090128 Canada's Economic Action Plan (slides)

Outline

Global Economic and Financial Context Canada’s Economic Action Plan Medium-Term Objectives— Fiscal Advantage

2

Global Economic and Financial Context

3

Global credit crisis is affecting cost and availability of credit in Canada Credit Spreads basis points

balance of opinion, percentage points

100

400 360

Canada (CDOR - OIS)

320

U.S. (LIBOR - OIS)

280 240

Business Lending Conditions

Euro area (LIBOR - OIS)

200 160 120 80 40 0 -40 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09

80

Pricing Non-pricing

60 40

Tightening

20 0 -20 -40 -60 1999

Easing

2001

2003

2005

2007

Notes: These spreads are a measure of banks’ funding costs relative to a risk-free rate and are a gauge of financial market stress and banks’ financing pressures. The rate on the overnightindexed swap (OIS) is used as a proxy for expected overnight rates. LIBOR is the London Interbank Offered Rate. CDOR is the Canadian Dealer Offered Rate.

Note: Pricing conditions refer largely to the cost of borrowing, whereas non-pricing conditions refer to access to credit and lending terms. The balance of opinion is calculated as the weighted percentage of respondents reporting tightened credit conditions minus the weighted percentage reporting eased credit conditions.

Daily data up to and including January 21, 2009. Source: Bloomberg.

Source: Bank of Canada - Senior Loan Officer Survey.

4

Global prospects have deteriorated significantly Evolution of Private-Sector Average Forecasts for Real GDP Growth in 2009

Per cent

Per cent 3.0

14.0

2.5

13.0

2.0

12.0

1.5

11.0

1.0 0.5

10.0 9.0

0.0

8.0

-1.5

Eurozone (left)

Japan (left)

-2.0

China (right)

7.0 6.0 5.0

-0 9 Ja n

8 De c0

08 No v-

Oc t-0 8

p0

Au

g0

8

8

8 l- 0 Ju

Ju

n08

4.0

Ma y08

Ap

Ma r

b08 Fe

Ja n

-0 8

-1.0

r-0 8

U.S. (left)

-0 8

Canada (left)

Se

-0.5

Date of forecast Source: Blue Chip Economic Indicators - January 2008 to January 2009.

5

Sharp drop in commodity prices affecting income and tax base in Canada Commodity Prices (in U.S. dollars) Index 1997=100

Index 1997=100

225

650 Total (left scale)

200 175

550

Non-Energy (left scale) Energy (right scale)

450

150

350

125

250

100

150

75 Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

50 Jan-09

Note: Monthly data for January 2009 includes data up to and including January 16, 2009. Source: Department of Finance Commodity Price Index.

6

Economic situation in Canada remains better than in most other major industrialized countries, in particular the U.S. Index of Total Employment Index, January 2005 = 100 108

106

Canada 104

U.S. 102

100

U.S. enters recession 98 Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Canada enters recession Jan-08

Jul-08

Jan-09

Sources: Statistics Canada; U.S. Bureau of Economic Analysis.

7

G-20 Commitment

• Stabilize the financial system • Strengthen financial markets and regulatory regimes

• Stimulate domestic demand / Maintain fiscal sustainability

8

Canada’s Economic Action Plan

9

Guiding principles of the Economic Action Plan

• Timely, targeted, temporary • Fiscal costs concentrated in 2009-10 and 2010-11 • Maximizes economic effect • Strong Accountability Framework • Balance stewardship and governance with urgency • Initial progress report this summer

• Update Parliament first week following summer recess • Realign if necessary in Fall Update 10

Budget 2009: Canada’s Economic Action Plan

• Access to Financing and Strengthen Canada’s Financial System

• Support Canadians

• Stimulate Housing • Build Infrastructure

• Support Businesses and Community Adjustment 11

Improving Access to Financing – The Extraordinary Financing Framework ($200 billion)

Insured Mortgage Purchase Program

$125 billion

New 10-year Canada Mortgage Bond

$10 billion

Canadian Lenders Assurance Facility

-

Canadian Life Insurers Facility

-

EDC and BDC

$13 billion

ABS Facility

$12 billion

Bank of Canada

$40 billion

Expanded authorities to strengthen financial system 12

Strengthening Canada’s Financial System

•Safeguarding Canada’s financial stability by: •Broadening Minister of Finance’s authority •Providing CDIC with greater flexibility

•Providing standby authority for the Government to inject capital into federal financial institutions

13

Action to Help Canadians and Stimulate Spending ($12.8 billion) The Canada Skills and Transition Strategy

• $1.9 billion to strengthen benefits

• $1.9 billion to enhance the availability of training • $4.5 billion to keep EI rates frozen Tax relief for Canadians

• Significant personal income tax relief • Increases to the National Child Benefit and Canada Child Tax Benefit • Doubling the tax relief provided by the Working Income Tax Benefit (WITB)

• Increase to the Age Credit amount 14

Impact of WITB and other tax measures Lowering the Welfare Wall Average Effective Marginal Tax Rates (per $10,000 in additional income – 2009) 80 %

Rates ( Pre-Budget 2006) Existing rates with measures announced in Budget 2009 60 %

40 %

20 %

0 $3,000 - $10,000

$10,000 - $20,000

$20,000 - $30,000

$30,000 - $40,000

Earned Income/Net Family Income

15

Action to Stimulate Housing Construction ($7.8 billion)

• Investments in social housing for low-income Canadians ($2.1 billion)

• Tax support for home ownership and the housing sector ($3.7 billion)

• Home Renovation Tax Credit • Enhancing energy efficiency • First-Time Home Buyers’ Tax Credit • Home Buyers’ Plan (increasing limit from $20K to $25K) • Direct, low-cost loans to municipalities through the CMHC ($2 billion) (sewers, water lines, neighbourhood regeneration projects) 16

Immediate Action to Build Infrastructure ($11.8 billion) • Provincial, territorial and municipal infrastructure • Infrastructure Stimulus Fund ($4 billion) • Green Infrastructure Fund ($1 billion over 5 years) • RInC ($500 million)

• First Nations infrastructure • Knowledge infrastructure • Deferred maintenance and repairs at post-secondary institutions ($2 billion) • Canada Foundation for Innovation ($750 million over several years) • Canada Health Infoway : Goal of 50% of Canadians with an electronic health record by 2010 ($500 million)

• Broadband access in rural communities ($225 million over 3 years)

• Federal infrastructure 17

Action to Support Businesses and Communities ($7.5 billion)

• Capital Cost Allowance • Computers (temporary 100%) • Manufacturing and processing M&E (temporary 50% straight line accelerated)

• Tariff relief on machinery and equipment • Sectoral adjustment • Community Adjustment Fund ($1 billion) • Support to automotive sector in collaboration with Ontario • Support for culture and the arts ($335 million)

• Clean energy technologies ($1 billion over 5 years)

• Support to small businesses ($365 million) 18

Canada’s Tax Advantage METR on New Business Investment, selected country groups, in 2012 Prior to Budget 2006

Per cent

40 35

34.4

Including measures in the 2007 Economic Statement

33.3

30

27.1

Provincial retail sales tax harmonization plus federal-provincial CIT rate to 25%

25.3

25

21.9

20

20.3 16.4

15 10 5 0 United States

Canada

Next lowest in the G7

Canada

OECD average

Small developed countries average

Canada

Source: Federal 2008 Budget

19

Fiscal stimulus in Canada compared to other countries Proposed Budget Measures Per cent of GDP

Per cent of GDP 2.0

1.9

1.8 0.4

3.5 Provincial/Municipal Leverage Federal

1.6

1.4

1.4

0.3

1.2

2009

2.5 Contents of U.S. stimulus package: • Tax • State Funding • Other

2.0

1.0

1.5

0.6

2010

3.0

1.5

1.0 0.8

Budgetary Actions

1.1

0.4

0.5 0.0

0.2

-0.5

0.0

CAN 2009

US*

JP

GER

FR

IT

UK

2010

*For the U.S.: Expected based on current information. Sources: Government releases, analyst estimates.

20

Estimated economic impact of stimulus measures by the end of 2010

On Real GDP 1.4%

On Employment 142,000 jobs

Provincial/municipal leverage

0.5%

47,000 jobs

2007 Economic Statement

0.6%

77,000 jobs

Total

2.5%

266,000 jobs

Economic Action Plan

21

Fiscal Plan

22

Private-sector outlook for 2009 revised down and prudent budget planning assumptions 2009 GDP Growth Outlook Per cent

Forecast Distribution of Nominal GDP Growth in 2009 Per cent

Statement 2008

Budget 2009

1.0

1.5

1.0

0.5

0.5

0.0

0.0

-0.5

-0.5

-1.0

-1.0 -1.5

-1.5 -2.0 -2.5

Real

-2.0

Nominal

-2.5

Budget Planning

-3.0

-3.0

Sources: Statistics Canada; Department of Finance Survey of Private Sector Forecasters.

Budget Planning = -2.7%

Average = -1.2%

-3.5

Sources: Department of Finance Survey of private sector forecasters.

23

Changes to the budgetary balance since the November 2008 Statement Projection FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 (billions of dollars) 2008 Statement Budgetary Balance Economic Changes Private-sector Average Outlook Adjustment for risk Total Economic Changes

Budget 2009 Measures Budgetary Balance

0.8

0.1

0.1

1.1

4.2

8.1

0.2 -0.8 -0.6

-11.3 -4.5 -15.8

-9.9 -4.5 -14.4

-6.4 -3.0 -9.4

-5.0 -1.5 -6.5

-1.8 -0.8 -2.6

1.3

18.0

15.5

4.7

5.0

4.9

-1.1

-33.7

-29.8

-13.0

-7.3

0.7

24

Internationally, Canada is exceptionally well placed to weather current crisis Total Government Net Debt to GDP Ratio Per cent

60 Canada 55

G7 average

50 45 40 35 30 25 20 15 2006

2007

2008

2009

2010

25

Federal Spending Track Program Spending $ Millions

Per cent of GDP

18

Actual

Projection

17 16 15 14 13 12 11 10 1990-91

1994-95

1998-99

2002-03

2006-07

2010-11

26

Renewed fiscal strength Federal Debt % GDP 80

Actual

Projection

70 60 50 40 30 20 10 0 1979-80

1989-90

1999-00

2009-10

27