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Delivering on Commitments

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Canada's federal government has set out an ambitious agenda to promote national well-being, centering on five mutually reinforcing commitments: 

• To maintain sound financial management; 
• To encourage a productive and growing economy; 
• To promote a sustainable environment and communities;
• To secure our social foundations; and 
• To strengthen Canada's role in the world. 

Budget 2005 takes major steps to deliver on these commitments, with action carefully paced over five years.

Economic and fiscal outlook

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Underlying any budget is the current economic situation. Entering 2005, Canada finds itself in an enviable position.  Since balancing the federal budget in 1997, Canada has led the Group of Seven industrial nations with the best job creation record, and the fastest growth in per-capita living standards.

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Looking ahead, based on the average of forecasts by economists from the private sector, real growth in 2005 is expected to be 2.9 per cent – rising to 3.1 per cent in 2006.

As always, these forecasts are subject to risks, including the evolving
impact of the rapid rise in the value of our dollar.

Sound financial management 

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It is the possibility of future shocks that motivates the government's commitment to sound financial management - with balanced budgets or better, based on prudent fiscal planning.

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Even after dramatic investments in funding for provinces and territories, and further new measures, Budget 2005 projects a surplus for the current fiscal year - ending March 31st -- for the eighth year in a row. That's the longest string of surpluses since Confederation (in 1867)! 

And the Budget projects continuing balanced budgets or better over the following five-year period. This five-year fiscal projection in Budget 2005 reflects the fact that the vast majority of commitments it makes extend beyond the traditional two-year planning horizon.

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This has further positioned Canada as a world leader - the only G-7 country to post total-government surpluses in each of the past three years. And the only nation expected to be in surplus again in 2005 and in 2006.

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Our strong performance has fuelled a $60-billion reduction in Canada's public debt - bringing it down to 38 per cent as a share of our economy, and saving more than $3 billion a year, every year, in debt servicing costs. 

This turnaround has also helped restore the government's Triple-A credit rating, producing lower interest rates for provinces and cities, for businesses, and for families. 

And the combination of lower debt and lower interest rates means that the share of government revenues going to pay debt-interest has been cut from almost 38 cents of each revenue dollar in the mid-1990s to just 19 cents last year. 

To sustain these benefits - and position Canada to meet future pressures, such as an aging population - the government aims to bring the debt down to 25 per cent of GDP within 10 years.

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Balancing budgets and bringing down debt do not happen by accident. They require prudent fiscal planning. 

For this reason, Budget 2005 again sets aside $3 billion in an annual Contingency Reserve. If not needed to keep our books in balance, these funds go directly to help reduce the debt. 

We have also continued to build economic prudence into our budget plan - starting at $1 billion. If not needed, this will be used to invest in the priorities of Canadians.

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Fiscal discipline also demands a rigorous approach to delivering value for the taxpayer's dollar. That is why the government established an Expenditure Review Committee of Cabinet, to scrutinize every line of government spending. 

This committee identified nearly $11 billion in cumulative savings over the next five years. Almost 90 per cent come from greater efficiency in procurement, property management, service delivery and program administration. 

These savings have been incorporated in Budget 2005 - and are being re-invested in core federal programs and services.

Ensuring economic growth

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Canada's current economic progress shows we are on the right path. But increased prosperity and growth needs constant improvements in productivity and our ability to compete in a fast-changing global environment. 

In particular, we face the challenge of the soon-to-retire Baby Boom generation, followed by a much smaller generation of workers. This means we will no longer be able to rely on automatic labour force growth to boost the economy. 

So, to mitigate the impact of demographic change, we need to focus on a workforce that's as inclusive as possible. And we need to encourage that workforce to be as skilled and productive as possible to beat its international competition.

Budget 2005 takes action to meet such challenges, including further action to reduce taxes.

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This action starts with the understanding that quality childcare and early learning is much more than good social policy. It is also an investment for better productivity and economic success in years ahead. 

That is why Budget 2005 provides $5 billion over five years to develop a shared early learning and child care initiative, in collaboration with the provinces and territories.

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Next, to boost workforce participation, the budget provides $398 million over five years to make services more responsive to the needs of immigrants, and enhance settlement and integration programs to help them become fully contributing members of the workforce more quickly.

And it provides $125 million over the next three years to move forward on a Workplace Skills Strategy to help workers keep pace with changing job requirements.

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As well, following extensive public consultations and recommendations by two Standing Committees of the House, Budget 2005 proposes to introduce a new rate-setting mechanism for Employment Insurance premiums, that is expected to be in place in time to set the new rate for 2006.

This mechanism will provide for rates to be established at an annual break-even level - balancing premium revenues with program costs. 

And to provide premium rate stability through this transition, the Government will ensure that the rate for the next two years will not exceed $1.95. 

Other adjustments to improve the EI program will be announced in the near future.

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Changing job needs also highlight the fact that new ideas and technology are the foundations of 21st Century economic growth. So this Budget provides over $1 billion over five years for R&D and innovation, including increased support for the three academic granting councils, and for the indirect costs of research at universities.

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The Budget also proposes regulatory reforms - such as reducing overlap and duplication between federal agencies that regulate Canada's financial sector - to help stimulate investment and growth. And the government will work with the provinces to make securities regulation more streamlined and less fragmented.

Further tax reductions

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A competitive tax system contributes to improved personal prosperity and is an incentive for enhanced productivity. That is why the federal government has cut taxes every year since the budget was first balanced in 1997 - including the record five-year, $100-billion tax cut plan introduced in 2000. 

The budget builds on these reductions by committing to increase the basic personal amount of income that all Canadians can earn tax-free to $10,000 by 2009. This will benefit all taxpayers, and remove 860,000 low-income earners from the tax rolls (including almost a quarter of a million seniors).

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Next, to help Canadians save for retirement, Budget 2005 boosts the overall contribution limit for Registered Retirement Savings Plans (RRSPs) and Registered Pension Plans (RPPs) to $22,000 by 2010. This will especially benefit entrepreneurs, the self-employed, and small business owners. 

As well, to expand the investment opportunities for Canadians, the government will remove the 30-per-cent limit on foreign property - such as shares - for RRSPs and pension plans.

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Budget 2005 also takes action to maintain a competitive corporate tax system to stimulate growth and jobs.

It proposes to eliminate the corporate surtax - originally a deficit-fighting measure -- in 2008. This benefits all businesses - especially small- and medium-sized firms. 

And by 2010, the government proposes to reduce the general corporate income tax rate by 2 points - to 19 per cent. 

These measures will maintain a tax-rate advantage for Canadian business - 4.5 percentage points in the case of manufacturing -- even in the face of corporate tax reductions in the U.S.

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Also, Budget 2005 introduces further adjustments to the capital cost allowance - the tax write-off rate - for certain assets. This appropriate depreciation will encourage companies to invest more, helping boost our productivity and competitiveness.

Environment and communities

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Canadians recognize that smart economic policy and smart environmental policy can go hand-in-hand -- improving quality of life, the health of communities, and opportunities for growth.

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Budget 2005 introduces a $5-billion package of measures over five years to support a sustainable environment. These include a new Clean Fund and a Partnership Fund to reduce greenhouse gas emissions.

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Other action includes a quadrupling of the Wind Power Production Incentives, so we can create enough energy - with zero emissions - to power 1 million Canadian homes. 

And the budget also quadruples the investment in the EnerGuide program -- to encourage energy savings through retro-fits in 500,000 homes.

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The budget further enhances ‘green’ tax incentives by boosting the capital cost allowance from 30 to 50 per cent for efficient and renewable energy generation.  This represents an important environmental exception to the standard ‘useful life’ test used to determine depreciation rates.

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As well, Budget 2005 also proposes action to preserve Canada's remarkable natural environment, including our national parks, the Great Lakes, and oceans.

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Of course, a key element of the environment for Canadians is our cities and communities. Budget 2005 builds on the New Deal for Communities launched last year by providing municipalities with a growing share of the federal excise tax on gasoline. Within five years, this will provide them with $2 billion a year in additional revenues. 

As well, Budget b2005 also provides $300 million in new funding for Green Municipal Funds, to support local environmental projects, including the remediation of brown-field sites.

Securing social foundations

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But a productive, environmentally sustainable economy is only part of Canadian well-being. Budget 2005 also delivers further investments to secure our social foundations.

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These investments build upon the long-term, $41-billion agreement on health care with Canada's premiers last fall. 

Under this agreement, federal cash transfers to provinces and territories will rise from $16.3 billion this year to $30.5 billion in 2013-14.

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As well, the government also introduced a new framework for provincial Equalization and territorial financing - providing $33 billion in additional funding over the next decade.

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Taken together, the new funding for health care and Equalization will mean $75 billion more in federal transfers to provinces and territories over the next 10 years.

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With these investments in place, Budget 2005 does even more, starting with an additional $805 million in new, direct federal health funding. This includes: 

• $75 million to expand the integration of internationally educated professionals into the Canadian health system; 
• $300 million for a healthy-living and chronic-disease strategy; and 
• $170 million to improve the safety of drugs and other therapeutic products.

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A strong society is also one that recognizes the special circumstances facing taxpayers dealing with disability. Based on recommendations of a technical advisory committee, the budget responds by: 

• Enhancing tax assistance for people with disabilities; 
• Increasing the Child Disability Benefit to $2,000 starting this July; and 
• Doubling - to $10,000 - the maximum amount of medical and disability-related expenses that caregivers can claim on behalf of dependents.

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The federal government is also committed to ensuring that Canada's prosperity is shared with our First Nations. This is why last fall's health agreement included $700 million in funding for Aboriginal health initiatives. 

The Budget adds to this action with $735 million in new investments over five years to strengthen Aboriginal communities, including housing construction and renovation on reserves, and a Special Education program for children on reserves.

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Budget 2005 not only recognizes the importance of investing in young Canadians - through the early learning and child care initiative -- but also our debt to seniors. It will increase Guaranteed Income Supplement payments by $2.7 billion, with improvements in place in less than two years, not the five originally promised. 

This will benefit 1.6 million seniors - the majority of them women. The maximum GIS will go up by more than $400 per year for a single senior, and almost $700 for a couple.

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Budget 2005 also makes additional investments to provide stable, five-year funding for important programs for culture and history, and effectively doubles permanent funding for Sports Canada to $140 million.

Canada and the world

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Meeting Canada's domestic needs should not obscure the fact that - as events like the recent Asian tsunami disaster emphasize - we have international responsibilities to meet and opportunities to seize. That is why Budget 2005 acts to bolster Canada's role in global affairs.

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This budget introduces the largest increase in defence spending in two decades, worth almost $13 billion on a cash basis over five years. These resources will deliver on our commitment to enlarge the regular forces by 5,000, and the reserves by 3,000. And they also mean new funding for operations, and major capital investments in equipment and materiel.

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For international assistance, the budget provides an extra $3.4 billion over the next five years. This sets Canada on track to meet its commitment to double foreign aid by 2010-11. Actions include increased support for Africa, for debt relief, and funding to address diseases such as AIDS, malaria, tuberculosis and polio.

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Another aspect of meeting our global responsibilities is security. That is why Budget 2005 provides an additional $1 billion for national security, including for more secure and efficient borders, as well as emergency response and preparedness.

Conclusion

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In conclusion, Budget 2005 represents a comprehensive, integrated plan to enhance the well-being of Canadians at home and strengthen our role abroad. 

It does so by delivering on the government's commitments to Canadians on economic growth; on healthcare, seniors and children; on the environment and communities, and foreign aid and defence. 

And it does all this within a disciplined fiscal framework committed to balanced budgets and a balanced approach to spending, tax reduction and debt reduction - the foundations for sustained national well being today and in years to come.

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