Table of Contents - Next

Archived - Chapter 1
Overview

Canada's Economic Action Plan is the Government's response to the deepest global recession since the Second World War. In January 2009, the Government introduced one of the most comprehensive stimulus packages in the industrialized world. At that time, there was considerable concern about the potential effect of the global recession on the Canadian economy and on Canadian workers and families. In the roughly 250 days since Canada's Economic Action Plan was launched, the Canadian economy has begun to show some signs of stabilization. The recovery, however, remains fragile, with both employment and output in Canada improving only modestly in recent months.

Canadians and their families continue to be significantly affected by the downturn. As a result, the Government's priority continues to be rapid and effective implementation of Canada's Economic Action Plan to benefit Canadian communities, businesses and workers. The Government will follow through on its plan.

This approach was endorsed by the Group of Twenty (G20) Finance Ministers and Central Bank Governors in St. Andrews, Scotland on November 7, 2009. It was also recently endorsed in a specifically Canadian context by the International Monetary Fund (IMF) on November 12, 2009.

Canada's Current Position

Canada's Economic Action Plan was part of a coordinated international response to eliminate the threat of financial collapse in late 2008 and 2009 and to protect jobs during the global recession. Governments around the world moved decisively to prevent a downward spiral in economic growth and employment caused by a sharp decline in private sector economic activity. Canada contributed to this international effort by moving quickly and boldly with an economic stimulus package that ranks among the largest in the world (Chart 1.1).

The Government was able to put in place the Economic Action Plan without putting at risk the country's fiscal position because Canada entered this downturn from a position of strength. Our housing markets have avoided the problems seen in other countries (Chart 1.2). Our financial system and our banks are among the strongest in the world, and we had by far the lowest debt among all advanced industrialized countries prior to the recession and will maintain that position over the medium term (Chart 1.3).

 

Canada's Economic Action Plan

The Government has taken unprecedented action to implement Canada's Economic Action Plan as quickly and effectively as possible. It has worked with all of its partners in both the public and private sector and has provided regular quarterly updates to Canadians on progress to date. This is the fourth report to Canadians on the Plan.

Canada's Economic Action Plan is protecting Canadian jobs and incomes by delivering a $62-billion shot in the arm to the economy (Table 1.1). It is an investment in jobs now and in our future prosperity. The Economic Action Plan is:

• Reducing the Tax Burden for Canadians: Providing Canadians with significant, permanent personal income tax relief and Canadian businesses with the lowest overall tax rate on new business investment among the major industrialized economies.
• Helping the Unemployed: Providing more investments for Employment Insurance (EI) benefits to support those who have lost their jobs and provide the training required to help Canadians get the additional skills they need for the jobs of tomorrow and to get back to work. This includes providing additional benefits to long-tenured workers. The Government is also pursuing measures that will provide additional support for the self-employed.
• Building Infrastructure to Create Jobs: Providing new infrastructure and housing funding to create jobs across Canada and ensure Canada emerges from the economic downturn with a more modern and greener infrastructure, as well as an expanded capacity to provide affordable housing to lower-income Canadians. These projects are moving forward and benefiting workers and the economy across the country. In addition, the Home Renovation Tax Credit is providing an immediate incentive for homeowners to invest in their homes and is supporting jobs in the housing industry.
• Creating the Economy of Tomorrow: Improving infrastructure at colleges, universities, federal laboratories and research facilities, creating additional support for graduate students and internships, and supporting research and technology.
• Supporting Industries and Communities: Supporting local economies and protecting jobs in regions, communities and sectors that have been most affected by the economic downturn.
• Improving Access to Financing and Strengthening Canada's Financial System: Ensuring the continued stability of the Canadian financial system and improving access to financing for Canadian households and businesses.

Table 1.1
Canada's Economic Action Plan

	2009	2010	Total
	(millions of dollars—cash basis)
Reducing the Tax Burden for Canadians	3,020	3,180	6,200
Helping the Unemployed	2,873	4,146	7,019
Building Infrastructure to Create Jobs	8,504	7,498	16,002
Creating the Economy of Tomorrow	1,736	2,299	4,035
Supporting Industries and Communities	11,824	2,178	14,002
Total federal stimulus measures	27,957	19,300	47,257
Assumed provincial and territorial actions	8,589	6,148	14,736
Total Economic Action Plan stimulus	36,546	25,448	61,993
Notes: This table reflects adjustments to infrastructure funding and EI benefits as described later in this chapter. Totals may not add due to rounding.

Timely Implementation

The Government is implementing Canada's Economic Action Plan as quickly as possible, balancing effective stewardship of taxpayer dollars with speed of implementation.

• In January 2009, the Government presented the earliest budget in Canada's history.
• By March, the Government had secured the necessary authorities to proceed with 90 per cent of the 2009–10 funding in the Action Plan.
• By June, the Government had committed 80 per cent of 2009–10 funding in the Action Plan and by September, the proportion of 2009–10 funding committed was 90 per cent.
• As of this report, 97 per cent of 2009–10 funding in the Action Plan is committed (Chart 1.4).

With 97 per cent of 2009–10 funding committed, elements of the Action Plan directly controlled by the Government (tax reductions, EI benefits and federal infrastructure projects) are largely in place. For measures that are a shared responsibility with other governments or other partners, the Government has almost all the necessary agreements in place to allow provinces, territories, municipalities and private sector partners to implement the measures. As a result, significant support is being provided to Canadians (Table 1.2).

Tax reductions and enhanced EI benefits are flowing and providing direct support to Canadians. About 167,000 Canadians are enrolled in work-sharing arrangements, preserving jobs that would otherwise be lost. Infrastructure from coast to coast to coast is being renovated and upgraded—including roads, bridges, border crossings, harbours, railways, federal buildings, First Nations infrastructure and the homes of Canadians. Research facilities are being improved at colleges, universities and federal laboratories. Economic adjustment is being supported in communities and sectors most affected by the global downturn.

Table 1.2
Progress in Implementing the Economic Action Plan

	2009–10 Stimulus Funding	Share of 2009–10 Stimulus Committed
	(billions of dollars)	(per cent)
Reducing the Tax Burden for Canadians	3.0	1001
Helping the Unemployed	2.9	100
Building Infrastructure to Create Jobs	8.5	96
Creating the Economy of Tomorrow	1.7	91
Supporting Industries and Communities	11.8	98
Total federal support	28.0	97
Notes: Figures are presented on a cash basis. Totals may not add due to rounding. 1 For the purposes of this table, the Government considers the changes to the Working Income Tax Benefit to be committed. Legislation implementing the enhanced Working Income Tax Benefit was adopted by the House of Commons on November 17, 2009 and is proceeding through the Senate. Because the Working Income Tax Benefit is a refundable credit, Bill C-51 must receive Royal Assent before payments may be made.

The Department of Finance Canada estimates that close to 70 per cent of the 2009–10 stimulus is flowing in the economy. This represents an estimate of economic activity as opposed to actual payments made by the Government. For most measures, such as personal income tax and EI benefits, the amount of stimulus flowing corresponds to amounts paid to Canadians. However, in some cases, particularly infrastructure projects, stimulus amounts will generally flow well in advance of payment. To estimate the amount of stimulus flowing in these cases, the Department has used available information on the status of infrastructure projects.

Funds have been committed to more than 12,000 projects across the country, of which approximately 8,000 have begun. Projects committed include:

• Over 6,700 provincial, territorial and municipal infrastructure projects, including over 1,500 Recreational Infrastructure Canada projects.
• 1,150 projects to renovate and repair federal buildings.
• 536 projects to improve infrastructure at colleges and universities across the country.
• Over 1,800 social housing projects.
• 260 projects to improve small craft harbours.
• About 1,000 projects to assist communities hardest hit by the recession through the Community Adjustment Fund.
• Support for 56 major Canadian festivals and events.
• 80 cultural infrastructure projects.
• More than 120 projects to upgrade facilities at National Parks and National Historic Sites.
• Over 300 First Nations infrastructure and housing projects.

Economic Impact of the Plan

The main focus of the Economic Action Plan has been to help protect and create jobs during the global economic downturn. The Plan attempts to limit the number of Canadians and their families who will have to go through the experience of job loss. The deterioration of Canada's economy over the course of the global recession has been less severe than in all other major industrialized economies (Chart 1.5). Further, the loss of jobs in Canada has been considerably less pronounced than in the United States—our largest trading partner (Chart 1.6). The unemployment rate in Canada is now 1.6 percentage points lower than it is in the United States—the largest gap in a generation.

 

In the Third Report to Canadians, the Department of Finance Canada estimated that about 220,000 jobs would be created or maintained as a result of initiatives taken under the two-year Economic Action Plan.

This estimate is consistent with recent areas of strength in the economy. One of the principal objectives of the Economic Action Plan was to restore confidence in the economy. In Canada, consumer confidence began to decline at the onset of the U.S. recession in January 2008 and then fell sharply as the labour market weakened and equity markets declined sharply. Consumer confidence was near a record low in December 2008. With the implementation of the Action Plan, consumer and business confidence have improved and are now close to historical averages (Chart 1.7). Similarly, spending on consumer goods has rebounded strongly in recent months (Chart 1.8). Residential investment increased by 7.4 per cent in the second quarter and by 8.1 per cent in the third quarter (Chart 1.9). Renovation spending has been particularly strong, increasing by 12.5 per cent and 11.5 per cent in the second and third quarters respectively, with support from the temporary Home Renovation Tax Credit. As a result, in the last six months, Canada has experienced the largest increase in domestic expenditures among G7 countries (Chart 1.10).

 

 

 

The impact of the Plan will continue to build through 2010 and support growth during the recovery. The IMF expects Canada's recovery to be the strongest in the G7.

The Action Plan also takes important steps to ensure that Canada emerges from the recession in a solid position to succeed over the longer term in an even more globalized economy. Enhanced training programs will lead to a more skilled workforce; better infrastructure will set the foundation for economic prosperity; and tax reductions will ensure that Canada has the lowest overall tax rate on new business investment in the G7.

Canada is a trading nation. Our export sector is vital to our current and future prosperity. The Government is fully committed to promoting an open and fair global economy. At home, tariffs have recently been eliminated on a broad range of machinery and equipment in order to lower costs for Canadian manufacturers and encourage innovation. Canada continues to support multilateral trade liberalization.

Canada is also pursuing other avenues to enhance trade and investment. This includes the successful conclusion of free trade agreements with the European Free Trade Association, Colombia, Peru, Panama and Jordan. Combined, these agreements will give our exporters preferred access to markets of about 100 million people. Canada has also launched historic negotiations with the European Union and is engaged in economic cooperation discussions with India. The Prime Minister's recent visits to both India and China highlight Canada's intentions to deepen its economic relations with these large emerging markets. Other reforms to Canada's competition and investment laws and policies contained in the Economic Action Plan include amendments to the Investment Canada Act, which will help modernize our laws and attract investment to Canada.

Taken together, these market-opening efforts demonstrate Canadian leadership in resisting trade protectionism and encouraging foreign investment. As the host of the G8 and one of the co-hosts of the G20 Leader's Summit in June 2010, Canada can state that it has delivered on its G20 commitments with the objective of promoting both global and domestic recovery.

Timely Wind-Down of Stimulus Is Critical for Returning to Balanced Budgets

Governments around the world are working to stimulate local economies through significant short-term public spending programs. These actions have been endorsed internationally, but with an emphasis on the need for sustainable medium-term fiscal plans. At the Pittsburgh Summit in September, G20 Leaders committed to follow through on their stimulus plans in the near term, while preparing strategies to wind down stimulus and improve their fiscal positions as the recovery is established.

Canadians expect federal, provincial and municipal governments to work together to stimulate the economy. But they also expect governments to return to balanced budgets as quickly as possible once the recovery takes hold. That is why many elements of the Economic Action Plan are time-limited. For the most part, funds are only available this year and next.

Allowing the temporary elements of the Action Plan to wind down, as scheduled, is the first step in the Government's strategy for returning to fiscal balance. This alone will cut the budget deficit in half from $55.9 billion in 2009–10 to $27.4 billion in 2011–12 (Chart 1.11). As the economy improves, the Government is committed to returning to balanced budgets. Bringing the budget into balance will provide confidence to consumers and business that programs and taxes are sustainable for the long term.

Updating the Plan

The Government is actively managing the implementation of the Economic Action Plan to maximize the benefits for Canadians. In order for the Plan to be effective, it must provide important economic stimulus and job-creating measures when Canada needs it most. The Government is working with provincial, territorial and municipal partners to ensure that stimulus funds are spent within the two-year time frame set out in the Action Plan so that communities will benefit from these measures as they attempt to come out of the recession.

The Government is also working to ensure that stimulus funds are spent by March 2011 to ensure these extraordinary stimulus measures end as economic recovery takes hold. The Economic Action Plan will help ensure that private economic activity returns as public stimulus comes to an end. This will help ensure the Government will be able to return to balanced budgets as economic recovery takes hold.

In order to meet these goals, a deadline of January 29, 2010 has been set for partner authorities to secure firm commitments to implement projects. Committing funding by this date would allow for projects to be completed by March 31, 2011.

Further to this "use it or lose it" approach, governments throughout Canada are working together cooperatively to secure as many firm project commitments as possible within this time frame. If all funding for these initiatives has not been allocated by this date, the Government will reallocate funding to other initiatives or allow funds to lapse.

To ensure the greatest possible benefits to Canadians, the Government is making the following adjustments to the Plan:

• About 90 per cent of funding under the Infrastructure Stimulus Fund is committed. As a result, $2.4 billion of the total amounts committed to date are expected to flow in 2010–11. The Government is diligently working with all partners to secure commitments for the $400 million that remains to be committed. Any funding available in 2010–11 for which there are no firm commitments by January 29, 2010 will be reallocated to other initiatives or allowed to lapse.
• Take-up for Recreational Infrastructure Canada funding and the top-up to the Communities Component of the Building Canada Fund has been strong to date. The remaining uncommitted funding for these two programs will also be subject to the condition that funds be committed by January 29, 2010 to projects that can be completed by March 31, 2011.
• The Government is also working to ensure that funding under the Green Infrastructure Fund is spent effectively. The Government expects that the bulk of the first two years of funding under the program would be spent in 2010–11.
• Due to unprecedented demand under the ecoENERGY Retrofit – Homes program, the Government is proposing to allocate $205 million under the Clean Energy Fund to finance up to 120,000 additional retrofits for Canadian homeowners—$45 million is expected to be spent in 2009–10 and $160 million in 2010–11.
• The Government has recently taken steps to temporarily increase support to long-tenured workers with the passage of legislation to extend benefits for eligible individuals by between 5 and 20 weeks, at a projected cost of $935 million. Cheques are now being sent to eligible long-tenured workers.
• In addition to actions taken under the Economic Action Plan, the Government has introduced the Fairness for the Self-Employed Act, which would extend EI special benefits, including maternity, parental, sickness and compassionate care benefits, to the self-employed. With these changes, self-employed Canadians would be able to opt into the EI program and receive special benefits, providing them with access to support at a critical point in their lives.

Conclusion and Next Steps

The Government has taken unprecedented steps to expedite implementation and to make sure that Canada's Economic Action Plan is having an impact now—when it is most needed.

97 per cent of first-year funding for the Plan has been committed. In every region of the country, Canadian communities, businesses, workers and families are receiving the support they need.

In the weeks and months ahead, the Government's focus will remain on effectively implementing the Plan. Specifically, this means:

• Ensuring that the unemployed receive timely EI benefits.
• Modernizing federal infrastructure to better serve Canadians.
• Lowering taxes for Canadians and Canadian businesses.
• Investing in higher education, science and technology to create the economy of tomorrow.
• Providing assistance to sectors and communities affected by the economic downturn.
• Improving infrastructure in First Nations communities.
• Making it easier for Canadians and Canadian businesses to access credit.

The Government will also continue to work with provinces, territories and municipalities to ensure that:

• Workers have access to training when they need it.
• Infrastructure projects are launched in a timely manner.
• More social housing units are built and existing social housing is modernized.

The following chapter provides a detailed review of progress achieved in each of the six areas of the Economic Action Plan.

Canadians are invited to monitor the progress of the Economic Action Plan on the Government's website, www.actionplan.gc.ca.

Table of Contents - Next