devastated by forest fires or insect infestation, facilitating the rehabilitation of a mixed forest, and improving the growing conditions of plantations.

Mining: To support mineral exploration activity and jobs across Canada, the temporary Mineral Exploration Tax Credit was extended for an additional year. This will encourage growth in this industry.

Tourism: Tourism has been boosted with support to marquee events across Canada, such as the Festival International de Jazz de Montréal and the Edmonton International Fringe Theatre Festival. To date, the Government has provided $23 million to 12 major Canadian festivals. Funding for additional events will be allocated through calls for proposals. A first call for proposals closed in May, with projects currently being assessed, and another call for proposals is expected in the fall of 2009.

Agriculture: Under the $500-million AgriFlexibility program, the Government will provide funding for initiatives that help the agricultural sector adapt to pressures and improve its competitiveness, such as those that reduce the farm business's costs of production and its footprint on the environment, support innovative processes and products, and address market challenges. The Government will also provide $50 million to support investments in meat slaughter and processing plants to help improve their operations. Assistance to the agricultural sector is also being made available in the form of expanded access to credit for farmers, in order to allow them to grow their operations and to support the intergenerational transfer of farms.

Fisheries: Canada's Economic Action Plan provides $200 million over two years to support the repair and maintenance of Canada's core commercial fishing harbours, and an additional $17 million to accelerate the construction of a small craft harbour in Pangnirtung, Nunavut. Funding of $8 million over two years will be provided to modernize 33 facilities and hatcheries in the Salmonid Enhancement Program in British Columbia, as part of the initiative to address deterred maintenance at federal laboratories across the country. Hard-hit lobster fishing communities throughout Atlantic Canada and Quebec will also benefit from an additional $10 million in financial support through the Community Adjustment Fund for marketing and market access, innovation and technology development initiatives.

In addition to supporting key industries, the Economic Action Plan includes permanent and temporary measures, which build on broad-based tax reductions that are lowering the general corporate income tax rate from 22.12 per cent (including the corporate surtax) in 2007 to 15 per cent by 2012. These, in addition to other tax reductions introduced since 2006, will give Canada the lowest overall tax rate on new business investment in the G7 by 2010.

The Economic Action Plan is helping Canadian firms create jobs, modernize their operations and better compete globally through the elimination of tariffs on a range of machinery and equipment, and through temporary measures to accelerate the capital cost allowance on manufacturing or processing machinery and equipment, and computers. Importers have accessed about $27 million in tariff relief for the first four months.

Improving Access to Financing

Canadians need access to affordable financing for their homes, cars and businesses. Interest rates and access to loans determine how Canadians invest and spend their money, which drives our economy. Good financial conditions are vital for a sustained recovery in Canada and elsewhere in the world.

The Canadian financial system has withstood the current global financial crisis better than most. Our banking system was recently rated the soundest in the world by the World Economic Forum. However, the global crisis has made it difficult for Canadian banks and other lenders to obtain funds from international markets at reasonable costs. To soften the impact of this crisis, Canada's Economic Action Plan has taken measures to provide up to $200 billion to support lending to Canadian households and businesses through the Extraordinary Financing Framework. All measures are now in place and fully operational.

Early on, the Government took steps to provide Canadian financial institutions with funds to lend to businesses and Canadians at the time when global financial markets were severely impaired. This included over $40 billion provided by the Bank of Canada in December 2008, as well as $58 billion of term funding to banks and other lenders through the Insured Mortgage Purchase Program. In addition, the new 10-year Canada Mortgage Bond program has provided $7 billion in cash to financial institutions.

Obtaining affordable loans for small and medium-sized businesses and for financing leases on vehicles and equipment remains difficult.

That is why the Government has taken further action to support lending to households and businesses more directly. The Business Credit Availability Program provides direct lending and other types of financial support to creditworthy businesses whose access to credit is restricted because of global credit conditions. The financing is provided through Export Development Canada and the Business Development Bank of Canada in cooperation with financial institutions. The Canadian Secured Credit Facility has also been rolled out to provide direct support for vehicle and equipment financing, which is helping to ease pressure on Canadians.

All together, over $115 billion in financing support has been provided to improve access to financing for Canadians and businesses, all of it on a commercial basis to protect taxpayers (Table 1.4).

Table 1.4
Progress in Implementing Support for Financing

	Financing Available	Elements in Place	Financing Provided Until Now
	(up to, billions of dollars)		(billions of dollars)
Insured Mortgage Purchase Program	125	√	58
New 10-year Canada Mortgage Bond	10	√	7
Canadian Lenders Assurance Facility	N/A	√	N/A
Canadian Life Insurers Assurance Facility	N/A	√	N/A
Crown corporation new flexibilities including   Business Credit Availability Program	13	√	3
Canadian Secured Credit Facility	12	√	11
Bank of Canada	40	√	40
Total	200		119

These extraordinary policy actions have already improved credit conditions. Borrowing costs for Canadian banks rose less than in other countries following the intensification of the global financial crisis in October 2008 and have now almost returned to pre-crisis levels. This reduction in bank funding costs, together with lower Bank of Canada monetary policy rates, has reduced the cost of borrowing for Canadian businesses and families. For instance, average interest rates for both households and businesses have fallen by almost 2 percentage points since last October.

While access to financing remains more difficult than in the past, the situation is better in Canada than elsewhere. Total household and business lending is growing, albeit not as strongly as before the financial crisis began, reflecting in part a reduction in demand for credit from households and businesses as a result of the economic slowdown. Through the fourth quarter of 2008, household credit in Canada was growing at about an annual rate of 7.5 per cent. In marked contrast, the credit growth for households and firms has declined sharply in the United States. Stronger credit growth in Canada reflects better and improved access to credit for Canadians.

Economic Climate

Canada's Economic Action Plan was designed to deal with the risks posed by the deepest global recession since World War II. In late January, when the Economic Action Plan was tabled, it was very difficult to foresee how the global financial crisis would be resolved and to what extent the global recession would affect the economy and reduce jobs in Canada.

With the benefit of hindsight, it is now clear that in late 2008 and in the first quarter of 2009, economic conditions globally were significantly weaker than virtually all governments and private sector economists expected. In Canada, the output losses over this period have been significant, as the deterioration in the U.S. economy led to a sharp fall in Canadian exports. Tighter credit conditions and deteriorating confidence have also diminished consumer spending and business investment. Nevertheless, output losses in Canada over this very weak period for the global economy have been up to four times less severe than in other countries.

The Government's approach to budget planning is built upon the principles of accountability, transparency and strong expenditure management. To ensure objectivity and transparency in forecasting, the economic forecast underlying the Government's fiscal projections is based on the average of the private sector economic forecasts. This process has been followed for over a decade.

However, in the Economic Action Plan, the Government anticipated that economic conditions in Canada and around the world could easily turn out worse than the private sector forecast. For planning purposes in the Action Plan, nominal gross domestic product (GDP) growth was adjusted down to -2.7 per cent for 2009, compared to the average private sector forecast in January 2009 of -1.2 per cent.

Since January, private sector forecasters have cut their growth expectations significantly. They now expect Canadian nominal GDP this year to fall by 4.3 per cent. This means about half of the reduction to their outlook since January has already been accounted for in Budget 2009's planning assumptions.

The Department of Finance regularly surveys private sector economists on their views of the economy. Private sector forecasters included in the May 2009 survey are Bank of America Merrill Lynch, BMO Capital Markets, Caisse de dépôt et de placement du Québec, the Centre for Spatial Economics, CIBC World Markets, Desjardins, Deutsche Bank of Canada, Laurentian Bank Securities, Global Insight, National Bank Financial, Royal Bank of Canada, Scotiabank, TD Bank Financial Group, UBS Warburg and the University of Toronto (Policy and Economic Analysis Program).

The International Monetary Fund predicts Canada will have the strongest recovery among G7 countries. This reflects Canada's strong economic, fiscal and financial fundamentals together with the stimulus provided by extraordinary policy actions taken in Canada's Economic Action Plan.

There have been encouraging signs in recent months that the global economy and world financial markets are beginning to stabilize. While the economic situation remains uncertain, private sector forecasters continue to expect a sustained economic recovery beginning in the second half of 2009 and gaining momentum in 2010. In this regard, the outlook for the second half of 2009 and for 2010 is broadly similar to that contained in Canada's Economic Action Plan. Nevertheless, there remain important risks to the economic outlook—both on the upside and on the downside.

Economic developments since Budget 2009, as well as further actions taken since the Economic Action Plan was tabled to reduce the impact of the recession and stimulate the economy, will increase the projected deficit for 2009–10. The increase in the deficit is the result of:

• Less taxes collected.
• Higher Employment Insurance benefits to help Canadians most affected by the global recession.
• The Government's contribution to the joint Canada-U.S. support for the automotive sector, to help the sector restructure to ensure its long-term sustainability.

 

The Government is now projecting deficits of $3.9 billion in 2008–09 and $50.2 billion in 2009–10. More than half of the 2009–10 deficit is the result of temporary measures under Canada's Economic Action Plan, less taxes collected, higher EI benefits, and the decision to freeze EI premium rates. The remaining deficit of $23.2 billion, or 1.5 per cent of GDP, is primarily a reflection of the weak economy and will be reversed as the economy recovers.The Government is committed to return to surplus in future years and to pay back the deficits that have been accumulated over this period. Canada's deficit is particularly modest compared to the fiscal situation of other countries. Further, Canada entered this recession with the lowest debt-to-GDP ratio of all G7 countries.

The Government will continue to monitor closely economic developments over the summer with a view to providing a further update in the fall report.

 

Next Steps

Canada's Economic Action Plan is the right plan for the times. Canada has weathered the global recession better than virtually any other country. Canada is also doing as much to stimulate its economy as any other G7 country.

The Government is moving at an unprecedented speed to provide stimulus now, when it is most needed. Projections for the second half of 2009 and beyond point to a strengthening economy, supporting the Government's commitment to return to surplus as quickly as possible.

Canada's Economic Action Plan has been given very high marks internationally, particularly by the IMF. The Plan has been supplemented in important ways by provinces and territories and through our combined actions with the new U.S. administration to support the auto industry. The Plan puts in place an unprecedented economic stimulus that will help Canadians weather the global recession and emerge with an even stronger economy.

It is a vast set of initiatives that are being implemented in record time: just 72 days into the fiscal year, the Government has taken all the actions necessary for 80 per cent of the Plan measures. In many cases, benefits are already flowing to Canadians.

Effectively implementing the Plan will support Canadians through the global recession and will ensure Canada emerges in a strong position.

The Government remains focused on further progress in implementing the Plan.

The immediate priority is to get the remaining funds flowing as soon as possible. This means:

• Concluding any outstanding agreements and identifying projects with provinces and territories for training, social housing and infrastructure.
• Identifying the next set of additional projects under the Community Adjustment Fund.
• Moving ahead with additional work on federal infrastructure such as bridges, harbours and buildings.

As the economy strengthens through the second half of 2009, the Government's overarching goal is to emerge stronger from the global recession by leveraging our Canadian advantage for the benefit of Canadians, creating and maintaining jobs.

The Government will update Canadians with a third progress report in the fall. At that time, the Government's report will provide further information on the amount of stimulus funding that has been spent, either directly by the federal government, or in partnership with provincial, territorial and local governments and with the private sector. Canadians are invited to monitor progress in implementing the Economic Action Plan on the Government's website, www.actionplan.gc.ca.

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