Canada's Economic Action Plan: A Sixth Report to Canadians

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Chapter 1
Overview

Highlights

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.

To sustain recovery, we need to follow through on delivering existing stimulus plans, while working to create the conditions for robust private demand.

— G-20 Declaration, Toronto Summit, June 27, 2010

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.

…advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016.

— G-20 Declaration, Toronto Summit, June 27, 2010

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.

Canada’s Economic Action Plan is “…large, timely, well diversified and structured for maximum effectiveness.”

— International Monetary Fund (IMF),
Canada: 2009 Article IV Consultation, May 2009

The Action Plan is:

To their credit, even during the crisis, Canadian governments carried through with structural reforms.

— Organisation for Economic Co-operation and Development (OECD), Economic Survey of Canada 2010, September 13, 2010

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 one of the
largest fiscal stimulus plans in the G-7
Chart 1.1 - Fiscal Stimulus Flowing in 2009 and 2010, G-7 Countries

 

The Plan Is Working
All of the jobs lost during the recession in Canada have now been recouped, with nearly 430,000 jobs created since July 2009.

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).

Canada is benefiting from its past good policies, in spite of the fact that Canada was severely hit through trade...from south of the border.

— Pier Carlo Padoan, OECD Chief Economist
April 8, 2010

Canada fared better than all other G-7 countries
during the global recession
Chart 1.2 - Overall Contraction in Real GDP During the Recession

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 Economic Action Plan is supporting
an economic recovery
Chart 1.3 - Real GDP Growth

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.

Canada is increasingly on the lips and minds of international investors. Those we’ve talked to are getting religion on Canada’s potential outperformance versus a growing list of advanced economies. Indeed, it’s hard to recall a time when the country possessed such relative, if not absolute, strength.

— Warren Lovely, Macro Strategy Group,
CIBC World Markets Inc., July 14, 2010

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 solid economic recovery has
also supported a recovery in the labour market
Chart 1.4 - Total Employment / Unemployment Rate

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 Canadian labour market has been much
stronger than in any other G-7 country
Chart 1.5 - Change in Total Employment, June 2009 to June 2010

 

The Government’s Policies Are Supporting
a Strong Job Market

The Government’s strong policies have contributed to significant job growth in Canada. Since January 2006, employment in Canada has increased by close to 950,000, the strongest performance of any G-7 country by far over this period.

  • Nearly 430,000 jobs have been created in Canada since July 2009, with the result that all of the jobs lost during the recession have now been
    fully recouped.

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.

According to the IMF and OECD, Canada is expected to be the fastest-growing economy in the G-7 over 2010 and 2011.

IMF, World Economic Outlook Update, July 2010 and
OECD, Economic Outlook No. 87, May 2010

Government investment in infrastructure
is supporting the recovery in Canada
Chart 1.6 - Real Government Fixed Capital Formation

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).

A rebound in private domestic demand has
underpinned the economic recovery
Chart 1.7 - Real Private Domestic Demand Growth

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 has virtually recovered the output lost
during the recession—the best performance
in the G-7
Chart 1.8 - Change in Real GDP Since Pre-Recession Peak

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.

Canada entered the global crisis in good shape, and thus the exit strategy appears less challenging than elsewhere.

— IMF, World Economic Outlook, April 2010

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).

The IMF expects Canada to be the first G-7 country
to return to budget balance
Chart 1.9 - Total Government Fiscal Balance, G-7 Countries

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.

Going forward, Canada’s relative fiscal position
remains the strongest among G-7 countries
Chart 1.10 - Total Government Net Debt-to-GDP Ratios

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.

Projects Underway or Completed
for Which No Claims Have Been Received

Provinces, territories and municipalities typically receive invoices from the contractor(s) carrying out the work at periodic intervals or, in some cases, only when the project is complete. These governments then submit claims for costs incurred to the Government of Canada. As a result, there is a natural lag between the time when the work is being undertaken, to when a province/territory/municipality is billed for the work, to when they conduct their due diligence review of costs, to when a claim is actually submitted to the Government of Canada for reimbursement. This is a normal situation for infrastructure projects involving multiple partners.

Based on reports from recipients, there are more than 1,600 projects under the $4-billion Infrastructure Stimulus Fund and over 130 projects under the $500-million top-up to the Communities Component of the Building Canada Fund that are underway or completed, but for which no claims have yet been submitted.

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 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:

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:

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.

So while the global outlook remains murky and Canada still faces real challenges, I believe there is good reason for confidence about our country’s prospects. We need to avoid complacency, especially in ensuring that our governments drive down recessionary deficits as quickly as possible once the recovery takes hold. But in both the public and private sector, we are on the right track, and should become increasingly attractive to both people and capital across a broad range of industries in services and manufacturing as well as resources.

— John Manley, President and Chief Executive Officer,
Canadian Council of Chief Executives, at the
Euromoney Canada Forum 2010, Toronto, April 22, 2010

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

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).

The Government’s three-point plan will lead
to a sharp decline in deficits and a return
to balanced budgets over the medium term
Charit 1.11 - Projected Federal Budgetary Deficit

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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