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 Business Lending Conditions
basis points balance of opinion, percentage points

400 100
360 Pricing
Canada (CDOR - OIS) 80
320 Non-pricing
U.S. (LIBOR - OIS)
280 60
Euro area (LIBOR - OIS)
240 40
200 Tightening
20
160
120 0
80
-20
40 Easing
0 -40

-40 -60
Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 1999 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 overnight-
indexed 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.
Daily data up to and including January 21, 2009.
Source: Bloomberg.
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.
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 10.0
0.5 9.0
0.0 8.0
-0.5 7.0
Canada (left) U.S. (left)
-1.0 6.0
-1.5 Eurozone (left) Japan (left) 5.0
-2.0 China (right) 4.0

08
08

8
8

8
08

8
8

9
08

8
8

l- 0
-0

t-0
-0

-0
0

0
r-0

n-

v-
y-
b-

g-

c-
p-
r
n

n
Ju

Oc
Ma

Ap

No
Ma

Ju

Au

De
Ja

Ja
Fe

Se

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)

200 550
Non-Energy (left scale)

175 Energy (right scale) 450

150 350

125 250

100 150

75 50
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 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 Canada enters
recession recession
98
Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 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

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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

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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

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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

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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)

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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

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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)

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 Canada’s Tax Advantage
METR on New Business Investment, selected country groups, in 2012
Per cent Prior to
Budget 2006 Including measures in
40
the 2007 Economic
34.4 Statement Provincial retail sales tax
35 33.3
harmonization plus
federal-provincial CIT
30
27.1 rate to 25%
25.3
25
21.9
20.3
20
16.4
15

10

0
United States Canada Next lowest in the Canada OECD average Small developed Canada
G7 countries average

Source: Federal 2008 Budget

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

2.0 3.5
1.9
Provincial/Municipal 2009 2010
1.8 3.0
Leverage
0.4
1.6 Federal
2.5
1.4 Contents of U.S. stimulus package:
1.4
• Tax
2.0
0.3 • State Funding
1.2 • Other
1.5
1.0

0.8 1.0
1.5
0.6 0.5
1.1
0.4
0.0
0.2
-0.5
0.0 CAN US* JP GER FR IT UK
2009 2010
*For the U.S.: Expected based on current information.
Sources: Government releases, analyst estimates.

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Estimated economic impact of stimulus measures
by the end of 2010

On Real GDP On Employment

Economic Action Plan 1.4% 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

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Fiscal Plan

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 Private-sector outlook for 2009 revised down and
prudent budget planning assumptions
2009 GDP Growth Outlook Forecast Distribution of Nominal GDP
Growth in 2009
Per cent Per cent
Statement 2008 Budget 2009
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5 -0.5

-1.0 -1.0

-1.5
-1.5
Real -2.0
-2.0 Budget Planning Average
Nominal -2.5 = -2.7% = -1.2%
-2.5 -3.0
Budget Planning
-3.0 -3.5

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

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 Changes to the budgetary balance since the
November 2008 Statement

Projection
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

(billions of dollars)

2008 Statement Budgetary Balance 0.8 0.1 0.1 1.1 4.2 8.1

Economic Changes
Private-sector Average Outlook 0.2 -11.3 -9.9 -6.4 -5.0 -1.8
Adjustment for risk -0.8 -4.5 -4.5 -3.0 -1.5 -0.8
Total Economic Changes -0.6 -15.8 -14.4 -9.4 -6.5 -2.6

Budget 2009 Measures 1.3 18.0 15.5 4.7 5.0 4.9

Budgetary Balance -1.1 -33.7 -29.8 -13.0 -7.3 0.7

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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

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