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Maintaining Strong and Responsible Economic Leadership

Growing evidence suggests that the U.S. and several other major economies are now in recession. Canada has weathered this downturn better than virtually any other industrialized country. Domestic demand in Canada has continued to grow at a reduced but solid pace and employment has continued to expand. However, Canada is not isolated from global developments, and the consensus among private sector economists is that Canada will experience a technical recession in the coming months.

Moreover, the uncertainty and risks surrounding the economic outlook are greater than usual. Given the weakness in the U.S. economy and heightened global financial market turmoil, the balance of risks to the Canadian economic outlook is clearly to the downside.

Canada is facing this period of uncertainty from a position of relative strength, reflecting the soundness of Canadian financial institutions and the strong financial positions of households, corporations and governments.

Indeed, Canada’s strong fiscal situation has allowed the Government to provide significant, broad-based, permanent tax relief and make unprecedented investments in infrastructure.

  • In 2009–10, Canadians and Canadian businesses will pay $31 billion less in taxes—or almost 2 per cent of gross domestic product—as a result of tax reductions implemented by the Government since 2006.
  • Federal funding for provincial, territorial and municipal infrastructure in 2009 will be double its level in 2007.

Unlike temporary tax measures taken elsewhere, tax reductions for Canadians are permanent and sustainable.

These measures will be a major stabilizing factor for the Canadian economy through the global slowdown, and will help strengthen our economy for the long term.

Recent global financial and economic developments emphasize the importance of maintaining and bolstering Canada’s solid fundamentals. To that end, this Economic and Fiscal Statement takes actions to protect our hard-won fiscal advantage and reinforce the stability of our financial system.

Protecting Our Hard-Won Fiscal Advantage

Strong fiscal management is the foundation of the Government’s economic strategy and the means to a higher standard of living for Canadians today and in the future.

The Government has reduced the federal debt by $37 billion over the past three years, and debt instruments issued by the Government of Canada are now regarded as the safest investment in the world. This provides daily benefits to Canadians and businesses because the Government sets the benchmark for all other interest rates in our country. Reducing debt also means we can make needed investments and provide public services without passing the costs on to our children and grandchildren.

The Government will continue to manage spending responsibly. To that end, this Statement:

  • Takes important, measured action to ensure the effectiveness and reduce the cost of government operations.
  • Introduces legislation that will ensure sustainable federal public sector wage rates for four years and modernizes the pay equity regime.
  • Puts Equalization on a sustainable growth path, while the Canada Health Transfer and the Canada Social Transfer will remain unchanged and continue to grow as before.

With these actions, the Government continues to plan on balanced budgets over this and the next five years. However, given the volatility of the economic situation and the rapid decline in commodity prices, a deficit cannot be ruled out.

Reinforcing Financial System Stability

The recent turmoil on global financial markets has highlighted the crucial importance of Canada’s sound financial regulatory system.

The Government has already taken major actions to strengthen and preserve the competitiveness of Canada’s world-leading financial sector.

This Statement takes further measures to:

  • Support the financial system in extraordinary circumstances.
  • Provide temporary relief to seniors with Registered Retirement Income Funds and to federally regulated private pension plans, which have been affected by the recent deterioration in market conditions.
  • Enhance credit availability for Canadian businesses that are affected by the global credit crisis through the Government’s Crown agencies.

These actions will enable the Government to meet its Group of Twenty (G20) responsibilities and commitments to ensure financial system stability.

Forward Agenda

While responding to current economic challenges, the Government is mindful of the need to boost long-term growth. Canada has benefited from a clear economic plan, Advantage Canada: Building a Strong Economy for Canadians, and a resolute commitment to its implementation. Much progress has been made since 2006, and this is reflected in the country’s resilience in the face of economic and financial market turbulence.

The Government will consult with provinces and territories and Canadians to develop responses to short-term economic issues, while continuing to implement its long-term economic plan. The immediate priorities of the Government are to accelerate infrastructure projects, improve opportunities for workers and sectors affected by current economic conditions, strengthen our world-leading financial system in line with our G20 commitments, and improve the competitiveness of the Canadian economy.

In the coming months, the Government will closely monitor the economic situation. It will continue to take necessary actions to support the economy, balancing the economic benefit of such actions with the impact on the fiscal situation. To the extent that actions to protect the economy or a further deterioration in global economic conditions lead to a deficit, the Government will ensure that the deficit is temporary.

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