Budget 2001
Economic Stimulus

December 10, 2001

There is no doubt that the Canadian economy is feeling the effects of a slowing world economy. However, thanks to our government’s sound fiscal management over the last eight years, Canada is in excellent position to weather the current slowdown.

In fact, Budget 2001 confirms that Canada will be the only G7 country to balance its books this year.

Moreover, the targeted spending measures in Budget 2001, coupled with the tax cuts now flowing through the economy, are providing $26 billion – or 2.4% of GDP – in economic stimulus to the Canadian economy this year. Next year, total stimulus will reach $31 billion.

This means that, relative to the size of the economy, our fiscal stimulus next year will be larger than the stimulus provided in the United States, including the new measures that are still being debated in the U.S. Senate.

This includes allowing small and medium-sized businesses to defer their corporate tax instalments of the next three months – that is, January, February and March 2002 – for a period of six months. This measure is designed to help businesses with their cash flow and will defer without interest or penalty $2 billion in taxes for small businesses.

It also includes strategic federal spending worth $9 billion this year – and $11 billion next year – to provide additional stimulus to our economy. These investments include:

$7.7 billion over the next five years to enhance personal and economic security for Canadians, including initiatives to improve the efficiency and security of our borders;

$2 billion for strategic infrastructure projects to stimulate job creation and improve long-term economic productivity; and

$1.1 billion over three years to support skills, learning and research.

Included in this stimulus are also tax cuts worth $17 billion this year, rising to $20 billion next year. These tax cuts are working their way through the economy as they put more money in the pockets of Canadians . For example:

A two-earner family of four with a combined income of $60,000 will save $1,000 in federal taxes this year – a reduction of 18%. And in less than three years, their taxes will fall by 34%.

A one-earner family of four earning $40,000 will pay about $1,100 less in taxes this year – a saving of 32%. By 2004, this family will pay almost $2,000 less in tax, for a 59% reduction.

Our economy will also benefit from the positive effects of the 3.5% decline in short-term interest rates announced by the Bank of Canada since the beginning of 2001, and that was made possible by our government’s sound fiscal management. Savings from these low lending rates could look like this:

To a family seeking a mortgage of $100,000, it means that annual mortgage payments are $2,200 less than they were a year ago.

To a small business with a $250,000 bank loan tied to the prime lending rate, it means that annual payments are about $9,000 less than they were a year ago.

All this was made possible by our record of sound fiscal and economic management, through which:

We have ended 28 years of deficits.

We have brought down five consecutive balanced budgets or better – a first for the federal government in 50 years.

Paid down almost $36 billion of Canada’s national debt, freeing up $2.5 billion a year for other priorities.