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Budget 2003 - Budget Plan - Table of Contents -
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Chapter 1
Introduction and Overview
Budget 2003 — Building the Canada We Want
Introduction
Now is a moment of great opportunity for Canada. Thanks to the efforts
and sacrifices of Canadians everywhere, our economy is strong. Where once
we followed the economic performance of other nations, particularly the United
States, we now lead—in growth, in job creation, in debt reduction. Our nation
led the Group of Seven (G7) in growth last year and is expected to do the same
in 2003
Our resilient economic performance reflects strong economic fundamentals,
which are underpinned by the Government’s record of budgetary surpluses and a
commitment to maintaining balanced budgets.
But this prosperity could be threatened by the uncertain global climate.
Therefore, we will continue to exercise caution in our fiscal planning,
restoring the full Contingency Reserve and economic prudence.
Budget 2003 recognizes the critical link between social and economic policy
and how an integrated approach produces policies that benefit all Canadians.
It reflects this balanced approach in three ways:
first, by building the society Canadians value—making investments in
the needs of individual Canadians, their families and their communities, in
areas such as health care, education and the environment;
second, by building the economy Canadians need—fiscally prudent,
deficit-free and promoting the productivity, innovation, learning and
creativity that helps Canada not just compete, but win; and
third, by building the accountability Canadians deserve—through the
elimination of government waste and making government spending more efficient
and transparent, so Canadians know where and how their tax dollars are being
used.
In short, Canadians seek a society built on their commonly held values, an
economy that maximizes opportunity for all, and a transparent accounting of
government’s efforts to achieve those goals. This is the challenge
Canadians have brought to their government. Budget 2003
is the response to that challenge and opportunity:
- it fosters a successful economy—one that leads all G7 nations;
- it continues to deliver prudent management of the nation’s finances,
exemplified by this government’s sixth consecutive balanced budget;
- it strengthens medicare with several measures, including an investment
of $34.8 billion over five years, a commitment that supports the
2003 First Ministers’ Accord on Health Care Renewal;
- it provides support for Canadians where the need is greatest—families,
children, Canadians with disabilities, communities large and small, and our
Aboriginal communities;
- it makes significant investments in research and development, support
for learning and improvements to the tax system designed to enhance
Canada’s ability to compete;
- it invests $3 billion to promote sustainable development and a
healthy environment;
- it delivers on the commitment of last fall’s economic update to
reallocate spending from lower to higher priorities;
- it takes steps to improve the accountability and transparency of
government programs; and
- it provides additional funding for Canada’s role on the international
stage by increasing military funding and honouring our commitment to help
the poorest countries in the world.
Economic Developments and Prospects
Over the past two years Canada’s economy has demonstrated remarkable
resilience in the face of global weakness and uncertainty.
In 2001 the Canadian economy outperformed that of the United States and
avoided recession during the global economic downturn. This is in sharp
contrast to the recessions of the early 1980s and early 1990s, when Canada
suffered more severe downturns and recovered more slowly than the U.S.
Thanks to strong domestic demand, the Canadian economy
continued to outperform the U.S. economy in 2002 in the face of an
uneven global economic recovery. The strength of the Canadian economy was
particularly evident in labour markets.
Canada’s resilient performance reflects strong economic fundamentals,
large tax cuts and an increasingly competitive business sector. Low inflation,
combined with the Government’s track record of budgetary surpluses and a
commitment to maintaining balanced budgets, provided the Bank of Canada
with the flexibility to respond to economic weakness in 2001 by reducing
short-term interest rates to levels not seen in 40 years. This has
helped to support domestic demand and household confidence. Budgetary surpluses
and debt repayment are also freeing up funds in capital markets for business
investment and reducing Canada’s reliance on foreign saving.
Canada is forecast to lead the G7 countries again in economic growth in
2003. However, the global economic outlook remains uncertain. In the face of a
variety of global challenges, Canada will maintain the prudent approach to
fiscal planning that has served the nation well in recent years.
Highlights
- Average economic growth in Canada in the first three quarters of 2002
was 4.4 per cent, the strongest among the G7-countries. Strong domestic
demand, especially consumer spending and residential investment, led
Canadian growth as external demand remained uneven.
- During 2002 the economy created 560,000 jobs, more than 60 per cent
of which were full-time. All age groups and all regions of the country
benefited from the job gains.
- The solid performance of the Canadian economy at a time of global weakness
reflects Canada’s sound economic policies. Five consecutive budgetary
surpluses, a sharp drop in public debt and large tax cuts supported
confidence and domestic demand. This sound fiscal policy, together with low
inflation, allowed the Bank of Canada to reduce short-term interest rates
to their lowest level in more than 40 years, boosting consumer
spending and confidence.
- Unlike the early 1980s and early 1990s, Canada outperformed the U.S. in
both output and employment growth during the global slowdown in 2001 and the
recovery last year. In contrast to Canada’s strong job creation record in
2002, the U.S. economy lost 229,000 jobs. The employment rate in Canada is
now about the same as the U.S. rate for the first time in 20 years.
- The global recovery is expected to continue but at a moderate pace. In
particular, the U.S. near-term outlook is somewhat weaker than anticipated
at the time of the October 2002 Economic and Fiscal Update and
considerable downside risks remain for the global economy. The external
risks include the ongoing impact of equity market declines on U.S.
investor and consumer confidence, the geopolitical risks associated with the
possibility of war in Iraq and a continuation of the disruption of
Venezuelan oil production. If these risks materialize, global growth would
be slower than expected and this would affect Canada.
- The Department of Finance survey of private sector economists
in December 2002 indicates Canadian growth of 3.3 per cent
in 2002 and 3.2 per cent in 2003. Growth is expected to rise to
3.5 per cent in 2004, consistent with the expectation that the
U.S. economic recovery will gain momentum in the second half
of this year and into next year.
- The Organisation for Economic Co-operation and Development (OECD) and
International Monetary Fund predict that Canada will outperform all G7
countries in growth in 2003.
Investing in Canada’s Health Care System
Canada’s publicly funded health care system plays a key role in building
the society we value. It is vital to our quality of life and a reflection of
the values we share as a nation. It is also at the leading edge where economic
and social policies interact. It provides Canada with the distinct economic
advantage of a healthy, productive workforce and provides security in
retirement.
The Romanow Commission on the Future of Health Care in Canada, the Kirby
Senate Study on the State of the Health Care System in Canada and several
recent provincial reports clearly indicated that Canadians want and expect
improved access to quality services from our publicly funded health care
system. Canadians from all parts of the country have said that modernizing
medicare means providing better access to services such as primary care,
diagnostic services, home care, palliative care and catastrophic drug coverage.
In short, they want real, substantive reforms, along with increased
transparency and accountability.
Canadians have asked that their governments work together to strengthen the
health care system and ensure its long-term sustainability. The new Accord
on Health Care Renewal, agreed to by Canada’s first ministers on
February 5, 2003, reflects a common commitment among governments to work
together to improve access, enhance accountability for how health dollars are
spent and the results achieved, and ensure that the system remains sustainable
in the long term.
"Canadians want a sustainable health care system that
provides timely access to quality health services. They
recognize that reform is essential, and they support new public
investments targeted to achieve this goal."
2003 First Ministers’ Accord on Health Care
Renewal |
The funds provided in this budget build on the significant investments
in health care already made by the Government of Canada since the budget
was balanced in 1997–98, including the September 2000 first ministers’
agreement. This budget confirms increased health care funding of
$34.8 billion over the next five years. The federal government is
committed to ensuring that future generations of Canadians continue to have
access to universal, quality care—care that is based on need, not on the
ability to pay.
Highlights
This budget makes significant investments to address the concerns of
Canadians about their health care system: waiting lists, availability of
diagnostic equipment and accountability for their tax dollars. These federal
investments, in conjunction with those of provincial and territorial partners,
will help to improve access to the health care system for Canadians, enhance
accountability for how health dollars are spent, and ensure the future
sustainability of the system.
- The 2003 First Ministers’ Accord on Health Care Renewal is a commitment
designed to improve the accessibility, quality and sustainability of the
public health care system and enhance transparency and accountability in
health care spending.
- Federal support to health care will increase by $17.3 billion over
the next three years and by $34.8 billion over the next five years.
This includes:
- $9.5 billion in transfers to provinces and territories over
the next five years;
- $2.5 billion in an immediate investment through a Canada Health and
Social Transfer supplement to relieve existing pressures;
- $16.0 billion over five years to provinces and territories for
a Health Reform Fund targeted to primary health care, home
care and catastrophic drug coverage;
- $5.5 billion over five years in health initiatives, including
diagnostic/medical equipment, health information technology, and the
creation of a six-week compassionate family care leave benefit under
employment insurance; and
- $1.3 billion over five years to support health programs for
First Nations and Inuit.
- First ministers have also agreed to an enhanced accountability framework
to report to Canadians on the progress of reform.
- The federal government is setting out a long-term funding framework to
provide provinces and territories with predictable, growing and sustainable
support for health care and other social programs.
- The federal government will create two new transfers on
April 1, 2004: a Canada Health Transfer and a Canada Social
Transfer to increase transparency and accountability.
Investing in Canadian Families and Their Communities
There is a fundamental relationship between economic success and quality
of life. Only a strong economy can provide the jobs and incomes required
to sustain families and their communities. Equally, the benefits to the economy
of strong families and safe communities are self-evident. Like universal health
care, providing for the needs of Canada’s households and neighbourhoods
enriches Canadians’ quality of life.
Strong families and communities also serve a vital role in building Canada’s
economy. By being the foundation on which successful lives are built, they
help ensure that all Canadians are prepared for and capable
of contributing to the economy. Just as investments in innovation and
productivity strengthen the economy, investments in key areas of social
policy help ensure the opportunities of that economy are available to all.
Budget 2003 makes further investments to help build the society Canadians
value. It enhances support for Canadian families with children and persons with
disabilities. It helps communities create more affordable housing, fight
homelessness and improve infrastructure. It enhances the economic and
social opportunities for Aboriginal Canadians. And it strengthens and promotes
Canadian culture and values. These measures increase and enhance opportunities
for all Canadians—helping to build the strongest possible
foundation for a truly successful economy.
Highlights
Budget 2003 makes major investments to help Canadian families and
communities, to improve opportunities for Aboriginal Canadians and
to promote Canadian culture and values.
Supporting Canadian Families
This budget makes long-term investments in support of families with children
and persons with disabilities, including:
- a $965-million-per-year increase in the National Child Benefit supplement
of the Canada Child Tax Benefit (CCTB) by 2007, to bring the maximum
annual benefit for a first child provided through the CCTB to $3,243. This
will bring the estimated annual support delivered through the CCTB to
over $10 billion in 2007, an increase of over 100 per cent
since 1996;
- $935 million over the next five years to assist provinces and
territories and First Nations in increasing access to quality child care and
early learning opportunities, especially for low-income and
single-parent families;
- $50 million per year for a new Child Disability Benefit for low- and
modest-income families that will provide up to $1,600 annually for a
child qualifying for the disability tax credit;
- $20 million per year to expand the list of eligible expenses for the
medical expense tax credit; and
- $80 million per year to improve tax assistance for persons with
disabilities, drawing on a forthcoming evaluation of the disability tax
credit and the advice of a technical advisory committee.
Supporting Communities
To help communities, this budget makes significant investments to increase
the supply of affordable housing, address homelessness and improve the state of
Canada’s infrastructure:
- $320 million over the next five years to enhance existing affordable
housing agreements with the provinces and territories, bringing the total
federal investment to $1 billion by the end of 2007–08;
- $256 million over the next two years to extend the Government’s
housing renovation programs to help preserve the existing stock of
affordable housing;
- $270 million over the next two years to continue to fight
homelessness; and
- an additional $3 billion in infrastructure support over the next
ten years, including $1 billion for municipal infrastructure.
Strengthening Aboriginal Communities
Along with the initiatives to address health and other concerns
on reserve and to improve economic opportunities for
Aboriginal Canadians described in Chapters 3 and 5, this budget makes
strategic investments to strengthen Aboriginal communities, including:
- $172.5 million over eleven years to support Aboriginal languages and
culture, of which $18 million will be invested in the next
two years;
- $42 million over the next two years to renew and expand the
First Nations Policing Program; and
- $17 million over the next two years to work with partners to explore
new ways to better meet the needs of Aboriginal people living in
urban centres.
Promoting Canadian Culture and Values
The Government will invest in measures to strengthen and promote Canadian
culture and values, including:
- $150 million over two years for the Canadian Television Fund
to help the production of quality Canadian programming;
- $114.5 million in the next two years to launch a five-year action
plan on official languages; and
- a contribution program of $10 million a year to provide a financial
incentive to the private sector to preserve historic places.
Investing in a More Productive, Sustainable Economy
Enhancing the well-being of Canadians, through higher living standards
and a better quality of life, lies at the heart of the Government’s
economic and social policies. Achieving high and sustainable living standards
and a better quality of life requires that economic and social progress
advance together. By undertaking the right investments and creating favourable
conditions for growth, the Government can help provide the foundation
for such progress.
Beyond a stable fiscal and monetary climate, the key drivers of a
stronger economy are those that allow Canada to improve its productivity
performance. These include such factors as a tax system that encourages
economic growth and job creation, and investments in new technologies and
research. Equally important is ensuring that Canadians have the skills and
confidence needed to participate fully in the new economy. And the country’s
growth must be sustainable as well as strong. This means that the Government
must deal effectively with climate change and other environmental challenges.
Canada has made great strides in recent years, eliminating the deficit
and accelerating the growth in its standard of living. From 1997 to 2002
Canada’s growth in gross domestic product (GDP) per capita, the best measure
of living standards, rose faster than in any of the other leading
industrialized countries, including the U.S.
This remarkable progress comes with a clear message: continued long-term,
durable economic growth will require ongoing productivity improvements. Faster
productivity growth means more income and better jobs for employees, and
more opportunities for Canadians for personal growth and development. Canada’s
economic and social policies come together through investments in people,
particularly in their health and their opportunities for learning.
The measures announced in this and previous budgets are designed to
help ensure Canada’s productivity growth will continue to rise, and with it,
Canadians’ standard of living. A key element in raising productivity will be
to make Canada a magnet for talent and investment—a crucial part of how
Canada positions itself as a "Northern Tiger." As part of this
effort, the Government has made and will continue to make substantial
investments to strengthen research and innovation, support skills and learning
and improve Canada’s health care system. It will introduce measures that
build on the Government’s Five-Year Tax Reduction Plan to further
improve the tax system, enhance incentives to work, save and invest,
promote entrepreneurship and small business, and strengthen the Canadian
tax advantage for investment.
A more productive economy is not just about higher incomes for Canadians. It
is also about ensuring that our economic choices integrate social and
environmental considerations to ensure Canada’s development
is sustainable. All sectors of the economy must confront and act on
this challenge to position themselves for sustainable future growth
and competitiveness.
Highlights
Strengthening Research and Innovation
This budget will invest $1.7 billion in 2002–03 and over the
next two years to support research and innovation, including:
- a $125-million-per-year increase in funding for Canada’s
three federal granting councils beginning in 2003–04;
- a new Canada Graduate Scholarships program supporting 4,000 new
scholarships at program maturity;
- $225 million per year to help fund the indirect costs associated with
federally sponsored research through the granting councils beginning
in 2003–04;
- $16 million over the next two years for northern science;
- investments of $500 million in the Canada Foundation for Innovation
for state-of-the-art health research facilities and $75 million in
Genome Canada for health genomics;
- $15 million to the Rick Hansen Man In Motion Foundation and
$20 million to the Medical and Related Sciences project;
- $30 million for SchoolNet and the Community Access Program;
- an additional $70 million over two years for the National Research
Council of Canada to strengthen the Industrial Research Assistance Program,
support astronomy and establish new regional innovation centres; and
- an additional $190 million in equity to expand venture capital
by the Business Development Bank of Canada and $20 million
for Aboriginal Business Canada in support of entrepreneurship and
business development.
Supporting Skills and Learning
This budget provides $285 million in 2002–03 and over the next
two years for skills and learning, including:
- $41 million to better attract and facilitate the integration of
skilled immigrants into the Canadian labour market and society;
- $60 million over two years to improve the Canada Student
Loans Program;
- $100 million for the creation of the proposed Canadian Learning
Institute; and
- $72 million to improve educational outcomes for Aboriginal people and
ensure they are provided with training and employment opportunities on major
projects across Canada.
Improving the Tax System
This budget builds on the Government’s Five-Year Tax Reduction Plan to
further improve the tax system and enhance incentives to work, save and
invest. This budget:
- supports Canadian families by increasing the National Child Benefit
supplement and introducing a new Child Disability Benefit;
- encourages savings by Canadians by increasing the registered retirement
savings plan annual contribution limit to $18,000 by 2006
and making corresponding increases for employer-sponsored registered
pension plans;
- promotes entrepreneurship and small business through a number of tax
changes, including an increase in the small business deduction limit to
$300,000 over four years;
- strengthens the Canadian advantage for investment by legislating the
elimination of the federal capital tax over five years, eliminating it for
medium-sized corporations as early as 2004;
- improves the taxation of resource income in Canada by reducing the
corporate tax rate of the sector to 21 per cent over the next five
years while making changes to the tax structure of this key sector;
- extends the temporary mineral exploration tax credit; and
- enhances the Film or Video Production Services Tax Credit.
Advancing Sustainable Development
Budget 2003 includes measures totalling $3 billion to promote
sustainable development and a healthier environment, such as:
- $2 billion over five years in measures to help implement the Climate
Change Plan for Canada through: increased government support for Sustainable
Development Technology Canada and the Canadian Foundation for Climate and
Atmospheric Sciences; improved tax incentives in renewable energy; and
funding for other climate change measures, including targeted initiatives
and partnerships. Actions to promote energy efficiency, renewable energy,
sustainable transportation and new alternative fuels, in such areas as
building retrofits, wind power, fuel cells and ethanol, will be considered;
- an investment of $340 million over two years to address federal
contaminated sites, improve air quality, better assess and manage toxic
substances, further protect Canada’s species at risk, and support
implementation of Canada’s commitments at the World Summit on Sustainable
Development;
- $600 million over five years to upgrade, maintain and monitor water
and waste water systems on reserves; and
- $74 million over two years as an initial investment for the
establishment of 10 new national parks and 5 new national marine
conservation areas and to restore the ecological health of existing
parks.
Renewing Canadian Agriculture
In June 2002 the Government delivered on its previous commitment to
provide predictable, long-term funding for agriculture by allocating
$5.2 billion over six years to the sector. Budget 2003 builds on the new
direction for agricultural policy through new investments in several areas:
- $220 million this fiscal year to provide an advance to the
Crop Reinsurance Fund, ensuring that farmers will receive
future payments;
- $100 million over the next two fiscal years to the Canadian Food
Inspection Agency to help it maintain the food safety system;
- $30 million over the next two fiscal years to the Canadian Grain
Commission to allow it to maintain its level of service to farmers;
- $113 million this fiscal year for infrastructure improvements at
Canada’s four veterinary colleges; and
- $20 million over the next two years to supplement Farm Credit Canada
investments for further promotion of innovation in the agricultural sector.
Canada in the World
Canada has a long history of successfully embracing global markets, and
Canadians recognize that international stability, security and prosperity
are key to their well-being.
Developments over the last 18 months have reminded Canadians that security
and prosperity cannot be taken for granted. The global environment requires a
military that is funded and equipped to help shoulder its international
responsibilities, as our efforts in the war against terrorism,
and particularly in Afghanistan, have demonstrated. This budget provides
further support to Canada’s military this year and beyond.
New security concerns have demanded action to keep our borders secure, while
facilitating the legitimate flow of goods, services and people. In the
aftermath of September 11, 2001, the Government introduced a $7.7-billion
package of measures to ensure the security of Canadians—the largest in
Canadian history. Much has been achieved since then. The Government has moved
ahead with important new initiatives in the areas of air, marine and border
security and is committed to do more.
The Government has partnered with Canadian businesses to help them make the
most of the opportunities available in Canada’s major foreign markets and
enter and thrive in new ones. As the pace of global competition quickens, it
becomes ever more important that the Government continue to advance the
interests of Canadians in active, innovative and responsive ways. This budget
boosts Canada’s presence in its most important foreign market, the United
States.
The unrest in many parts of the world and the poverty that afflicts so many
in the developing world offend Canadians’ values and threaten Canada’s
security and economic prosperity. That is why, from its peacekeeping activities
to land mine treaties to the G8 Africa Action Plan, to its leadership on debt
relief and providing free access to the Canadian market for virtually all goods
from the least developed countries, Canada has a rich history of effective,
compassionate responses to international challenges. Such actions to combat
global instability and poverty are the responsible actions of a country
dedicated to helping build strong societies beyond its own borders.
Highlights
Strengthening Canada’s Military
- This budget makes a significant, long-term investment in Canada’s
defence capabilities, including:
- an immediate allocation of $270 million this fiscal year for
Operation Apollo in Afghanistan and to address urgent capital and other
requirements; and
- an ongoing increase of $800 million per year of new funding
beginning in 2003–04.
- It also sets aside a $125-million reserve for contingencies in 2002–03
and $200 million for 2003–04.
Ensuring Security at Home
- Budget 2003 builds on the large investment by the Government in 2001
to respond to Canada’s changed domestic security needs. New measures
include:
- a reduction in the level of the Air Travellers Security Charge
for travel within Canada from $12 to $7 for one-way travel
and from $24 to $14 for round-trip travel;
- an additional $50 million next fiscal year and $25 million
in 2004–05 for the Security Contingency Reserve to help
the Government to respond to unforeseen future security needs,
including border security; and
- to ensure the Canadian Coast Guard can provide necessary safety
services, $94.6 million over the next two years for major repairs to
its fleet for shore-based infrastructure and capital replacement
purchases.
Enhancing Canada–U.S. Trade
- Recognizing that cross-border trade is critical to Canada’s economy,
Budget 2003:
- supports the implementation of the Canada–U.S. 30-point Smart Border
Action Plan to enhance the security of the border and facilitate the
legitimate flow of people and goods; and
- commits $11 million over the next two years to bolster Canada’s
representation and trade promotion activities in the U.S.
Increasing Canada’s International Assistance
- Budget 2003 confirms Canada’s commitment to meeting its
international obligations:
- the budget increases Canada’s International Assistance Envelope by
8 per cent annually through 2004–05 toward the objective of doubling
the assistance budget by 2010. This translates into an increase of
$1.4 billion this fiscal year and the next two fiscal years; and
- effective January 1, 2003, Canada is providing duty-free
and quota-free access to all imports from 48 of the world’s least
developed countries, with the exception of certain agricultural products.
Improving Expenditure Management and Accountability
The Government has been successful in keeping the country on a sound
financial footing by maintaining balanced budgets for six consecutive years
since 1997–98. It has achieved this through a balanced approach to spending
growth and debt and tax reduction. However, as the Minister of Finance said in
the October 2002 Economic and Fiscal Update, "…sound fiscal
management means more than simply avoiding deficits and reducing debt.
It also means managing tax dollars well and responsibly, and delivering
cost-effective and efficient government services."
Sound fiscal management requires continually reassessing the value
of existing programs so that the Government can reallocate resources from
low priorities to high priorities. It also requires continually looking for
new, more cost-effective ways to deliver government programs. And it means
being transparent about how Canadians’ tax dollars are being spent so that
the Government can be fully accountable to Canadians.
Controlling total expenditure growth contributed significantly to
bringing the budget into balance in 1997–98 after almost three decades
of uninterrupted deficits, and has helped to keep it in balance since then.
This has allowed the Government to reduce debt and invest in key social and
economic priorities, while at the same time implementing the largest tax
cuts in Canadian history. The Program Review process, during which the
Government reassessed its programs to identify those that no longer served
a national purpose or could be delivered more efficiently through other
means, was an important contributor to controlling expenditure growth.
With this budget, the Government is undertaking new measures to better
manage taxpayers’ dollars, building on the experience of Program Review.
These initiatives include launching an ongoing review of the relevance and
efficiency of government programs, and reallocating resources from across
government to highest priority areas.
Greater accountability will further support the Government’s effort to
improve the management of taxpayers’ dollars. It will support better decision
making and greater efficiency. The Government’s plans to enhance
accountability to Canadians include: more comprehensive and up-to-date
financial reporting; clearer transparency and accountability for transfer
payments to the provinces and territories in support of health care; enhanced
accountability for non-governmental foundations; clear rate-setting processes
for non-tax revenues including employment insurance contributions, the
Air Travellers Security Charge and user charges; and measures to improve
investor confidence by strengthening enforcement against securities and
corporate fraud offences.
Highlights
- Reallocation:
The Government is implementing its commitment
in the October 2002 Economic and Fiscal Update to reallocate
funding from lower to higher priorities.
- The Government will launch an ongoing examination of all non-statutory
programs on a five-year cycle under the leadership of the Treasury Board,
drawing on the experience of the 1994 Program Review. The goals will be to
ensure that government programs continue to be relevant, effective and
affordable.
- The Government will reallocate $1 billion per year from existing
spending programs, beginning in 2003–04. This will fund close to
15 per cent of the costs of the new initiatives announced
in this budget over the next two years.
- Accrual Accounting:
Beginning with this budget, the Government will
implement its commitment to present its financial statements on a full accrual
accounting basis.
- Under full accrual accounting, the Government will provide a more
comprehensive accounting of its assets and liabilities, presenting a more
transparent picture of the Government’s financial position and enhancing
accountability, the management of liabilities and the stewardship of
assets.
- Implementing full accrual accounting responds to a long-standing
recommendation of the Auditors General of Canada.
- Accountability of Foundations:
The Government will make a number of
changes to improve the accountability and governance arrangements of arm’s-length
foundations. This, in combination with clarifying the policy principles
underlying the use of foundations, will ensure their continued effective use.
- Accountability to Parliament:
To reinforce accountability and
transparency in public reporting, the Governement will continue to improve the
relevance, timeliness and clarity of the information it provides
to Parliament.
- Canada Health Transfer:
As part of the 2003 First Ministers’ Accord
on Health Care Renewal, the Government will implement a new Canada Health
Transfer and a new Canada Social Transfer effective April 1, 2004, to
improve the transparency and accountability of monies transferred for
health care.
- Employment Insurance (EI) Contribution Rate Setting:
With
this budget:
- The Government will reduce the EI employee contribution rate
for 2004 to $1.98 per $100 of insurable earnings. This is the
10th reduction in the rate since 1994.
- As well, the Government will consult on a new EI rate-setting regime for
2005 and beyond, based on the principles of transparency and of balancing
premium revenues with expected program costs.
- Strengthening Investor Confidence:
This budget advances the Speech
from the Throne commitment to improve regulations and to help foster
a healthy marketplace and inspire confidence among investors by strengthening
enforcement against securities and corporate fraud offences.
- Air Travellers Security Charge:
This budget follows up on the
Government’s commitment to review the Air Travellers Security Charge to
ensure that revenue from the charge remains in line with planned expenditures
for the enhanced air travel security system through 2006–07.
- As a result of that review, and reflecting the impact of the move to
full accrual accounting in this budget, the Government will reduce the
charge on flights within Canada by over 40 per cent, from $12 to $7
for one-way travel and from $24 to $14 for round-trip travel.
- Debt Servicing and Reduction Account:
Legislation to terminate
the Debt Servicing and Reduction Account, as recommended by the
Auditor General, will be introduced.
- User Charging and Cost Recovery:
The President of the Treasury Board
will set out the principles for improved management practices relating to user
charging and cost recovery. The new policy will include annual reporting of
revenues and performance information to stakeholders and Parliament.
Sound Financial Management in an Uncertain World
Sound financial management has resulted in the Government recording
five consecutive annual surpluses through 2001–02 and reducing the
federal debt by $47.6 billion. At the same time, it has allowed the
Government to implement the largest tax cut in Canadian history and to invest
in key priorities of Canadians, such as health care, support for lower-income
families with children, education, and research and development.
This sound financial management played an important role in helping Canada
avoid a recession in 2001 despite the global economic downturn. It enabled
fiscal and monetary policy to provide timely support to the Canadian economy
through lower taxes and interest rates. The continual commitment to fiscal
discipline allowed Canada to post a budgetary surplus in 2002, while all other
G7 countries posted deficits. It also helped Canada record the best economic
performance among the G7 countries in 2002, notwithstanding an uneven global
recovery.
The Government is committed to maintaining this prudent approach
to fiscal planning—an approach that has paid off and remains essential
given the uncertain times. It includes a prudent approach to budget
planning, with most budget decisions made over a rolling two-year horizon. To
ensure the federal budget remains in balance or better, this budget restores
the full $3-billion annual Contingency Reserve and economic prudence in
the fiscal projections.
This budget provides projections of the federal government’s finances
for 2002–03 and the next two years of the Government’s budget plan.
It updates the fiscal projections contained in the October 2002 Economic and Fiscal
Update for:
- the impact of the revised economic outlook, reflecting the most
recent survey of Canadian private sector economists, and recent
financial developments;
- the impact of the implementation of full accrual accounting; and
- the impact of the spending and revenue measures proposed in
this budget.
Canada’s fiscal performance stands out among the major industrialized
countries. According to the OECD, Canada is the only G7 country in
surplus in 2002. It is also the only G7 country the OECD expects to
be in surplus in 2003.
Highlights
- After accounting for the fiscal impact of the proposed new spending
initiatives and tax cuts, this budget projects balanced budgets or better in
2002–03—the sixth consecutive balanced budget—and in each of the next
two fiscal years.
- These balanced budgets are backed by the normal annual Contingency Reserve
of $3 billion, and economic prudence of $1 billion in 2003–04
and $2 billion in 2004–05. The Contingency Reserve, if not needed,
will reduce debt.
- On an accrual basis, the federal debt (accumulated deficit) as a
percentage of the economy is projected to fall to 44.5 per cent in 2002–03,
down from its peak of 67.5 per cent in 1995–96. With the commitment
to balanced budgets in each of the next two fiscal years, it is forecast to
decline to about 40 per cent in 2004–05.
- Program spending is expected to increase by 11.5 per cent, or
$14.3 billion, in 2002–03 and average about 4 per cent growth
over the next two fiscal years. In 2002–03 health-related spending,
increased transfers to the elderly and the unemployed, and higher defence
and security-related spending account for nearly three-quarters of the
increase. As a percentage of GDP, program spending averages about
12 per cent over the 2002–03 to 2004–05 period.
- Budgetary revenues are estimated at 15.7 per cent of GDP in 2002–03—the
lowest share of the economy since the late 1970s. This reflects the impact
of the Government’s Five-Year Tax Reduction Plan. This ratio is expected
to continue to decline over the next two years, reflecting the Five-Year Tax
Reduction Plan and further tax reductions proposed in this budget.
Federal Debt (Accumulated Deficit)
In response to the Auditor General of Canada, this budget is presented
on a full accrual basis of accounting. Under the previous accounting
standard—modified accrual accounting—net debt and the accumulated
deficit were identical. Under the new standard, net debt now includes a
more comprehensive costing for financial liabilities but excludes
non-financial assets. The accumulated deficit includes both. It is
the sum of all surpluses and deficits in the past. The accumulated deficit
will also be referred to in the Annual Financial Report of the
Government of Canada and budget documents as the "federal
debt." |
Summary of Spending and Revenue Initiatives in This Budget
Table 1.1 presents the fiscal impact of the spending and revenue
initiatives proposed in this budget. The net cumulative fiscal cost of the
measures over the three years 2002–03 to 2004–05 amounts to
$17.6 billion.
Table 1.2 presents the fiscal outlook to 2004–05, taking into account
the impact of the revised economic outlook and financial developments to date,
the shift to full accrual accounting and the spending and revenue initiatives
proposed in this budget.
Table 1.1
Spending and Revenue Initiatives: 2003 Budget
|
|
2002–2003 |
2003–2004 |
2004–2005 |
|
|
(millions of dollars) |
Spending initiatives |
|
|
|
Investing in Canada’s
health
care system |
|
|
|
CHST supplement |
2,500 |
|
|
Health Reform Fund |
|
1,000 |
1,500 |
Diagnostic/
Medical Equipment Fund |
1,500 |
|
|
Health information
technology |
600 |
|
|
EI compassionate care |
|
86 |
221 |
Other health initiatives |
120 |
283 |
374 |
Total |
4,720 |
1,369 |
2,095 |
Investing in Canadian
families
and their
communities |
|
|
|
Families with children |
|
25 |
81 |
Canadians with
disabilities |
|
193 |
193 |
Child and family law
strategy |
|
27 |
26 |
Supporting communities |
|
|
|
Affordable housing and
support
for homeless |
|
293 |
313 |
Infrastructure |
|
100 |
150 |
Other |
|
23 |
23 |
Strengthening Aboriginal
communities |
|
38 |
45 |
Promoting Canadian
culture and values |
|
188 |
233 |
Total |
|
886 |
1,065 |
Investing in a more
productive,
sustainable
economy |
|
|
|
Strengthening research
and innovation |
575 |
470 |
470 |
Skills and learning |
12 |
171 |
102 |
Advancing sustainable
development |
4 |
699 |
437 |
Agriculture |
333 |
65 |
65 |
Total |
924 |
1,405 |
1,074 |
Canada in the world |
|
|
|
Defence |
270 |
800 |
800 |
Contingency |
125 |
200 |
|
International assistance |
353 |
202 |
820 |
Other |
|
99 |
81 |
Total |
748 |
1,301 |
1,704 |
Expenditure management and
accountability |
|
|
|
Regulation |
7 |
25 |
34 |
Expenditure reallocation |
|
-1,000 |
-1,000 |
Total spending initiatives |
6,398 |
3,986 |
4,969 |
Revenue initiatives |
|
|
|
Investing in Canada’s health
care system |
|
|
|
GST rebate for health
care institutions |
|
30 |
55 |
Investing in
Canadian families
and their communities
Families with children |
|
|
|
National
Child Benefit
supplement |
|
200 |
300 |
Canadians with disabilities |
|
95 |
160 |
Investing in a more
productive,
sustainable
economy |
|
|
|
Advancing sustainable
development |
|
5 |
5 |
Improving the tax system |
|
|
|
Supporting savings by
Canadians |
25 |
105 |
165 |
Supporting
entrepreneurship and
small business |
|
90 |
140 |
Building the Canadian tax
advantage |
10 |
140 |
545 |
EI premium rate reduction |
|
53 |
178 |
Total revenue initiatives |
35 |
718 |
1,548 |
Total spending and revenue initiatives |
6,433 |
4,704 |
6,517 |
|
Table 1.2
Summary Statement of Transactions: Budget 2003: Full Accrual With Measures
|
|
2001–2002 |
2002–2003 |
2003–2004 |
2004–2005 |
|
|
(billions of dollars) |
Budgetary transactions |
|
|
|
|
Budgetary revenues |
171.7 |
178.7 |
184.7 |
192.9 |
Total expenditures |
|
|
|
|
Program spending |
124.3 |
138.6 |
143.0 |
149.6 |
Public
debt charges |
39.3 |
37.2 |
37.6 |
38.4 |
Total expenditures |
163.5 |
175.8 |
180.7 |
188.0 |
Underlying budgetary surplus |
8.2 |
3.0 |
4.0 |
5.0 |
Less prudence |
|
|
|
|
Contingency
Reserve |
|
3.0 |
3.0 |
3.0 |
Economic prudence |
|
|
1.0 |
2.0 |
Total |
|
3.0 |
4.0 |
5.0 |
Budgetary balance |
8.2 |
0.0 |
0.0 |
0.0 |
Federal debt (accumulated deficit) |
|
|
|
|
Balanced budget
(no debt reduction) |
507.7 |
507.7 |
507.7 |
507.7 |
Non-budgetary transactions |
|
|
|
|
Loans, investments
and advances |
-0.1 |
-1.3 |
-1.4 |
-1.5 |
Pensions and other
accounts |
-0.1 |
0.4 |
-0.6 |
-1.4 |
Other |
-3.2 |
4.3 |
-3.7 |
0.7 |
Total |
-3.5 |
3.4 |
-5.8 |
-2.1 |
Financial requirements/source |
4.7 |
3.4 |
-5.8 |
-2.1 |
Per cent of GDP |
|
|
|
|
Budgetary revenues |
15.7 |
15.7 |
15.4 |
15.2 |
Program spending |
11.4 |
12.2 |
11.9 |
11.8 |
Public debt charges |
3.6 |
3.3 |
3.1 |
3.0 |
Budgetary balance |
0.7 |
0.0 |
0.0 |
0.0 |
Federal debt
(accumulated deficit) |
|
|
|
|
Balanced budget
(no debt reduction) |
46.5 |
44.5 |
42.2 |
40.1 |
Debt reduced by
$3 billion
per year |
46.5 |
44.3 |
41.7 |
39.6 |
|
Note: Numbers May not add due
to rounding. |
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|