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.
— Meeting of G20 Finance Ministers and Central Bank Governors,
St. Andrews, United Kingdom, November 7, 2009
— IMF, November 12, 2009
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).
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:
|(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.|
The Government is implementing Canada's Economic Action Plan as quickly as possible, balancing effective stewardship of taxpayer dollars with speed of implementation.
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.
Share of 2009–10
|(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:
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.
— IMF, November 12, 2009
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.
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.
— Leaders' Statement: The Pittsburgh Summit, September 24-25, 2009
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.
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:
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:
The Government will also continue to work with provinces, territories and municipalities to ensure that:
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.