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Ottawa, November 2005
2005-077

Economic and Fiscal Update: Strong Growth, Healthy Finances and a New Plan to Promote Long-Term Prosperity

Related document:

• The Economic and Fiscal Update 2005

A new plan to promote job creation, stimulate learning, research and development and boost Canada’s investment climate highlights Minister of Finance Ralph Goodale’s second Economic and Fiscal Update.

Minister Goodale said that our country has made significant economic and fiscal progress over the past several years. He noted that Canada has posted eight consecutive budget surpluses, reduced the federal debt by more than $63 billion and made major investments in health care, education, research and innovation, and environmental protection.

"The road from 1994 to 2005 has been difficult at times, but the achievements remarkable," Minister Goodale said. "Today, Canada has gone from economic laggard to leader and we can look forward to the future with tremendous confidence."

The Minister stated that, based on forecasts by private sector economists, Canada’s economy is expected to grow by 2.8 per cent this year, rising to 2.9 per cent in 2006 and 3.1 per cent in 2007. Based on independent forecasts, after adjusting for the $3-billion Contingency Reserve and economic prudence and taking into account measures announced since Budget 2005, the amounts available for planning purposes are:

• 2005–06: $8.2 billion;

• 2006–07: $9.2 billion;

• 2007–08: $9.5 billion;

• 2008–09: $7.9 billion;

• 2009–10: $8.4 billion; and

• 2010–11: $11.3 billion.

These surplus forecasts, which total $54.5 billion, have been revised upwards from Budget 2005, reflecting higher projected corporate and personal income tax receipts and lower public debt charges. The Minister said that the Government is on track to meet its Budget 2004 target of reducing Canada’s debt-to-GDP (gross domestic product) ratio to 25 per cent within 10 years and is now setting an even more ambitious target of bringing the ratio down to 20 per cent by 2020.

Minister Goodale also unveiled a new economic plan aimed at improving Canada’s productivity and securing the nation’s long-term economic prosperity—A Plan for Growth and Prosperity. It outlines the challenges facing the Canadian economy in an increasingly competitive global marketplace and establishes clear objectives for meeting these challenges.

"At its core, this Plan is about people—our quality of life, the quality of our natural environment, the sustainability, creativity, safety and security of the communities in which we want to live," the Minister said. "It’s about people living fulfilling lives, the kinds of retirements we can expect to enjoy and the opportunities our children will have."

The Plan focuses on action on four fronts: creating opportunities for all Canadians, advancing an innovative economy, positioning Canada at the centre of global commerce and networks, and building the right investment environment.

Among the first steps in implementing its new economic plan, the Government proposes to introduce a full package of tax measures, including:

• Immediately increasing the basic personal amount—the amount of income that all Canadians can earn tax-free—by $500, effective January 1, 2005.

• Immediately reducing the lowest personal income tax rate from 16 per cent to 15 per cent, effective January 1, 2005, with subsequent reductions of 1 percentage point to each of the two middle rates by 2010.

• Consulting with the provinces and territories to design and implement a Working Income Tax Benefit to help encourage low-income Canadians to join the workforce.

• Confirming the 2-percentage-point reduction in the general corporate tax rate to 19 per cent by 2010 and the elimination of the corporate surtax for all corporations, as well as the elimination of the federal capital tax as of 2006, two years earlier than originally planned.

The Minister stated that this new tax reduction plan will deliver $30 billion in tax relief over the current year and the next five years, including immediate personal income tax relief of up to $325 for all taxpayers this year, with further relief in years to come as other tax reductions are phased in. Legislation to implement the tax reduction plan will be introduced in due course.

The Minister said the Government will take the first steps in implementing its new economic plan on three other fronts as well.

The Government proposes substantial investments, including:

• More than $2.1 billion over five years to improve student financial assistance and help make post-secondary education more affordable for lower- and middle-income Canadians.

• $3.5 billion over this year and the next five years to increase workplace-based training programs, and to enhance the participation of Aboriginal people, immigrants and persons with disabilities in the Canadian economy.

• $1.3 billion over five years to improve settlement and integration services for new immigrants to Canada.

• $1 billion in 2005–06 for provinces and territories for the Post-Secondary Education Innovation Fund.

The Government proposes further investments to advance innovation, including:

• More than $2.1 billion in additional funding, beginning in 2005–06 and over the next five years, to sustain Canada’s leadership in university-based research.

• Almost $200 million over the next five years to create up to 3,500 internships and up to 500 scholarships for natural and health sciences and engineering graduates.

The Government also proposes investments to help our country take greater advantage of opportunities in the global economy, including:

• $590 million over the next five years to support transportation infrastructure investments and other initiatives enhancing Canada’s Pacific gateway.

• $485 million over five years to implement CAN-Trade—a new international commerce strategy to position Canadian companies, especially small and medium-sized firms, in priority markets such as China and India.

• An additional $100 million over the next five years to continue supporting broadband installation in rural, remote and First Nations communities.

Minister Goodale stated that these measures, and others proposed in the Economic and Fiscal Update, would be implemented in a prudent and fiscally responsible manner.

Background material to the Economic and Fiscal Update, A Plan for Growth and Prosperity and other related documents are available on the Department of Finance Canada website.

The public can also obtain information by calling 1 800 622-6232. TTY: 1 800 926-9105 (telecommunications device for the speech and hearing impaired/deaf).

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