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Chapter 1
Overview

Highlights

• Canada’s Economic Action Plan is a two-year $62-billion plan to boost confidence and support the economy in response to the deepest global recession since the 1930s.
• Implementation of the Economic Action Plan is on track and delivering results to Canadians.
• In its first year of implementation, the Economic Action Plan has delivered over $33 billion in stimulus to the economy.
• All of the jobs lost during the recession in Canada have now been recouped, with nearly 430,000 jobs created since July 2009.
• On average, the Economic Action Plan is estimated to have boosted Canada’s gross domestic product (GDP) growth by 1.5 percentage points per quarter since the second quarter of 2009.
• In 2010–11, the Action Plan is on track to deliver a further $22 billion in federal stimulus spending, complemented by $7 billion in stimulus funding from provinces, territories, municipalities and other partners.
• Funding for the Action Plan in 2010–11 is 98 per cent committed.
• Canadians are benefiting from permanent tax relief. As well, an estimated 4.6 million Canadian families benefited from the temporary Home Renovation Tax Credit.
• The Government is providing exceptional support for the unemployed, with total Employment Insurance (EI) payments up by over $5 billion from 2008–09. Enhancements to EI continue to flow to unemployed Canadians.
• Economic Action Plan funds have been committed to over 23,000 projects across the country. Of these, close to 22,500, or 97 per cent, have begun or have been completed.
  • The Government has committed all of the funding available under the $4-billion Infrastructure Stimulus Fund towards approximately 4,000 projects across the country. About 99 per cent of the projects are underway or completed.
  • Almost all of the $500 million made available under the Recreational Infrastructure Canada program has been committed to almost 2,000 projects across the country, over 1,900 of which are already underway or completed.
  • Over 9,000 projects are underway or completed to improve social housing and First Nations housing across the country.
  • Under the Knowledge Infrastructure Program, 56 projects have been completed and work has begun on more than 420 additional projects.
• The Government is actively managing the Economic Action Plan to ensure effective delivery of stimulus.
• The Government is committed to winding down the stimulus as the economy recovers and returning to budgetary balance over the medium term.

Introduction

Canada’s Economic Action Plan has helped Canadians through the worst global recession since the 1930s and is now contributing to a solid economic recovery. However, global economic growth remains fragile and, at home, too many Canadians remain out of work. The continued implementation and completion of the Economic Action Plan will help ensure the strength of the recovery in Canada.

We will stay on this course. Completion of the Economic Action Plan is this Government’s focus. Today’s report indicates 98 per cent of all Economic Action Plan spending for 2010–11 is committed. More than 23,000 projects have been committed to, with close to 22,500 completed or underway.

Our priority remains creating jobs for Canadians and we are delivering. Nearly 430,000 jobs have been created in Canada since July 2009, more than were lost as a result of the global recession.

We will continue with this focus on jobs and growth as we complete implementation of the Economic Action Plan. Once the Plan is fully implemented, we will continue to lower taxes and promote practical, workable and affordable ideas as we follow through on our plan to return Canada’s finances back to balance over the medium term.

At their June meeting in Toronto, Group of Twenty (G-20) leaders were in broad agreement on the need to follow through on delivering existing stimulus to strengthen the international recovery.

They also recognized, however, the need to wind down fiscal stimulus going forward, and committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016. Budget 2010 laid out a plan that goes beyond this commitment, bringing Canada’s finances back to balance over the medium term—well before any other Group of Seven (G-7) country. As part of this plan, the Government will follow through on the “exit strategy” built into the Action Plan by allowing temporary stimulus measures to end as the economy recovers.

Canada’s Economic Action Plan

The implementation of Canada’s Economic Action Plan continues to be timely and effective. The Action Plan protects Canadian jobs and incomes by delivering a $62-billion shot in the arm to the economy (Table 1.1). Taxes have been reduced, EI benefits have been extended for the unemployed, thousands of infrastructure projects are underway across the country, significant support has been provided for science and technology, industries and communities, and extraordinary actions have been taken to improve access to financing. The Economic Action Plan is an investment in jobs now and in our future prosperity.

The 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 resources for EI benefits to support those who have lost their jobs and providing 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. It also includes providing support to Canadian workers participating in work-sharing arrangements and to 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 benefiting workers and the economy across the country. The Economic Action Plan has also provided additional support to the housing sector through the Home Renovation Tax Credit.
• Creating the Economy of Tomorrow: Improving infrastructure at colleges, universities, federal laboratories and research facilities, introducing additional support for graduate students and internships, and supporting research and technology leadership in Canada.
• 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

	2009–10	2010–11
	Dollars Spent1	Stimulus Value	Total
	(millions of dollars—cash basis)
Reducing the Tax Burden for Canadians	3,020	3,180	6,200
Helping the Unemployed	3,725	5,353	9,077
Building Infrastructure to Create Jobs	6,802	8,869	15,671
Creating the Economy of Tomorrow	1,550	2,323	3,873
Supporting Industries and Communities	10,979	2,271	13,250
Total federal stimulus measures	26,076	21,995	48,071
Assumed provincial and territorial actions	7,062	6,968	14,029
Total Economic Action Plan stimulus	33,138	28,963	62,100
Note: Totals may not add due to rounding. 1 Includes estimated values for tax reduction measures.

Canada had the strongest fiscal position in the G-7 at the onset of the global recession, which allowed it to respond quickly and forcefully to stimulate the economy and support Canadians through the worst of the recession (Chart 1.1). Indeed, the policy response set out in Canada’s Economic Action Plan is one of the largest stimulus packages among G-7 countries.

 

Canada’s Economic Action Plan Is Supporting the Economic Recovery in Canada

Canada’s Economic Action Plan provided a large, timely and targeted response to the global crisis, with stimulus totalling more than $62 billion over two years. The Action Plan has had a strong positive impact on the Canadian economy both during the recession and over the recovery to date.

The Action Plan, combined with Canada’s strong fundamentals, including a sound financial sector and strong corporate, household and government balance sheets, allowed Canada to weather the global recession better than most other industrialized countries. Indeed, the recession in Canada was less pronounced than in any other G-7 economy (Chart 1.2).

The Economic Action Plan is supporting a solid economic recovery in Canada, which began in the third quarter of 2009. Following strong growth of 4.9 per cent in the fourth quarter of 2009 and 5.8 per cent in the first quarter of 2010, real GDP increased by 2.0 per cent in the second quarter of 2010 (Chart 1.3).

The recovery in output has led to a recovery in jobs in Canada. All of the jobs lost during the recession in Canada have now been recouped, with nearly 430,000 jobs created since July 2009, which represents the trough in employment (Chart 1.4). The Economic Action Plan has strongly supported this jobs recovery.

As a result of strong job creation, the unemployment rate in Canada fell from a peak of 8.7 per cent in August 2009 to 8.1 per cent in August 2010. This is significantly better than what private sector economists were expecting early in the recession. In early 2009, some private sector economists were forecasting the unemployment rate to peak at as high as 10 per cent.

The labour market recovery in Canada contrasts sharply with labour market developments in the United States, where employment remains well below pre-recession levels. The U.S. unemployment rate is also near a 27-year high and remains above the Canadian unemployment rate—a phenomenon not seen in nearly three decades.

Canada’s labour market has also performed better than its G-7 peers, with Canada being the only G-7 country to have posted significant positive employment growth since June 2009 (Chart 1.5).

 

The economic recovery in Canada has been supported by significant increases in government investment in infrastructure, largely reflective of investments provided in the Economic Action Plan. As of the second quarter of 2010, government capital investment was over $6 billion higher than it would have been had it followed the trend prior to the implementation of the Action Plan (Chart 1.6). This is in sharp contrast to the U.S., where government investment in infrastructure has remained broadly stable over the past two years.

The Economic Action Plan also helped individuals through the worst of the recession by providing tax relief and support for the unemployed. These measures also had a positive impact on consumer and business confidence and contributed to the rebound in private domestic demand—the sum of consumer and business expenditures—which has underpinned the economic recovery (Chart 1.7).

As a result of Canada’s solid economic performance over the recovery to date, economic output has now virtually returned to pre-recession levels. Canada is the only G-7 country to have virtually recouped the output lost since the start of the recession (Chart 1.8). Canada is also the only G-7 country to have nearly recouped private domestic activity lost since the start of the recession.

Canada’s Strong Fiscal Position

Canada was able to respond quickly and forcefully to the recession with a large and comprehensive package of stimulus measures, without putting at risk the country’s long-term fiscal position. Canada’s fiscal position continues to be recognized as one of the strongest in the world.

The IMF expects Canada’s total government deficit this year to be about half of the average for G-7 countries. Going forward, the IMF expects Canada to be the only G-7 country to return to fiscal balance by 2015. By comparison, it projects that other G-7 countries will record deficits in that year averaging 5.4 per cent of GDP, with deficits ranging from 1.7 per cent of GDP in Germany to 7.3 per cent of GDP in Japan (Chart 1.9).

Responsible fiscal management in the years prior to the recession resulted in significant reductions in Canada’s net debt levels in the years leading up to the crisis. Canada’s total government net debt-to-GDP ratio fell from 70.3 per cent in 1995 to a low of 22.6 per cent in 2008, the year of the onset of the economic crisis.

The IMF expects Canada to put its net debt burden back on a downward path by 2013—sooner than any other G-7 country. Indeed, Canada’s total government net debt-to-GDP ratio is projected by the IMF to decline to 30.4 per cent by 2015, by far the lowest among G-7 countries (Chart 1.10).

By comparison, the IMF projects that Germany will have the second lowest net debt-to-GDP ratio in the G-7, at around 75 per cent in 2015, more than double that of Canada’s, while that of France, the United Kingdom and the Unites States are projected to hover around 85 per cent. Japan and Italy are expected to have net debt-to-GDP ratios well above 100 per cent by 2015.

On average, the IMF projects G-7 countries’ net debt-to GDP ratio to reach 93.7 per cent by 2015, twice its 2000 level and nearly three times Canada’s projected level that year.

Timely Implementation

Canada’s Economic Action Plan provides $62 billion over two years to help protect and create jobs and invest in future prosperity.

In its first year of implementation, over $26 billion of Action Plan support has been released into the economy in the form of federal stimulus spending or tax reductions. When combined with a further $7 billion in stimulus from provinces, territories, municipalities and other partners, a total of over $33 billion has been provided to Canadians as a result of the Economic Action Plan.

Stimulus Provided Is Larger Than Dollars Spent

The Sixth Report to Canadians on Canada’s Economic Action Plan implementation includes information on stimulus provided in 2009–10 based on actual dollars spent. However, this approach generally underestimates stimulus flows for infrastructure-related projects, as funds paid out to provinces, territories, municipalities and third parties generally do not reflect the full stimulus achieved.

In particular, amounts paid tend to lag the economic impact of fiscal stimulus since payments are typically made when claims are received. Federal payments flow to recipients (such as provinces, territories and municipalities) only once defined portions of projects are completed and claims are submitted. Upon receiving complete claims, the Government of Canada pays within 30 days. In many cases, entire projects may be finished before a claim is submitted. This results in the amount of funding provided at any given time significantly lagging actual work done and stimulus provided.

In the estimate of the job impact of the Economic Action Plan to date (see annex), this issue has been addressed by using an alternative measure of stimulus flowing into the economy, where available: individual infrastructure project start and end dates have been used to estimate funds flowing, under the assumption of a linear flow of economic stimulus from project start to end. This information is available for approximately three-quarters of project-based infrastructure spending.

In addition, provincial/territorial/municipal leverage assumed in the Economic Action Plan is generally lower than the leverage reported by our partners.

Incorporating both of these adjustments increases the estimated global value of the 2009–10 stimulus by $2.1 billion, from $33.1 billion to $35.2 billion, inclusive of provincial/territorial leverage.

The implementation of the Economic Action Plan is on track. 98 per cent of the 2010–11 funding for the Action Plan is committed and will be spent in this fiscal year—an estimated $22 billion in federal stimulus for the Canadian economy.

The support to the economy has been timely and has helped to protect jobs during the global economic recession. The Government will continue to monitor the roll-out of the Action Plan to ensure that remaining stimulus is supporting the recovery as planned.

Table 1.2
Progress in Implementing the Economic Action Plan

	2009–10	2010–11
	Dollars Spent1	Stimulus Value	Stimulus Committed
	(billions of dollars—cash basis)
Reducing the Tax Burden for Canadians	3.0	3.2	3.2
Helping the Unemployed	3.7	5.4	5.4
Building Infrastructure to Create Jobs	6.8	8.9	8.8
Creating the Economy of Tomorrow	1.5	2.3	2.2
Supporting Industries and Communities	11.0	2.3	2.0
Total—federal support	26.1	22.0	21.6
Assumed provincial and territorial actions	7.1	7.0	7.0
Total Economic Action Plan stimulus	33.1	29.0	28.6
Note: Totals may not add due to rounding. 1 Includes estimated values for tax reduction measures.

Implementation Is on Track, With 97 per cent of Committed Projects Underway or Completed

Over the past 17 months, a great deal has been achieved. Elements of the Economic Action Plan that are directly controlled by the federal government are fully in place. For example:

• The Government delivered over $3.7 billion in additional support for the unemployed in 2009–10 and is providing a further $5.4 billion in 2010–11.
• Canadian businesses and over 260,000 Canadians have benefited from enhanced work-sharing arrangements, preserving jobs that might have otherwise been lost.
• Canadians are benefiting from significant new personal income tax reductions that have provided relief, particularly for low- and middle-income Canadians.
• The enhancement to the Working Income Tax Benefit (WITB) is fully implemented. Canadians were able to benefit from this enhancement when they filed their 2009 income tax returns. WITB recipients will continue to benefit from the enhancement in 2010 and future years when they file their income tax returns.
• An estimated 4.6 million Canadian families benefited from the Home Renovation Tax Credit, which ended as scheduled on January 31, 2010.
• Most federal infrastructure projects are well underway, with a significant number of projects completed.

The Government has also secured agreements over the past 17 months to enable provinces, territories, municipalities and private sector partners to implement measures for 2009–10 and 2010–11 that are a shared responsibility. Provincial and territorial governments are delivering:

• Enhanced training programs.
• Significant infrastructure and social housing spending.

Economic Action Plan funds have been committed to over 23,000 projects across the country, of which 97 per cent have begun or have been completed. Projects underway or completed include:

• Over 7,700 provincial, territorial and municipal infrastructure projects, including about 4,000 Infrastructure Stimulus Fund projects, over 1,900 Recreational Infrastructure Canada projects and about 1,200 accelerated Building Canada projects.
• Almost 1,900 projects to renovate and repair federal buildings.
• Over 300 projects to enhance the accessibility of Crown-owned buildings for persons with disabilities.
• More than 475 projects to improve infrastructure at colleges and universities across the country.
• Over 215 projects to modernize federal laboratories.
• Over 9,000 social housing and First Nations housing projects.
• 270 projects to improve small craft harbours.
• Close to 1,600 projects to assist communities hardest hit by the recession through the Community Adjustment Fund.
• 119 cultural infrastructure projects.
• Over 200 projects to upgrade facilities at National Parks and National Historic Sites.
• 88 First Nations infrastructure projects.

Managing the Plan

Implementation is on track. The Government is actively managing the Economic Action Plan to maximize benefits for Canadians and to ensure that the Plan is having an impact now and in areas where it is needed most.

The Government will continue to work with provincial, territorial and municipal partners to ensure that stimulus funds are effectively delivered.

Winding Down the Plan

In the short term, the Government is focused on finishing the job of implementing the Economic Action Plan. The Government will also continue to monitor economic developments closely and will take action as necessary to protect the recovery. However, it is also important that the stimulus wind down as the recovery becomes more secure, in order to ensure that the federal government’s fiscal position is sustainable and that the budget is returned to balance over the medium term.

Budget 2010 outlined a three-point plan to return the federal budget to balance over the medium term:

• First, the Government will follow through on the “exit strategy” that is built into the Economic Action Plan by ensuring that the temporary measures end as the economy recovers.
• Second, the Government announced targeted measures to limit the growth in direct program spending. These savings will build over the medium term as the recovery becomes more secure.
• Third, the Government is undertaking a comprehensive review of government administrative functions and overhead costs in order to identify opportunities for additional savings and improve service delivery. It will also continue with and augment a number of review processes already underway.

The Government’s three-point plan will allow the deficit to fall sharply over the medium term. As a result of the expiration of the Economic Action Plan and measures in Budget 2010, the deficit is projected to decline by almost half from $53.8 billion in 2009–10 to $27.6 billion in 2011–12, and by two-thirds to $17.5 billion in 2012–13. By 2014–15, the deficit is projected to be $1.8 billion (Chart 1.11).

This approach underscores the Government’s fundamental belief that the private sector is the engine of growth and wealth creation. The role of government is to provide the infrastructure, programs and services for a prosperous economy and society at levels of taxation that are competitive and sustainable for the long term.

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.

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