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EXHIBIT C-5

CANADAS

ECONOMIC

ACTION PLAN BUDGET 2009 Tabled in the House of Commons

by the Honourable James M. Flaherty, P.C., M.P.

Minister of Finance JANUARY 27, 2009 Department of Finance

Canada Ministère des Finances

Canada

©Her Majesty the Queen in Right of Canada (2009)

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INTRODUCTION AND OVERVIEW C h a p t e r 1 INTRODUCTION AND OVERVIEW

Budget 2009  Canadas Economic Action Plan Introduction The world is passing through an extraordinary time. Canadians share in the global consensus that extraordinary times call for extraordinary measures. Budget 2009 will help Canada to meet the challenges of our times. It aims to protect our country from an immediate economic threat while providing the solutions we need to secure our long-term growth and prosperity. Canadians in all regions have begun to feel the effects of the deepening global economic crisis. They worry about their jobs, their hard-earned savings and their homes. They are concerned about their families, their businesses and their communities. Fulfilling Canadas G20 Commitment Canada is not acting alone but in full cooperation and coordination with other industrialized countries. The world economy is highly globalized. It is only by acting together to boost global economic growth that countries can derive maximum impact from their actions. The Governments actions in this budget fulfill Canadas commitments at the recent G20 leaders summit to provide timely stimulus to domestic demand, while maintaining long-run fiscal sustainability. The International Monetary Fund has suggested that countries in a position to do so should inject fiscal stimulus of 2 per cent of gross domestic product (GDP) to reduce the effects of a damaging global recession. Canada must join this effort. It is now clear that Canada has entered a recession. We entered it later than other G7 countries, and it is shallower here than elsewhere. Budget 2009 not only will help Canadians affected by the current crisis but also position Canada to emerge from this recession in a stronger position. 9

Consulting with Canadians The Government has listened to the concerns of Canadians. In putting together Budget 2009, it has undertaken an unprecedented consultative effort. It has consulted the provinces and territories. It has considered the views of private sector economists, academics, business leaders and thousands of Canadians who participated in on-line consultations. The Minister of Finance also sought advice from his Economic Advisory Council and Members of Parliament from all parties. Budget 2009 is a reflection of this extensive effort. Budget 2009 reflects a strong consensus among Canadians that the Government must deliver a potent economic stimulus to encourage growth and restore confidence in our economy. The Economic Action Plan is based on three guiding principlesthat stimulus should be timely, targeted and temporary. Timely. Canada is in recession today. Measures to support the economy must begin within the next 120 days to be most effective. Targeted. Measures that target Canadian businesses and families most in need will trigger the largest increase in Canadian jobs and output. Temporary. The stimulus plan should be phased out when the economy recovers to avoid long-term structural deficits. The Governments Economic Action Plan will provide almost $30 billion in support to the Canadian economy, or 1.9 per cent of our gross domestic product. It will create or maintain close to 190,000 Canadian jobs. Improving Access to Financing, Strengthening the Financial System Budget 2009 begins where the global recession began: with financial markets. By providing up to $200 billion through the Extraordinary Financing Framework, this budget will improve access to credit for Canadian consumers and allow businesses to obtain the financing they need to invest, grow and create new jobs. 10

The Government is also taking steps, in partnership with willing provinces and territories, to establish a single securities regulator for Canada to simplify its regulatory system, reduce costs and attract investment to our financial markets. Action to Help Canadians and Stimulate Spending The Government is providing $8.3 billion for the Canadian Skills and Transition Strategy. This includes extra support for people who have lost their jobs, including enhancements to Employment Insurance and more funding for skills and training development to help Canadians get better jobs, while giving Canada a more flexible, knowledgeable workforce and a competitive edge in the global economy. Budget 2009 takes action to build on the Governments impressive record of tax relief to further stimulate the economy and help Canadians face the global recession with $20 billion in personal income tax relief over 2008-09 and the next five fiscal years. Action to Stimulate Housing Construction The Government is providing $7.8 billion to build quality housing, stimulate construction, encourage home ownership and enhance energy efficiency. Measures include a Home Renovation Tax Credit providing up to $1,350 in tax relief to an estimated 4.6 million Canadian families, up to $750 in tax relief for first-time home buyers, funding for energy retrofits, investments for social housing to support low-income Canadians, seniors, persons with disabilities and Aboriginal Canadians, and low-cost loans to municipalities. Immediate Action to Build Infrastructure Budget 2009 accelerates and expands the recent historic federal investment in infrastructure with almost $12 billion in new infrastructure stimulus funding over two years, so that Canada emerges from this economic crisis with more modern and greener infrastructure. This includes funding for shovel-ready projects that can start this upcoming construction season, including roads, bridges, clean energy, broadband internet access and electronic health records across the country. 11

Action to Support Businesses and Communities Budget 2009 protects jobs and supports sectoral adjustment during this extraordinary crisis with $7.5 billion in extra support for sectors, regions and communities. This includes targeted support for the auto, forestry and manufacturing sectors, as well as funding for clean energy. Protecting our Fiscal Advantage A strong consensus emerged from the Budget consultation process that Canada needs to run a temporary deficit to protect our economy and invest in our future growth. Although many of the measures presented in Budget 2009 are extraordinary, they are consistent with the Governments long-term economic plan, Advantage Canada. The Government followed this long-term plan by reducing taxes for families and businesses, reducing debt and investing in knowledge and infrastructure. The Government also took early action in 2007 to protect Canadas businesses and the economy as the global financial crisis was beginning. This course of action has placed Canada in a stronger position than most other countries to face the present crisis. We can afford to spend what is necessary in todays plan of action to secure our future prosperity. The Government will preserve Canadas fiscal advantage by focusing spending measures in two years, to allow an early return to balanced budgets, so that Canada emerges from recession in at least as strong an economic and fiscal positionrelative to other countriesas it is today. 12

Building a Stronger Canada With this Economic Action Plan, Canada will emerge from this economic crisis with a more modern and greener infrastructure, a more skilled labour force, lower taxes and a more competitive economy. In Budget 2009, the Government is protecting the Canada we have built and the values we share, while investing in the foundations of long-run economic growth. 13

Highlights Recent Economic Developments and Prospects ü The global economy is in the most synchronized recession in the post-war period and the ongoing financial market crisis is the worst since the 1930s. ü The economic slowdown is particularly evident in the United States and other advanced economies where the economic outlook has deteriorated markedly in recent months, but is also increasingly apparent in emerging market economies. ü Weaker expectations for global growth have led to a further decline in the prices of many of the commodities produced in Canada. ü Global credit markets remain seriously disrupted, with credit conditions remaining tight both in terms of the cost and availability of credit. ü As a result, the private sector outlook for real and nominal GDP in Canada has been revised down significantly since the time of the Economic and Fiscal Statement:  There is now a broad-based consensus that the Canadian economy entered a recession in the fourth quarter of 2008. Private sector forecasters expect the recession to last three quarters.  Real GDP is now expected to contract by 0.8 per cent in 2009, compared to a forecast of 0.3 per cent growth at the time of the Statement.  Nominal GDP is expected to fall by 1.2 per cent for 2009, compared to an increase of 0.8 per cent in the Statement. ü The risks to the outlook for real and nominal GDP remain tilted to the downside. ü In light of this risk, the Government has judged it appropriate to adjust downward the private sector forecast for nominal GDP for budget planning assumptions. The planning assumption is for a contraction of 2.7 per cent in nominal GDP in 2009, rather than the -1.2 per cent average private sector forecast. ü This means that the budget planning assumption for the level of nominal GDP is forecast to be about $30 billion lower than expected by the private sector in 2009 and 2010. ü The Government will continue to evaluate economic developments to determine whether or not it would be appropriate to maintain the adjustment for risk in future budgets and economic and fiscal updates. 14

Canadas Economic Action Plan Improving Access to Financing and Strengthening Canadas Financial System Improving Access to Financing The Government is responding to gaps in credit markets by providing up to $200 billion through the Extraordinary Financing Framework to improve access to financing for Canadian households and businesses, by: ü Committing an additional $50 billion to the Insured Mortgage Purchase Program, increasing the overall size of this program to $125 billion. This will provide lenders with stable long-term financing, allowing them to continue lending to Canadian consumers and businesses. ü Delivering $13 billion in additional financing by increasing the flexibility and capacities of the financial Crown corporations, the Canada Mortgage and Housing Corporation, Export Development Canada, and the Business Development Bank of Canada. This includes at least $5 billion in new financing to be delivered through enhanced cooperation between these financial Crown corporations and private sector financial institutions under the new Business Credit Availability Program. ü Increasing the maximum eligible loan amount a small business can access under the Canada Small Business Financing Program. ü Creating the Canadian Secured Credit Facility, with up to $12 billion to support financing of vehicles and equipment for consumers and businesses. ü Extending the deadline for issuing guaranteed instruments under the Canadian Lenders Assurance Facility, which helps ensure that lenders are not put at a competitive disadvantage when raising funds in global markets. ü Establishing a new Canadian Life Insurers Assurance Facility to guarantee wholesale term borrowings for life insurers, modelled on the Canadian Lenders Assurance Facility. 15

ü Facilitating the provision of extraordinary liquidity to financial institutions by the Bank of Canada, as required, through the modernization of the Banks authorities in Budget 2008. ü Adding a 10-year maturity to the Canada Mortgage Bond program to raise supplementary funding for financial institutions. Strengthening Canadas Financial System Budget 2009 will further strengthen our financial system by: ü Broadening the authority for the Minister of Finance to promote financial stability and maintain efficient and well-functioning markets. ü Providing the Canada Deposit Insurance Corporation with greater flexibility to enhance its ability to safeguard financial stability in Canada. ü Providing a standby authority for the Government to inject capital into federally regulated financial institutions to support financial stability. A New Canadian Securities Regulator Canadians need and deserve a more efficient, streamlined securities regulatory system that reinforces financial stability, strengthens enforcement, protects investors and is more accountable. To this end, the Government will: ü Work with willing partners to establish a Canadian securities regulator that respects constitutional jurisdiction, regional interests and expertise. Measures to Help Consumers of Financial Products The Government will assist consumers of financial products by: ü Enhancing disclosure and improving business practices in respect of credit cards issued by federally regulated financial institutions. ü Establishing an independent task force to make recommendations on a cohesive national strategy on financial literacy. ü Moving forward on measures to make mortgage insurance more transparent, understandable and affordable. 16

Federally Regulated Private Pension Plans The Government is acting to address issues facing federally regulated private pension plans by: ü Assisting the Office of the Superintendent of Financial Institutions in providing flexibility to supplement the temporary solvency funding relief proposed in the November 2008 Economic and Fiscal Statement. ü Consulting on the legislative and regulatory framework for federally regulated pension plans with a view to making permanent improvements before the end of 2009. Action to Help Canadians and Stimulate Spending Strengthening Benefits for Canadian Workers Budget 2009 will support Canadian workers affected by the global economic downturn by: ü Increasing for two years all regular Employment Insurance (EI) benefit entitlements by five extra weeks and increasing the maximum benefit duration to 50 weeks from 45 weeks. ü Providing $500 million over two years to extend EI income benefits for Canadians participating in longer-term training, benefiting up to 10,000 workers. ü Extending work-sharing agreements by 14 weeks, to a maximum of 52 weeks, so more Canadians can continue working. ü Extending the Wage Earner Protection Program to cover severance and termination pay owed to eligible workers impacted by employers bankruptcy. ü Consulting with Canadians and developing options to provide self-employed Canadians with access to EI maternity and parental benefits. 17

Enhancing the Availability of Training Budget 2009 will create more and better opportunities for Canadian workers through skills development by: ü Increasing funding for training delivered through the Employment Insurance program by $1 billion over two years. ü Investing $500 million over two years in a Strategic Training and Transition Fund to support the particular needs of individuals who do not qualify for EI training, such as the self-employed or those who have been out of work for a prolonged period of time. ü Providing $55 million over two years to help young Canadians find summer jobs. ü Supporting older workers and their families with an additional $60 million over three years for the Targeted Initiative for Older Workers and expanding it to include workers in small cities. ü Responding to skilled labour shortages with $40 million a year to launch the $2,000 Apprenticeship Completion Grant. ü Providing $50 million over two years for a national foreign credential recognition framework in partnership with provinces and territories. ü Investing an additional $100 million over three years in the Aboriginal Skills and Employment Partnership (ASEP) initiative, expected to support the creation of 6,000 jobs for Aboriginal Canadians. ü Investing $75 million in a two-year Aboriginal Skills and Training Strategic Investment Fund. Keeping Employment Insurance Rates Frozen ü Freezing EI premium rates at $1.73 per $100 for both 2009 and 2010their lowest level since 1982a projected $4.5 billion stimulus relative to break-even rates. 18

Further Developing a Highly Skilled Workforce Budget 2009 builds on previous investments in knowledge by: ü Providing an additional $87.5 million over three years to temporarily expand the Canada Graduate Scholarships program. ü Allocating an additional $3.5 million over two years to offer an additional 600 graduate internships through the Industrial Research and Development Internship program launched in Budget 2007. Strengthening Partnerships with Aboriginal Canadians Budget 2009 builds on past budgets by investing in new partnership approaches to deliver crucial services. These include: ü Committing $305 million over the next two years to improve health outcomes for First Nations and Inuit individuals. ü Providing $20 million over the next two years to extend partnerships with provinces to further improve child and family services on reserves. Tax Relief for Canadians Budget 2009 will deliver $20 billion in personal income tax relief over 2008-09 and the next five fiscal years. Effective January 1, 2009, this includes: ü Increasing the basic personal amount and the top of the two lowest personal income tax brackets by 7.5 per cent above their 2008 levels, so that Canadians can earn more income before paying federal income taxes or before being subject to higher tax rates. ü Raising the level at which the National Child Benefit supplement for low-income families and the Canada Child Tax Benefit are phased out, providing a benefit of up to $436 for a family with two children. ü Effectively doubling the tax relief provided by the Working Income Tax Benefit to encourage low-income Canadians to find and retain a job. ü Providing up to an additional $150 of annual tax savings for low- and middle-income seniors through a $1,000 increase to the Age Credit amount. 19

Action to Stimulate Housing Construction The Government is proposing to provide up to $7.8 billion in tax relief and funding to help stimulate the housing sector and improve housing across Canada. Support for Home Ownership and the Housing Sector ü Implementing a temporary Home Renovation Tax Credit that will provide up to $1,350 in tax relief, reduce the cost of renovations for an estimated 4.6 million Canadian families, and provide needed stimulus to the economy. ü Providing an additional $300 million over two years to the ecoENERGY Retrofit program to support an estimated 200,000 additional home retrofits. ü Providing first-time home buyers with additional access to their Registered Retirement Savings Plan savings to purchase or build a home by increasing the Home Buyers Plan withdrawal limit to $25,000 from $20,000. ü Assisting first-time home buyers by providing up to $750 in tax relief to help with the purchase of a first home. Investments in Housing for Canadians Social housing provides many Canadians with quality housing at affordable rates. Budget 2009 will invest in social housing by: ü Providing a one-time federal investment of $1 billion over two years for renovations and energy retrofits for up to 200,000 social housing units on a 50-50 cost-shared basis with provinces. ü Investing $400 million over two years for the construction of social housing units for low-income seniors. ü Investing $75 million over two years for the construction of social housing units for persons with disabilities. ü Dedicating $400 million over two years to new social housing projects and to remediation of existing social housing stock on First Nations reserves. ü Supporting social housing in the North with an additional $200 million over two years. 20

Helping Municipalities Build Stronger Communities Budget 2009 will help local governments meet their needs by: ü Making available up to $2 billion over two years in direct, low-cost loans to municipalities to finance improvements to housing related infrastructure, such as sewers, water lines, and neighbourhood regeneration projects. Municipalities will also have access to significant new funding available under major new provincial, territorial and municipal infrastructure initiatives. Immediate Action to Build Infrastructure Budget 2009 accelerates and expands recent historic federal investments in infrastructure with almost $12 billion in new infrastructure stimulus funding over two years. Investments in Provincial, Territorial and Municipal Infrastructure Building on previous infrastructure commitments, Budget 2009 invests in a more modern and greener infrastructure by: ü Establishing a two-year, $4-billion Infrastructure Stimulus Fund that will provide funding to renew infrastructure. ü Providing $1 billion over five years for the Green Infrastructure Fund to support projects such as sustainable energy. ü Providing $500 million over two years to build and renew community recreation facilities across Canada. ü Accelerating up to $1 billion in payments over two years under the Provincial-Territorial Base Funding Initiative to expedite ready-to-go infrastructure projects. ü Providing up to $500 million over the next two years for infrastructure projects in small communities. Investments in First Nations Infrastructure Budget 2009 will support investments in First Nations infrastructure by: ü Providing $515 million over two years for ready-to-go First Nations projects in three priority areas: schools, water and critical community services. 21

Investments in Knowledge Infrastructure The Government will advance Canadas knowledge advantage by: ü Dedicating up to $2 billion to repair, retrofit and expand facilities at post-secondary institutions. ü Providing $750 million for leading-edge research infrastructure through the Canada Foundation for Innovation. ü Providing $50 million to the Institute for Quantum Computing in Waterloo, Ontario to build a new world-class research facility. ü Allocating $87 million over the next two years to maintain or upgrade key Arctic research facilities. ü Providing $250 million over two years to address deferred maintenance at federal laboratories. ü Providing $500 million to Canada Health Infoway to encourage the greater use of electronic health records. ü Providing $225 million over three years to develop and implement a strategy on extending broadband coverage to unserved communities. Investments in Federal Infrastructure Projects Budget 2009 will set aside funds to build and renew federal public infrastructure, including: ü Increasing funding to VIA Rail Canada by $407 million to support improvements to passenger rail services, including higher train frequencies and enhanced on-time performance and speed, particularly in the Montréal-Ottawa-Toronto corridor. ü Investing $7.9 million for new capital projects of two First Nations railways: the Keewatin Railway Company in Manitoba and the Tshiuetin Rail Transportation in Quebec and Labrador. ü Providing $72 million over five years to improve railway safety. ü Providing $130 million to Parks Canada for twinning a section of the Trans-Canada Highway through Banff National Park. ü Allocating $212 million to renew the Champlain Bridge in Montréal, Canadas busiest bridge. 22

ü Providing up to $14.5 million for two bridges at two of the busiest U.S-Canada border crossings: the Blue Water Bridge in Sarnia and the Peace Bridge in Fort Erie. ü Setting aside up to $42 million for other federal bridges in need of rehabilitation throughout Canada. ü Providing up to $217 million to accelerate the construction of the Pangnirtung Harbour in Nunavut and repair core small craft harbours across Canada. ü Allocating $323 million over two years for the restoration of federally owned buildings. ü Providing $20 million in each of two years to improve the accessibility of federally owned buildings for people with disabilities. ü Committing $2 million to develop a plan for the future of the historic Manège Militaire in Québec City, destroyed by fire in 2008. ü Increasing funding by $80 million over the next two years to manage and assess federal contaminated sites, facilitating remediation work totalling $165 million over two years. ü Providing funding to modernize and expand border service facilities at Prescott, Ontario; and at Huntingdon, Kingsgate, and the Pacific Highway in British Columbia. ü Supporting the development of aviation security plans, improving operations of the Canadian Air Transportation Security Authority, and implementing a new air passenger assessment system and a new security program for air cargo. Action to Support Businesses and Communities Tax and Tariff Relief to Stimulate Business Investment Budget 2009 includes significant measures to position Canadas economy for long-term recovery by: ü Introducing a temporary 100-per-cent capital cost allowance (CCA) rate for computers acquired after January 27, 2009 and before February 1, 2011. 23

ü Extending the temporary 50-per-cent straight-line accelerated CCA rate to investment in manufacturing or processing machinery and equipment undertaken in 2010 and 2011. ü In the context of the current global financial environment, repealing the interest deductibility constraints in section 18.2 of the Income Tax Act. ü Providing over $440 million in savings for Canadian industry over the next five years by permanently eliminating tariffs on a range of machinery and equipment. Sectoral Competitiveness Budget 2009 provides significant short-term support for key sectors by: ü Providing $170 million over two years to secure a more sustainable and competitive forest sector. ü Supporting farmers with a $500 million agricultural flexibility program that will help the sector adapt to pressures and improve its competitiveness. ü Investing $50 million over the next three years to strengthen slaughterhouse capacity across Canada. ü Amending the Farm Improvement and Marketing Cooperatives Loans Act to help make credit available to new farmers, support inter-generational farm transfers, and modify eligibility criteria for agricultural co-operatives. ü Supporting shipyards with $175 million for the procurement of 98 new Coast Guard vessels and to undertake refits and vessel life extensions for 40 aging vessels. ü Offering short-term repayable loans to the automotive sector, in collaboration with the Ontario and U.S. governments. ü Providing $110 million over three years to the Canadian Space Agency to support the development of advanced robotics and other space technologies. ü Providing targeted two-year funding of $60 million to support infrastructure-related costs for local and community cultural and heritage institutions such as local theatres, libraries and small museums. 24

ü Increasing funding by $20 million over the next two years and $13 million per year thereafter to the National Arts Training Contribution Program. ü Providing $30 million over the next two years to support continued access to Canadian magazines and community newspapers. ü Providing $28.6 million over the next two years to the Canada New Media Fund, and $14.3 million annually thereafter. ü Providing the Canadian Television Fund with $200 million in funding over the next two years. ü Providing $40 million to the Canadian Tourism Commission over two years to support marketing activities, such as the Vancouver 2010 Winter Olympic and Paralympic Games. ü Providing $12 million per year in 2011-12 and 2012-13 for infrastructure to promote international cruise ship tourism along the Saint Lawrence and Saguenay Rivers. ü Providing $100 million over two years for marquee festivals and events that promote tourism. ü Supporting Canadas parks with $75 million over two years for improvements and enhancements to Parks Canadas visitor facilities, such as campgrounds and visitor centres. ü Providing an additional $75 million to Parks Canada for upgrades to National Historic Sites, including a number of sites connected with the 200th anniversary of the War of 1812. A More Sustainable Environment Budget 2009 will take actions to ensure a healthy environment, including: ü A new Clean Energy Fund that supports clean energy research development and demonstration projects, including carbon capture and storage. ü Improving the Governments annual reporting on key environmental indicators such as clean air, clean water and greenhouse gas emissions with $10 million in 2009-10. 25

ü Strengthening Canadas nuclear advantage with $351 million to Atomic Energy of Canada Limited for its operations, including the development of the Advanced CANDU Reactor, and to maintain safe and reliable operations at the Chalk River Laboratories. Supporting Small Businesses Small businesses are dynamic and drive economic growth and job creation. Budget 2009 supports their growth by: ü Increasing the amount of small business income eligible for the reduced federal tax rate of 11 per cent to $500,000 from the current limit of $400,000 as of January 1, 2009. ü Increasing access to credit for small businesses through proposed amendments to the Canada Small Business Financing Program and the Business Development Bank of Canada. ü Providing $30 million over two years for the Canada Business Network and $10 million to the Canadian Youth Business Foundation. ü Allocating $200 million over two years to the National Research Councils Industrial Research Assistance Program to enable it to temporarily expand its initiatives for small and medium-sized businesses. Helping All Regions Prosper Budget 2009 provides new resources to support economic diversification across Canada by: ü Providing more than $1 billion over five years for a Southern Ontario development agency to help workers, communities and businesses in this region. ü Providing $1 billion over two years for a Community Adjustment Fund that will help mitigate the short-term impacts of restructuring in communities. This support for communities in all regions will be provided through regional development agencies. 26

ü Strengthening support for economic activity in the North with $50 million over five years to establish a new regional economic development agency for the North and $90 million over five years to renew the Strategic Investments in Northern Economic Development program. ü Providing $37.6 million in support of environmental assessments, regulatory coordination, science, and Aboriginal consultations related to the Mackenzie Gas Project. ü Extending for one year the temporary 15-per-cent mineral exploration tax credit to help companies raise capital for mining exploration. Fiscal Outlook ü The deterioration of the economic outlook has led to a significant reduction in projected revenues, particularly in 200910 and 201011. ü The projections in this budget are based on the average of private sector economic forecasts. However, given the degree of uncertainty in the global economy, the Government is including an explicit adjustment for the risks to the private sector forecasts. This adjustment amounts to a reduction in the budgetary balance of $0.8 billion in 200809, $4.5 billion in 200910 and 201011, $3 billion in 201112, $1.5 billion in 201213 and $0.8 billion in 201314. ü After this adjustment for risk and before accounting for the impact of the actions proposed in this budget, the Government is projecting a small surplus in 200809, followed by deficits of $15.7 billion in 200910, $14.3 billion in 201011, $8.3 billion in 201112, $2.3 billion in 201213 and a surplus of $5.5 billion in 201314. ü After taking into account the cost of the measures proposed in Budget 2009 to support the economy, the Government is projecting deficits of $1.1 billion in 200809, $33.7 billion in 200910, $29.8 billion in 201011, $13.0 billion in 201112, $7.3 billion in 201213 and a surplus of $0.7 billion in 201314. 27

ü The Government has designed its Economic Action Plan to concentrate new spending in 2009-10 and 2010-11, when the economy is expected to be weak. Starting in 2011-12, the fiscal position of the Government is projected to improve rapidly, as time-limited stimulus measures expire and the economy recovers. By 2013-14, the budget is projected to be in a small surplus. ü Program spending is expected to increase through 2010-11, reflecting the impact of the measures in this budget. Over the medium term, spending as a share of GDP is expected to return close to its 2007-08 level. The Government remains committed to ensuring that spending is focused and disciplined. ü The debt-to-GDP ratio is expected to increase from 28.6 per cent in 2008-09 to 32.1 per cent by 2010-11, as a result of projected deficits. The debt-to-GDP ratio is projected to be below its 2008-09 level by 2013-14. ü Canadas net debt-to-GDP ratio will remain below other G7 countries over the forecast horizon. ü The Governments priority is to support the economy. The Government will use budget surpluses first of all to repay the deficits expected in the upcoming four years. 28

Table 1.1 Summary Statement of Transactions Actual Projection 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2008 2009 2010 2011 2012 2013 2014 (billions of dollars) Budgetary revenues 242.4 236.4 224.9 239.9 259.4 276.4 294.3 Program expenses 199.5 206.8 229.1 236.5 235.1 244.5 254.1 Public debt charges 33.3 30.7 29.5 33.3 37.2 39.2 39.6 Total expenses 232.8 237.4 258.6 269.7 272.3 283.7 293.7 Budgetary Balance 9.6 -1.1 -33.7 -29.8 -13.0 -7.3 0.7 Federal debt 457.6 458.7 492.4 522.2 535.2 542.4 541.8 Per cent of GDP Budgetary revenues 15.8 14.7 14.4 14.7 15.0 15.0 15.2 Program expenses 13.0 12.9 14.7 14.5 13.6 13.3 13.1 Public debt charges 2.2 1.9 1.9 2.0 2.1 2.1 2.0 Total expenses 15.2 14.8 16.6 16.6 15.7 15.4 15.2 Federal debt 29.8 28.6 31.6 32.1 30.9 29.5 28.0 Note: Totals may not add due to rounding. 29

Table 1.2 Summary of Economic Action Plan 2008-09 2009-10 2010-11 (millions of dollars) Economic Action Plan Improving Access to Financing and Strengthening Canadas Financial System 162 12 Action to Help Canadians and Stimulate Spending 695 5,880 6,945 Action to Stimulate Housing Construction 530 3,865 1,395 Immediate Action to Build Infrastructure 5,727 5,055 Action to Support Businesses and Communities 12 2,372 2,121 Fiscal cost of measures1 1,237 18,006 15,528 Plus: Capital Spending (cash adjustments) 697 685 Loans Loans to Auto Sector (announced in December 2008) 2,700 Loans to Municipalities for Housing-Related Infrastructure 1,000 1,000 Timing of Home Renovation tax credit 500 Total Federal Stimulus2 22,742 17,200 Total Stimulus (with leverage) 29,298 22,316 As a share of GDP (%) Total Federal Stimulus 1.5 1.1 Total Stimulus (with leverage) 1.9 1.4 1 Fiscal cost does not include other tax measures. 2 Financial Market measures not included as stimulus. 30

RECENT ECONOMIC DEVELOPMENTS AND PROSPECTS Chapter RECENT ECONOMIC DEVELOPMENTS AND PROSPECTS

Highlights ü The global economy is in the most synchronized recession in the post-war period and the ongoing financial market crisis is the worst since the 1930s. ü The economic slowdown is particularly evident in the United States and other advanced economies where the economic outlook has deteriorated markedly in recent months, but is also increasingly apparent in emerging market economies. ü Weaker expectations for global growth have led to a further decline in the prices of many of the commodities produced in Canada. ü Global credit markets remain seriously disrupted, with credit conditions remaining tight both in terms of the cost and availability of credit. ü As a result, the private sector outlook for real and nominal GDP in Canada has been revised down significantly since the time of the Economic and Fiscal Statement:  There is now a broad-based consensus that the Canadian economy entered a recession in the fourth quarter of 2008. Private sector forecasters expect the recession to last three quarters.  Real GDP is now expected to contract by 0.8 per cent in 2009, compared to a forecast of 0.3 per cent growth at the time of the Statement.  Nominal GDP is expected to fall by 1.2 per cent for 2009, compared to an increase of 0.8 per cent in the Statement. ü The risks to the outlook for real and nominal GDP remain tilted to the downside. ü In light of this risk, the Government has judged it appropriate to adjust downward the private sector forecast for nominal GDP for budget planning assumptions. The planning assumption is for a contraction of 2.7 per cent in nominal GDP in 2009, rather than the -1.2 per cent average private sector forecast. ü This means that the budget planning assumption for the level of nominal GDP is forecast to be about $30 billion lower than expected by the private sector in 2009 and 2010. ü The Government will continue to evaluate economic developments to determine whether or not it would be appropriate to maintain the adjustment for risk in future budgets and economic and fiscal updates. Note: This chapter incorporates data available up to January 22, 2009, unless otherwise indicated. Figures in this chapter are at annual rates unless otherwise noted. 32

Introduction The global economic outlook has deteriorated markedly in recent months. This is particularly evident in the United States and other advanced economies but is also increasingly apparent in emerging market economies. Weaker global growth has led to a further decline in the prices of many of the commodities produced in Canada. As a result, the near-term outlook for output, employment and income in Canada is also weaker than forecast in the November 27 Economic and Fiscal Statement. This chapter reviews the major global and Canadian economic developments since the Statement, describes the economic forecast that forms the basis for the fiscal projections outlined in Chapter 4, and discusses the risks and uncertainties associated with this economic outlook. To address the uncertainty about the economic outlook and the downside risks to that outlook, this chapter also proposes that the assumptions used for budget planning should be more prudent than suggested by the private sector average forecast. Global Economic Developments and Outlook The Canadian economy faces three major challenges:  The impact of tighter credit conditions and equity market losses stemming from global financial market dislocations.  The economic slowdown in the U.S. and other key economies, and its impact on demand for Canadian exports.  The sharp drop in prices for many commodities produced in Canada, which is dampening Canadian profit and income growth. All of these challenges are rooted in developments in the global economy. The negative impacts stemming from them have increased since the time of the November 2008 Statement. Global financial markets continue to be characterized by very high risk aversion. As a result, credit markets remain seriously disrupted, with credit conditions remaining tight both in terms of the cost and availability of credit. 33

The Canadian financial system is better equipped to cope with the challenging global financial situation than financial systems in most other countries. Canada has a less-leveraged and better-capitalized banking sector compared with other countries. As a result, wholesale borrowing costs paid by Canadian banks have risen less than for banks in other countries (Chart 2.1). Nevertheless, Canadian banks wholesale costs remain high and this is affecting a wide range of consumer and business borrowing rates in Canada. Of particular concern is the fact that financing costs for businesses are elevated. Yields on Canadian corporate bonds remain significantly higher than pre-crisis levels, with yields increasing further after September 2008 (Chart 2.2). The increase has been highest for less creditworthy bonds, but even yields for AAA corporate bonds have risen significantly. Further, over the past several months, Canadian businesses have seen their access to capital markets for financing impaired as a result of the global financial crisis. Surveys of senior loan officers in chartered banks also suggest that non-price borrowing conditions for Canadian businesses have tightened to the highest levels on record, along with the increase in the cost of borrowing (Chart 2.3). 34

35

The credit situation for Canadian consumers is somewhat better. The prime loan rate, which influences a broad range of consumer loan rates, has declined by 300 basis points since the beginning of 2008 (Chart 2.4). Over this period, the conventional 1-year mortgage rate has decreased by 245 basis points, while the 5-year mortgage rate has declined by about 160 basis points. However, as a result of conditions in financial markets, the reduction in consumer borrowing costs relative to the sharp easing in the Bank of Canadas policy rate has been somewhat less than in past easing periods. As well, consumer access to credit in some market segments, such as through financing companies, has been curtailed. The impact of tighter credit conditions for businesses and consumers has begun to affect the domestic economy in Canada. This will likely intensify in coming months. 36

The Government and the Bank of Canada have taken a number of steps to help ensure the stability of the Canadian financial system and to improve access to credit. Since September 2007, the Bank of Canada has cut policy rates by a total of 350 basis points. As of January 22, the Bank had also added $33 billion in the provision of term liquidity to the Canadian financial system. In addition, since the fall of 2008 the Government has put in place a number of programs to help ease the tension in financial markets, including the purchase of up to $75 billion in insured mortgage pools from Canadian financial institutions through the Canada Mortgage and Housing Corporation and the provision of a guarantee for banks borrowings through the Canadian Lenders Assurance Facility. Late last year, the Government approved a $2-billion increase in the borrowing authority of EDC and a $1.8-billion increase in BDCs borrowing capacity, which is enabling them to offer additional credit to their clients. This is in addition to $350 million in capital committed to each financial Crown Corporation to support about a further $3 billion in increased credit granting. The global financial turmoil, together with the decline in commodity prices and weakening global economic outlook, has contributed to a decline of about 40 per cent in the Canadian stock market since the middle of 2008. As a result of the decline in equity prices, household net worth declined 3.2 per cent in the third quarter, with a further large decline likely in the fourth quarter. This reduction is significantly less pronounced than in the U.S. where a sharp decline in home prices combined with stock market declines have dramatically reduced household net worth (Chart 2.5). 37

The fall in household net worth is expected to dampen consumer spending over the next year. The extent to which this materializes is difficult to estimate precisely. It will depend upon the extent to which consumer spending patterns were previously influenced by the past run-up in assets and the extent to which recent equity losses are perceived to be permanent. Also, a mitigating factor is that debt financing costs as a share of disposable income are low and likely to continue falling, given recent reductions in interest rates. 38

Recent Global Economic Developments and Outlook United States The sharp deterioration of the U.S. economy over the past few months points to a deeper and longer downturn than was previously expected. Private sector economists now expect that the loss of output in the current episode will match the loss experienced in the 198182 recession. The current U.S. recession, which started in January 2008, was temporarily masked by a sharp increase in export growth as well as the positive boost to consumer spending from the 2008 Economic Stimulus Act. However, since June 2008, the impact of the temporary tax rebate has receded and personal consumer spending has contracted sharply (Chart 2.6). 39

Output fell 0.5 per cent in the third quarter of 2008. Recent economic data suggest that the contraction intensified in the fourth quarter. Indeed, private sector forecasters currently estimate that output has contracted by 5 per cent at an annual rate. Employment losses have accelerated, reaching almost 2.6 million for 2008 as a whole, while the unemployment rate has reached 7.2 per cent, a 16-year high (Chart 2.7). Deteriorating employment prospects and tighter credit conditions have led to further substantial cutbacks in discretionary spending, as evidenced by the weakest level of auto sales since the early 1980s. Manufacturing activity has contracted sharply, while the export sector, which has supported the U.S. economy since early 2007, is now weakening as a result of the global downturn and the appreciation of the U.S. dollar since August 2008. Housing starts and building permits have plunged to new record lows, while home sales and prices continue to decline (Chart 2.8). Housing-related losses have led to a further tightening in lending standards and delinquency and foreclosure rates for residential mortgages have reached record highs (Chart 2.9). 40

41

In response to the deteriorating outlook and ongoing financial market stresses, the Federal Reserve cut its target for the federal funds rate on December 16 from 1 per cent to a range of 0 to 0.25 per cent. The Federal Reserve has now lowered its key policy rate by 500 basis points since September 2007. The Federal Reserve has stated that weak economic conditions will likely warrant exceptionally low levels of the target rate for some time. Further, the Federal Reserve stated that it will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. On the fiscal front, the American Recovery and Reinvestment Bill of 2009, which proposes US$825 billion in fiscal stimulus, was tabled in the U.S. House of Representatives on January 15, 2009 and is currently being discussed by Congress. The bill includes infrastructure spending, personal tax cuts for lower- and middle-income households, business tax cuts designed to boost investment, as well as additional transfers to state governments. As a result of the developments reviewed above, the private-sector near-term outlook for U.S. real GDP growth has been lowered significantly since the publication of the Economic and Fiscal Statement. Based on the most recent projections of private sector forecasters surveyed by the Department of Finance, U.S. real GDP is now expected to decline by 1.8 per cent in 2009, before strengthening to 2.1 per cent in 2010 (Chart 2.10). Relative to the forecasts prepared at the time of the Statement, the private sector outlook for U.S. economic growth has been revised down by 1.4 percentage points in 2009 and is unchanged for 2010. 42

With U.S. housing construction now at extremely low levels, inventories of unsold houses should stabilize. Nevertheless U.S. housing demand and prices will likely decline further owing to the ongoing recession and rising unemployment. As inventories are worked off over the course of 2009 and in the first half of 2010, housing starts and house prices are expected to stabilize. The eventual stabilization and recovery of the housing market is also expected to help credit conditions return to normal. However, there remains an unusually large degree of uncertainty surrounding the outlook. While it is expected that the new fiscal stimulus, together with actions taken to improve the functioning of credit markets, will begin to have an impact on economic growth in mid-2009, the ultimate magnitude and timing of the recovery remain uncertain. Moreover, the pace of economic recovery will also depend on the degree of improvement in the U.S. housing market together with a restoration of the smooth functioning of credit markets. This in turn should lead to a rebound in confidence and equity markets. This scenario underlies private sector expectations of moderate growth in the U.S. in 2010. 43

Global Economy Similar to the situation in the U.S., prospects for the world economy have also deteriorated since the release of the Statement. At that time, the International Monetary Fund (IMF) was projecting world GDP growth to slow from 3.7 per cent in 2008 to just 2.2 per cent in 2009,1 well below the pace usually associated with a global recession. Since then, however, global conditions have continued to worsen and private sector forecasters now estimate, on average, that world growth in 2009 will slow to about 1 per cent (Chart 2.11).2 The recent deterioration of global prospects mainly reflects a downward revision to the outlook for advanced economies, linked to the ongoing global financial crisis. However, emerging markets are also projected to experience a more pronounced slowdown than previously expected as capital spending and export growth taper off. 1 The IMF reports world real GDP growth on both a purchasing power parity (PPP) and a market exchange rate basis. On a market exchange rate basis, the IMF expected world real GDP growth to ease from 2.6 per cent in 2008 to 1.1 per cent in 2009 in its November 2008 World Economic Outlook Update. 2 Estimated by the Department of Finance based on private sector forecasts (Consensus Forecasts and Blue Chip Economic Indicators) and IMF implicit PPP weights (2007 estimates for real GDP). 44

In the Euro area, output contracted in the second and third quarters of 2008. Recent data releases suggest that ongoing weakness is likely as labour markets, consumer spending, business investment and industrial production have all deteriorated more than expected. The European Commission has responded by announcing the European Economic Recovery Plan in which the Commission recommends that member countries implement  200 billion of fiscal stimulus measures (about 1.5 per cent of GDP) to restore confidence and stimulate investment and spending. In support of this recommendation, several individual member countries have already announced fiscal stimulus plans. As well, the European Central Bank has significantly eased monetary policy. After rising by 2.6 per cent in 2007, the Blue Chip consensus now estimates that real GDP growth in the Euro area was about 1.0 per cent in 2008, and is expected to contract by 1.2 per cent in 2009. Japan is also in recession, reflecting weak consumer spending and declines in business investment and net exports. Japanese authorities cut policy rates for the first time in seven years and announced a series of stimulus packages to shore up the economy. With weaker external and domestic demand, economic activity is projected to remain weak in the coming quarters. According to the Blue Chip consensus, Japanese real GDP growth is expected to slow from 2.4 per cent in 2007 to 0.4 per cent in 2008 and then turn negative in 2009 at -1.4 per cent. Growth in the emerging market economies has moderated further as the financial crisis has spread. In China, year-over-year growth slowed to 6.8 per cent in the fourth quarter of 2008. The slowdown mainly reflected weaker export growth and a slower pace of capital formation. For 2008 as a whole, growth slowed to 9.0 per cent from 13.0 per cent in 2007. The Blue Chip consensus projects growth in China to slow further to 7.1 per cent in 2009, the slowest pace of economic activity since 1990. In response, the Chinese government has introduced a significant package to stimulate demand and announced its biggest interest rate cut in 11 years. 45

Overall, the global economy is facing an exceptional period of heightened volatility and uncertainty. Reflecting this, growth forecasts for 2009 for all the major advanced and developing economies have been marked down repeatedly and significantly over the past several months (Chart 2.12). 46

Canadian Economic Developments Weaker U.S. and global demand, combined with the ongoing global financial market turbulence and lower commodity prices, are all weighing on the Canadian economy. These developments have resulted in declines in exports, slower income growth and upward pressures on borrowing costs, all of which are expected to have reduced output in the fourth quarter of 2008. Over the first three quarters of 2008, output growth averaged just 0.4 per cent, largely reflecting continued declines in exports of goods in response to the U.S. slowdown and the lagged impact of a high Canadian dollar. This was offset by continued, albeit slower, growth in final domestic demand (the sum of household, government and business spending). However, starting in the third quarter of 2008, final domestic demand growth has also slowed further, as household and business spending growth continued to moderate (Chart 2.13). 47

Growth in personal consumption expenditure on goods and services has decelerated over 2008 following strong growth in 2007 in response to a slowdown in real income growth. More recently, consumption growth has slowed further owing to the impact of weaker confidence and lower investment income. The impact of these factors has been particularly evident on spending on new motor vehicle sales, which fell to their lowest level in more than 10 years in December (Chart 2.14). 48

Following a period of rapid growth from 2002 to 2007, Canadian housing investment fell in the first three quarters of 2008, with both new construction and resale activity declining (Chart 2.15). More recently, housing starts fell to their lowest level in seven years in December while existing home sales also fell significantly in the fourth quarter. These recent declines have brought housing starts back to their historical averages from unusually high levels in the past six years. This has been accompanied by a moderation in price growth and some declines in prices in regions where prices had increased sharply. Some further weakening of housing activity and prices is likely as the current period of economic weakness depresses income growth and the demand for housing. 49

The current adjustment in the Canadian housing market is fundamentally different than the correction that has been underway in the U.S. since 2006. This reflects the fact that the conditions that led to the U.S. housing market collapse are not present in Canada. In particular, the growth of the Canadian housing market was not fuelled by aggressive marketing of high-risk, sub-prime mortgage products that led to unsustainable growth in demand and prices in the United States. As a result, while the United States is in the midst of a severe housing correction to compensate for excesses in previous years, the Canadian housing market is experiencing a cyclical slowing in prices and activity (Chart 2.16). 50

Growth in business investment has also slowed in 2008 in response to tighter credit conditions and a weaker economic outlook. In particular, investment in machinery and equipment (M&E) declined in the second and third quarters of 2008, following sharp declines in capacity utilization and the rising costs of imported M&E due to the depreciation of the Canadian dollar (Chart 2.17). 51

More recent information suggests that the Canadian economy weakened further in the fourth quarter. As a result of the slowdown in the domestic economy, employment losses in export-oriented sectors are no longer being offset by gains in domestically oriented industries. This has weakened labour markets noticeably in recent months. Total employment fell by 105,000 jobs in November and December, and the unemployment rate increased to 6.6 per cent in December, its highest level in almost three years (Chart 2.18). Some regional labour markets are more affected than others. For example, the unemployment rate in Ontario has risen sharply in recent months and has been above the national average unemployment rate for two years. Weaker labour markets together with recent sharp equity market declines resulted in Canadian consumer confidence falling to its lowest levels in more than a decade. These developments are being reflected in weaker consumer and residential spending. 52

But, overall, the domestic economic situation remains better than in most other major industrialized countries, in particular the United States. This is particularly evident when comparing labour market performance in the two countries. Since January 2008, the month when the National Bureau of Economic Research estimates that the U.S. recession began, the U.S. has lost more than 2.5 million jobs. Canada to date has fared much better with 98,000 net new jobs created in 2008, despite significant employment losses in November and December (Chart 2.19). As of the third quarter of 2008, Canada was the only G7 country to have posted positive real GDP growth over both the second and third quarters. Canadas relatively stronger outlook than that of the U.S. in part reflects the fact that Canada has not had the same excesses in spending and borrowing in recent years. For this reason, the financial position of households and businesses remains solid, both relative to their historical positions and relative to the U.S., where excessive debt and leveraging have led to significant retrenchment. 53

Commodity Prices The deteriorating global economic conditions have led to sharp declines in commodity prices (Chart 2.20). While the declines have been broad-based, the fall in energy prices has been particularly large with oil declining the most despite announcements by the Organization of the Petroleum Exporting Countries of cumulative daily production cuts of 4.2 million barrels from the September production levels. Crude oil prices have been volatile in recent months, with daily closing prices having fluctuated in a range of US$31 to US$49 per barrel since the beginning of December. Future contracts suggest that crude oil prices will average about US$50 per barrel in 2009 which is about 30 per cent below levels anticipated by private sector forecasters in the November Economic and Fiscal Statement. Crude oil futures also remain extremely volatile. 54

Low commodity prices are reducing Canadian export income and have put downward pressure on the Canadian dollar. This in turn is reducing nominal GDP, which is the broadest indicator of the tax base in Canada, and will ultimately mean lower-than-expected tax revenues. This will also translate into a deterioration of the countrys current account balance, net foreign indebtedness as well as Canadians purchasing power. In this context, the volatility in commodity prices witnessed in recent months has introduced significant uncertainty into the outlook for nominal GDP, and therefore into the fiscal planning framework. Over the near term, the risks to the commodity price outlook are tilted to the downside, reflecting uncertainty over global economic conditions and continued financial market dislocation. Private sector economists expect that commodity prices will recover over the medium term, given the expected recovery in global demand together with tight supply conditions. However, the volatility of the past year and the current high degree of uncertainty underscores the need to assume a prudent path for commodity prices going forward. 55

Private Sector Canadian Outlook The Department of Finance surveys private sector economic forecasters on a quarterly basis for their outlook of the Canadian economy. Due to the rapid deterioration of the global economic situation in recent months, private sector forecasters have frequently revised their forecasts downward. The economic forecasts reported here were updated as of January 16, 2009. Private sector forecasters expect that the Canadian economy will contract by 0.8 per cent in 2009. This compares to a forecast of 0.3 per cent growth at the time of the November Economic and Fiscal Statement (Chart 2.21 and Table 2.1). 56

Private sector forecasters believe that the Canadian economy entered a recession in the fourth quarter of 2008 (Chart 2.22). Forecasters expect the recession to last three quarters with the deepest contraction occurring in the first quarter of 2009. Output is expected to reach bottom in the second quarter of 2009 and to start recovering thereafter. The recession is expected to be milder than the last two Canadian recessions and significantly less pronounced than the U.S. recession, which is forecast to be one of the deepest recessions in U.S. post-war history (Chart 2.23). The outlook for GDP inflation in 2009 has been revised down to -0.4 per cent from 0.5 per cent in the 2008 Statement. This mainly reflects downward revisions to the outlook for commodity prices stemming from a weaker global economic outlook than expected at the time of the Statement. The outlook for GDP inflation in 2010 has been revised down to 1.7 per cent from 1.8 per cent in the Statement. 57

58

Weaker real economic growth combined with weaker GDP inflation has reduced the outlook for nominal GDP growth in Canada to -1.2 per cent in 2009 from 0.8 per cent just two months ago. As a result, nominal GDP, which is the broadest indicator of the tax base for government revenue, is forecast to be $25 billion lower in 2009 and $30 billion lower in 2010 than anticipated at the time of the Statement. At the time of the Economic and Fiscal Statement, private sector forecasters expected short-term interest rates to average 1.9 per cent in 2009 and 2.7 per cent in 2010. Private sector forecasters have revised down the outlook for short-term interest rates to 0.8 per cent in 2009 and 1.7 per cent in 2010. The outlook for long-term interest rates has also been significantly revised down to average 2.8 per cent in 2009 and 3.4 per cent in 2010, from 3.7 per cent and 4.2 per cent, respectively, at the time of the Statement. Slower growth is expected to translate into an increase in the unemployment rate to 7.5 per cent in 2009 and 7.7 per cent in 2010, compared to 6.9 per cent in 2009 and 6.7 per cent in 2010 as forecast in the Statement. 59

Table 2.1

Average Private Sector Forecasts Average 2008 2009 2010 201114 (per cent, unless otherwise indicated) Real GDP growth February 2008 budget 1.7 2.4 2.9 n.a. November 2008 Economic and Fiscal Statement 0.6 0.3 2.6 2.8 January 2009 private sector forecast 0.7 -0.8 2.4 3.0 GDP inflation February 2008 budget 1.8 1.9 1.8 n.a. November 2008 Economic and Fiscal Statement 3.8 0.5 1.8 2.1 January 2009 private sector forecast 4.1 -0.4 1.7 2.2 Nominal GDP growth February 2008 budget 3.5 4.3 4.7 n.a. November 2008 Economic and Fiscal Statement 4.4 0.8 4.4 5.0 January 2009 private sector forecast 4.8 -1.2 4.2 5.2 Nominal GDP level (billions of dollars) February 2008 budget1 1,590 1,659 1,738 n.a. November 2008 Economic and Fiscal Statement 1,603 1,615 1,687 1,914 January 2009 private sector forecast 1,609 1,590 1,657 1,893 3-month treasury bill rate February 2008 budget 3.2 3.8 4.5 n.a. November 2008 Economic and Fiscal Statement 2.4 1.9 2.7 4.2 January 2009 private sector forecast 2.3 0.8 1.7 4.0 10-year government bond rate February 2008 budget 3.6 4.2 4.8 n.a. November 2008 Economic and Fiscal Statement 3.7 3.7 4.2 5.1 January 2009 private sector forecast 3.6 2.8 3.4 5.0 Consumer Price Index (CPI) inflation February 2008 budget 1.5 1.9 2.0 n.a. November 2008 Economic and Fiscal Statement 2.6 1.7 1.9 2.0 January 2009 private sector forecast 2.4 0.7 1.9 2.0 Oil price level (US dollars per barrel) February 2008 budget 82.1 79.8 82.3 n.a. November 2008 Economic and Fiscal Statement 102.5 72.0 79.0 89.7 January 2009 private sector forecast 99.9 50.2 63.8 82.9 60

Table 2.1 (contd)

Average Private Sector Forecasts Average 2008 2009 2010 201114 (per cent, unless otherwise indicated) Exchange rate (US cents/C$) February 2008 budget 98.0 95.5 95.5 n.a. November 2008 Economic and Fiscal Statement 94.9 85.6 88.7 96.0 January 2009 private sector forecast 94.1 81.2 85.5 94.4 Unemployment rate February 2008 budget 6.3 6.4 6.2 n.a. November 2008 Economic and Fiscal Statement 6.1 6.9 6.7 6.2 January 2009 private sector forecast 6.1 7.5 7.7 6.4 U.S. real GDP growth February 2008 budget 1.5 2.4 3.0 n.a. November 2008 Economic and Fiscal Statement 1.4 -0.4 2.1 2.9 January 2009 private sector forecast 1.2 -1.8 2.1 3.1 1 Nominal GDP levels have been adjusted to reflect May 2008 revisions to Canadas National Income and Expenditure Accounts. Source: Department of Finance survey of private sector forecasters. 61

Risk Assessment and Planning Assumptions There continues to be a large degree of uncertainty surrounding the global economic outlook, with the risks to that outlook tilted to the downside. The main risk to the global economy is that financial market dislocations could be more prolonged than currently expected, resulting in a longer period of high business and consumer borrowing costs and reduced credit availability. Should this transpire, global consumer spending and business investment would be weaker than currently forecast. For Canada, the risk to the global economy is compounded by the risk stemming from low and volatile commodity prices. As a result, there is considerable uncertainty about how commodity prices will affect nominal income growth in Canada. Overall, the outlook for commodity prices poses a significant downside risk to the average private sector forecast for nominal GDP, reported in Table 2.1. Nominal GDP is the broadest single measure of the tax base. Therefore, lower nominal GDP also reduces the projected level of budgetary revenues described in Chapter 4. The risks to the downside are larger for 2009 and 2010. In light of these risks, the Government has judged it appropriate to adjust downward the private sector forecast for nominal GDP for budget planning assumptions. With this adjustment, the budget economic planning assumption for 2009 is now close to the bottom of the range of individual private sector forecasts for nominal GDP growth (Chart 2.24). 62

As a result, the planning assumption is for a contraction of 2.7 per cent in nominal GDP in 2009 (Table 2.2). This means that the budget planning assumption for the level of nominal GDP is about $30 billion lower than expected by the private sector in 2009 and 2010. Starting in 2011, the gap with the private sector forecast for nominal GDP begins to close and is closed by 2014 when risks to the private sector outlook are more balanced. The Government will continue to evaluate economic developments and risks to determine whether or not it would be appropriate to maintain the adjustment for risk in future budgets and economic and fiscal updates. Table 2.2

Budget Planning Assumption Comparison 2008 2009 2010 2011 2012 2013 2014 Nominal GDP Growth (per cent) January 2009 private sector forecast 4.8 -1.2 4.2 5.7 5.5 5.0 4.7 Budget 2009 fiscal planning 4.4 -2.7 4.3 6.4 6.1 5.3 5.0 Nominal GDP Level (billions of dollars) January 2009 private sector forecast 1,609 1,590 1,657 1,751 1,848 1,940 2,031 Budget 2009 fiscal planning 1,604 1,560 1,627 1,731 1,838 1,935 2,031 Adjustment for risk -5 -30 -30 -20 -10 -5 0 63

Chapter CANADAS ECONOMIC ACTION PLAN

Overview These are extraordinary times for the global economy and they call for extraordinary global measures. The global economy is in the most synchronized recession in the post-war period fuelled in part by the worst financial market crisis since the 1930s. The Government has developed an Economic Action Plan to boost confidence and economic growth and support Canadians and their families during this period of economic weakness. With this stimulus plan, Canada will emerge from this recession stronger, with a modernized, greener infrastructure, a renewed science and research base, a more skilled labour force, lower taxes and a more competitive economy. The Governments Economic Action Plan comprises five main elements:  Improving Access to Financing and Strengthening Canadas Financial System. Providing up to $200 billion through the Extraordinary Financing Framework to improve access to financing for consumers and allow businesses to obtain the financing they need to invest, grow and create jobs.  Action to Help Canadians and Stimulate Spending. Providing $8.3 billion for the Canadian Skills and Transition Strategy. This will help workers directly affected by the economic downturn with enhancements to Employment Insurance and funding for skills and training. As well, the budget proposes $20 billion in personal income tax relief over 200809 and the next five fiscal years that will benefit all Canadian taxpayers, including doubling the tax relief provided by the Working Income Tax Benefit to make work more financially attractive for low-income Canadians.  Action to Stimulate Housing Construction. Providing $7.8 billion to build quality housing, to stimulate construction and enhance energy efficiency. Measures include a renovation tax credit providing up to $1,350 to an estimated 4.6 million Canadian families; funding for energy retrofits; investments in social housing to support low-income Canadians, including seniors, persons with disabilities and Aboriginal Canadians; as well as low-cost loans to municipalities for housing-related infrastructure. 67

 Immediate Action to Build Infrastructure. Accelerating and expanding recent historic investments in infrastructure with almost $12 billion in new infrastructure funding over two years for the construction and repair of roads, bridges, small craft harbours, broadband internet access, electronic health records, laboratories and border crossings across the country. This will support economic growth and employment this year and next, while also bolstering Canadas long-run productive capacity.  Action to Support Businesses and Communities. Addressing short-term economic challenges facing sectors, regions and communities as a result of the global economic crisis and helping sectors position themselves for long-term competitiveness. The Governments Economic Action Plan is based on three guiding principlesthat stimulus should be timely, targeted, and temporary to:  Support the economy when it is most needed.  Support Canadian families and sectors most affected.  Ensure maximum impact for Canadian jobs and output.  Protect Canadas fiscal position by targeting new spending in the next two years. Budget 2009 will provide almost $40 billion in support of the Canadian economy over the next two years. In total, these measures are equivalent to 2.5 per cent of gross domestic product (GDP). Including incremental funds from other orders of government, Budget 2009 will provide almost $30 billion, or 1.9 per cent of GDP, in support of the Canadian economy in 2009 alone. Over the next two years, the Economic Action Plan will invest over $50 billion, or 3.2 per cent of GDP (Table 3.1). 68

Table 3.1

Canadas Economic Action Plan 2009 2010 Total (millions of dollarscash basis) Action to Help Canadians and Stimulate Spending 5,880 6,945 12,825 Action to Stimulate Housing Construction 5,365 2,395 7,760 Housing leverage 725 750 1,475 Immediate Action to Build Infrastructure 6,224 5,605 11,829 Infrastructure leverage 4,532 4,365 8,897 Action to Support Businesses and Communities 5,272 2,255 7,527 Sectoral leverage 1,300 1,300 Total federal stimulus 22,742 17,200 39,942 Total stimulus (with leverage) 29,298 22,316 51,613 As a share of GDP (%) Total federal stimulus 1.5 1.1 2.5 Total stimulus (with leverage) 1.9 1.4 3.2 Notes: Totals may not add due to rounding. These cost estimates reflect projected cash expenditures over the next two years. The budgetary impact is somewhat smaller because some of these expenditures relate to construction and renovation costs of federal assets (for which only depreciation is recorded on a budgetary basis) and loans to third parties (where there is a budgetary impact only in the event that there is a risk of loss). The Economic Action Plan builds on tax relief provided in the October 30, 2007 Economic Statement, delivered just before the U.S. economy entered recession. At that time, the Government stated: Given this global economic uncertainty, now is the time to act...to make broad-based tax reductions that will strengthen our economy, stimulate investment and create more and better jobs. These tax reductions will continue to support growth and job creation. As described in Annex 1, measures in this budget will create or maintain 190,000 jobs. When combined with the actions set out in the October 2007 Economic Statement over 250,000 jobs will be created or maintained by the end of 2010. 69

Fulfilling Canadas G20 Commitment The response to the global economic crisis will only succeed if governments work cooperatively and in a coordinated manner. In implementing this stimulus plan, Canada is joining other nations in taking significant steps to offset the impacts of the global economic downturn (Table 3.2). The Governments actions in this budget fulfill Canadas commitments at the recent G20 leaders summit to provide timely stimulus to domestic demand, while maintaining long-run fiscal sustainability. Table 3.2

Recently Announced G7 Fiscal Stimulus Packages

Size of budgetary action as share of GDP 2009 2010 Total Canada 1.9 1.4 3.2 United States1 2.9 2.8 5.7 Germany 1.2 1.3 2.5 Japan 1.3 1.0 2.3 United Kingdom 1.1 -0.3 0.8 France 0.8 0.5 1.3 Italy 0.3 0.0 0.3 1 American Recovery and Reinvestment Plan. Sources: Government releases; analyst estimates. Comparing the size of fiscal stimulus measures across countries is difficult. In Canadas case, the estimate consists of the measures announced in this budget, including the expected contribution of provincial governments. The estimate does not include the impact of the permanent tax reductions announced in the 2007 Economic Statement and taking effect in 2008 and 2009. In contrast, the estimate for the U.S. stimulus package includes tax reductions that offset the expiration of temporary tax cuts in 2008. These tax reductions account for about one-third of the proposed U.S. package. This means that in economic terms the stimulus package proposed in this budget is about equal to that under discussion in the United States. 70

As well as contributing to global efforts to provide economic stimulus, Canada will also do its part to implement global agreements that strengthen the governance and legitimacy of the International Monetary Fund and the World Bank, which are key international institutions that promote global growth and stability. Improving Long-Term Growth Prospects In addition to the positive short-run support to the economy, the Governments Economic Action Plan and other measures in this budget contribute to achieving objectives set out in Canadas long-term economic plan, Advantage Canada. Specifically, Budget 2009 will ensure that Canada develops strategic economic advantages to make the country more competitive and help promote long-run growth by:  Accelerating and expanding planned infrastructure spending so that Canada establishes an infrastructure advantage sooner.  Ensuring that Canada maintains a knowledge advantage by offering substantial additional support for skills and training programs, plus significant investments in university and college research infrastructure.  Strengthening Canadas tax advantage with permanent personal income tax reductions, as well as tax reductions aimed at stimulating business investment.  Giving Canada an entrepreneurial advantage with the introduction of a Canadian securities regulator as well as reforms to our competition and investment laws.  Preserving Canadas fiscal advantage by focusing spending measures in two years to allow the budget to improve rapidly over the medium-term, which means our country will emerge from this global recession in a much stronger fiscal position than other industrialized countries. 71

Stimulus Accountability Framework The Government plans to move forward aggressively to implement these measures, appropriately balancing effective stewardship and governance of taxpayer dollars with speed of implementation. To expedite implementation of measures in this budget, the Government will seek Parliamentary authority to make payments totalling close to $4 billion under the Budget Implementation Act. The Government is also tabling a Notice of Ways and Means Motion to seek Parliamentary approval to implement the tax reductions proposed in the budget. In addition, the Government will adjust the Main Estimates for 200910 to ensure that new funding flows quickly. The measures proposed in this budget are of sufficient breadth and magnitude to have a significant impact on the economy in the near term. Consistent with the focus on stimulus, in cases where time-limited spending does not evolve as set out in this budget, amounts will lapse and will not be carried forward beyond 201011. The Government is expecting all partners in this stimulus plan to act with urgency and will reinforce this with a strong, consistent, use it or lose it theme. Over the spring and summer of 2009, the Governments focus will be on implementing the measures set out above. The Government will provide an initial report on progress this summer, and responsible ministers will provide an update to Parliament the first week following the summer recess. The Government will reassess and, if necessary, reallocate funding in the 2009 Economic and Fiscal Update. 72

IMPROVING ACCESS TO FINANCING AND STRENGTHENING CANADAS FINANCIAL SYSTEM

Highlights Improving Access to Financing The Government is responding to gaps in credit markets by providing up to $200 billion through the Extraordinary Financing Framework to improve access to financing for Canadian households and businesses, by: ü Committing an additional $50 billion to the Insured Mortgage Purchase Program, increasing the overall size of this program to $125 billion. This will provide lenders with stable long-term financing, allowing them to continue lending to Canadian consumers and businesses. ü Delivering $13 billion in additional financing by increasing the flexibility and capacities of the financial Crown corporations, the Canada Mortgage and Housing Corporation, Export Development Canada, and the Business Development Bank of Canada. This includes at least $5 billion in new financing to be delivered through enhanced cooperation between these financial Crown corporations and private sector financial institutions under the new Business Credit Availability Program. ü Increasing the maximum eligible loan amount a small business can access under the Canada Small Business Financing Program. ü Creating the Canadian Secured Credit Facility, with up to $12 billion to support financing of vehicles and equipment for consumers and businesses. ü Extending the deadline for issuing guaranteed instruments under the Canadian Lenders Assurance Facility, which helps ensure that lenders are not put at a competitive disadvantage when raising funds in global markets. ü Establishing a new Canadian Life Insurers Assurance Facility to guarantee wholesale term borrowings for life insurers, modelled on the Canadian Lenders Assurance Facility. ü Facilitating the provision of extraordinary liquidity to financial institutions by the Bank of Canada, as required, through the modernization of the Banks authorities in Budget 2008. ü Adding a 10-year maturity to the Canada Mortgage Bond program to raise supplementary funding for financial institutions. 74

Strengthening Canadas Financial System Budget 2009 will further strengthen our financial system by: ü Broadening the authority for the Minister of Finance to promote financial stability and maintain efficient and well-functioning markets. ü Providing the Canada Deposit Insurance Corporation with greater flexibility to enhance its ability to safeguard financial stability in Canada. ü Providing a standby authority for the Government to inject capital into federally regulated financial institutions to support financial stability. A New Canadian Securities Regulator Canadians need and deserve a more efficient, streamlined securities regulatory system that reinforces financial stability, strengthens enforcement, protects investors and is more accountable. To this end, the Government will: ü Work with willing partners to establish a Canadian securities regulator that respects constitutional jurisdiction, regional interests and expertise. Measures to Help Consumers of Financial Products The Government will assist consumers of financial products by: ü Enhancing disclosure and improving business practices in respect of credit cards issued by federally regulated financial institutions. ü Establishing an independent task force to make recommendations on a cohesive national strategy on financial literacy. ü Moving forward on measures to make mortgage insurance more transparent, understandable and affordable. 75

Federally Regulated Private Pension Plans The Government is acting to address issues facing federally regulated private pension plans by: ü Assisting the Office of the Superintendent of Financial Institutions in providing flexibility to supplement the temporary solvency funding relief proposed in the November 2008 Economic and Fiscal Statement. ü Consulting on the legislative and regulatory framework for federally regulated pension plans with a view to making permanent improvements before the end of 2009. 76

Introduction The turmoil in global financial markets has revealed serious weaknesses in the international financial system. It has also clearly demonstrated how essential strong financial institutions, capital markets, and financial sector regulation are to economic growth and prosperity. Canada has shown exceptional resilience through the deepening crisis. Our financial system is better equipped to cope with the challenging global financial climate than those of many other nations. Nevertheless, Canada is not immune to this global crisis and Government action has been required in a number of areas to support financial sector stability. A notable example was the decision taken by the federal government, in conjunction with three provincial governments, to support the restructuring plan for non-bank asset-backed commercial paper. This action enhanced financial stability and the health of Canadas capital markets in challenging times. Dislocations in global credit markets have raised wholesale borrowing costs for Canadian financial institutions and have sharply reduced the liquidity of private sector financial assets. Parts of Canadas credit markets have ceased to function well, and there has been a significant re-pricing of risk in financial assets, increasing the cost to business borrowers. Further, policy actions taken in other countries to support their financial institutions risk putting Canadian institutions at a competitive disadvantage. Tighter credit conditions are now rippling into the real economy. If the Government did not take further action, this could deepen the economic downturn in Canada.

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Ensuring CanadiansAccess to Financing The Extraordinary Financing Framework The Government has taken a number of significant and effective measures to mitigate the impact of the global credit crunch on Canadian financial institutions so that they can continue to provide Canadian consumers and businesses with access to financing. The Government is taking further action to strengthen the capacity of Canadian financial institutions to expand credit and to respond to gaps in credit markets. It is providing up to $200 billion in existing and new measures to support the extension of financing to Canadians and Canadian businesses during the current extraordinary period. Under the Extraordinary Financing Framework (EFF), action will be taken when it is necessary to:  Correct market failures in segments of the credit markets.  Mitigate systemic risks.  Prevent possible competitive disadvantage to Canadian firms as a result of policy decisions taken by foreign governments. Interventions under the EFF will aim to:  Provide financing on a commercial basis whenever possible.  Protect the taxpayer by controlling risk.  Encourage partnership with the private sector.  Restore confidence and encourage private sector lending. To help manage the EFF, the Government will form the Advisory Committee on Financing. This committee will include users and suppliers of financing, along with other experts. The committee will advise on financing conditions and the design, scope and scale of initiatives under the EFF. Together with the rest of the Governments comprehensive Economic Action Plan, the EFF will provide a solid foundation for economic recovery. 78

The EFF is expected to generate a positive return for the Government overall and therefore has no expected fiscal cost. The Government will undertake additional borrowing to make the EFF possible; this will increase the amount of Government of Canada debt sold to financial markets (Annex 4). As this debt will be matched with sound assets, the EFF will not lead to any increase in the federal debt (accumulated deficit). Extraordinary Financing Framework  The Government will purchase $50 billion of insured mortgage pools in the first half of 200910 under the Insured Mortgage Purchase Program (IMPP), in addition to the $75 billion of purchases already authorized, increasing the total size of the program to $125 billion. This will provide long-term stable funding to lenders and help them continue lending to Canadian consumers and businesses.  The Government will enhance the resources and scope of action available to the financial Crown corporations and will provide $13 billion in incremental financing. This will allow Export Development Canada and the Business Development Bank of Canada to extend additional financing to Canadian businesses in the current extraordinary circumstances, and allow the Canada Mortgage and Housing Corporation to support low-cost loans to municipalities.  At least $5 billion of this incremental financing will be delivered through enhanced cooperation between these financial Crown corporations and private sector financial institutions under the new Business Credit Availability Program.  To further help small businesses access financing, the Government will increase the maximum eligible loan amount under the Canada Small Business Financing Program for loans made after March 31, 2009. These changes could increase lending under the program by some $300 million per year.  The Government will allocate up to $12 billion to a new Canadian Secured Credit Facility to purchase term asset-backed securities backed by loans and leases on vehicles and equipment. This new facility will help consumers and businesses access financing for these products.  The Canadian Lenders Assurance Facility (CLAF), announced in November 2008, will allow Canadas deposit-taking financial institutions to access competitive global credit markets by providing a guarantee on their term debt similar to those offered to banks in other countries. The Government will extend the period for issuing guaranteed instruments under the CLAF from April 30, 2009 to December 31, 2009. 79

Extraordinary Financing Framework (contd)  To ensure that life insurers are not put at a competitive disadvantage relative to foreign insurers that benefit from guarantee programs provided by their home governments, the Government will create the Canadian Life Insurers Assurance Facility, modelled on the CLAF.  In Budget 2008, the Government modernized the authorities of the Bank of Canada to support the stability of the financial system, and the Bank has used this modernized framework to increase its provision of extraordinary liquidity through a number of facilities. The Bank of Canadas provision of liquidity peaked at $41 billion in December, and currently stands at $33 billion.  In the fall of 2008, the Canada Mortgage and Housing Corporation launched a new quarterly 10-year Canada Mortgage Bond maturity. Over the year, the new maturity is expected to raise up to $10 billion in supplementary funding for financial institutions. Extension of the Insured Mortgage Purchase Program The Government will extend the Insured Mortgage Purchase Program (IMPP) by authorizing the purchase of up to an additional $50 billion in insured mortgages in the first half of 200910. This is in addition to the $75 billion to be purchased in 200809 announced earlier. Extending and enhancing this successful program will reassure lenders that stable long-term financing will continue to be available, helping them to continue lending to Canadian consumers and businesses. As the mortgages that will be purchased already carry government backing, they represent no additional risk to the taxpayer. The competitive auction process used to purchase the mortgages is also designed to protect taxpayers by ensuring that the rate of return on the purchased mortgages exceeds the Governments cost of borrowing. As a result, the IMPP program will continue to earn a positive financial return for the Government while at the same time filling a key gap in financing markets. The program has facilitated a reduction in prime and mortgage rates since its introduction. New Flexibilities and Resources for Financial Crown Corporations An increasing number of creditworthy Canadian businesses are experiencing difficulty in obtaining adequate access to financing either because their credit limit has been reduced or their traditional sources of financing are no longer available. 80

The Government will therefore enhance the resources and scope of action available to Export Development Canada (EDC) and the Business Development Bank of Canada (BDC) so that they can extend additional financing to Canadian businesses in the current extraordinary circumstances. EDC and BDC are financial Crown corporations whose mandates are to assist Canadian businesses through all phases of the economic cycle. BDC focuses on small and medium-sized businesses whose financial needs exceed the parameters of conventional financing. EDC provides trade finance and risk-management services to Canadian exporters and investors. The Government will increase the authorized capital limits of EDC and BDC by $1.5 billion each, and increase their associated borrowing limits as necessary. The Government will also increase EDCs contingent liability limit to $45 billion to enable EDC to grow and enhance its guarantee and insurance programs, and increase the Canada Account limit from $13 billion to $20 billion. These actions follow on the additional $350 million in capital committed to both EDC and BDC in the November 2008 Economic and Fiscal Statement. As it is very important to be able to bring this additional financing to market quickly, the Government will enable EDC to support financing in the domestic market, including in the area of accounts receivable insurance, for a temporary period. This measure will allow EDC to fill gaps and complement the activities of financial institutions and insurance providers in the domestic market. EDC and BDC will be working closely to ensure that their activities are complementary. Business Credit Availability Program One way in which BDC and EDC will make use of these additional flexibilities and resources is the new Business Credit Availability Program (BCAP). This program will improve access to financing for Canadian businesses during this period of economic uncertainty through enhanced cooperation between private sector financial institutions and the financial Crown corporations. Through this program, EDC and BDC will provide at least $5 billion in additional loans and other forms of credit support and enhancement at market rates to businesses with viable business models whose access to financing would otherwise be restricted. By working in close cooperation with private sector financial institutions, this program will fill gaps in market access and lever additional lending by private sector institutions where joint participation facilitates private action.

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Participating private sector lenders will commit to:  Working with the financial Crown corporations to find solutions for creditworthy business clients who would otherwise have insufficient access to credit.  Ensuring that the extension of credit by financial Crown corporations is incremental for Canadian businesses and does not displace or substitute for private credit in aggregate. The Government will monitor the program with participating lenders to ensure it is meeting its objectives. How the availability of financing is supported under the EFF A lobster fisherman in PEI supplies many high-end restaurants along the Eastern seaboard. Due to the U.S. economic downturn, sales are slumping and some customers are becoming delinquent in their payments. As a result, the fisherman is having to rely more on his working capital line of credit with his local bank to finance inventories and ongoing operations. The fisherman recently sought an increase in his credit line to carry him over to the new season. The bank notified him that although he remained a valued client and was current in his payments, it could not accommodate an increase to his line of credit due to competing pressures for limited financial resources. Through the BCAP, however, the bank will be able to get support from a financial Crown corporation to allow the fishermans financing needs to be met on commercial terms. Other Financial Crown Initiatives The additional $350 million in capital committed to each of EDC and BDC in the November 2008 Economic Statement taken together will support about $3 billion in increased credit granting capacity that the financial Crown corporations will make available to businesses affected by the financial crisis. In addition, the Government has increased the provision of financing in the economy by making available $2 billion in low-cost loans to municipalities through the Canada Mortgage and Housing Corporation. The Government, through EDC, has contributed almost $3 billion in short-term loans to support the automotive industry in Canada. 82

Total additional credit provision by the financial Crown corporations under the Extraordinary Financing Framework is therefore about $13 billion. Canada Small Business Financing Program The Government will increase the maximum eligible loan amount a small business can access under the Canada Small Business Financing Program for loans made after March 31, 2009. The current limit, which has not changed in the past 15 years, will be raised from $250,000 to $350,000 and to $500,000 for loans made for acquiring real property. Under the program, the Government guarantees 85-per-cent of loans made by eligible institutions to qualifying businesses. Currently, institutions with a portfolio of eligible loans above $500,000 can claim reimbursement on losses of up to 10 per cent of the value of their portfolio. Budget 2009 increases this limit to 12 per cent for loans made after March 31, 2009 in order to encourage increased lending to small business. In addition, regulatory amendments will reduce the programs associated paperwork burden. These changes are expected to result in more than $300 million in additional lending. Canadian Secured Credit Facility As noted above, the disruption in financial markets has created a shortage of available financing in some areas. Chief among these is financing for vehicles and equipment for consumers and businesses, large and small. The Government will create the Canadian Secured Credit Facility, with an allocation of up to $12 billion, to purchase term asset-backed securities (ABS) backed by loans and leases on vehicles and equipment. The facility will be run under high standards for transparency and credit enhancement to protect the taxpayer. This facility will be priced on commercial terms, and will therefore be expected to generate a positive return for the Government. Federally regulated financial institutions are eligible to sell into the facility and provincially regulated financial institutions may be eligible on the approval of the Minister of Finance. Other firms interested in the facility must work with the Office of the Superintendent of Financial Institutions to establish a plan to become subject to federal regulation. The Government will consult market participants on the potential merits of changing the legislative and regulatory regime governing leasing activities by federally regulated financial institutions.

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Canadian Lenders Assurance Facility and Canadian Life Insurers Assurance Facility The Canadian Lenders Assurance Facility (CLAF), announced in November 2008, will allow Canadas deposit-taking financial institutions to access competitive global credit markets by providing a guarantee on their term debt similar to those offered to banks in other countries. To further support the sector, the Government is announcing its intention to extend the deadline for issuing guaranteed instruments under the CLAF from April 30, 2009 to December 31, 2009. To ensure that life insurers, who access credit and compete for business at a global level, are not put at a competitive disadvantage relative to foreign insurers that benefit from guarantee programs provided by their home governments, the Government will create the Canadian Life Insurers Assurance Facility (CLIAF). The CLIAF will provide insurance on the wholesale term borrowing of federally regulated life insurance companies. The facility will be modelled on the Canadian Lenders Assurance Facility. The CLIAF will also be made available to provincially regulated life insurers on the same commercial terms as other eligible institutions on the approval of the Minister of Finance and with an indemnity from the relevant provincial government. Contributing Measures The Bank of Canada has contributed importantly to improving access to financing through supporting the liquidity of the financial system. In Budget 2008, the Government modernized the authorities of the Bank of Canada to support the stability of the financial system. The Bank has used this modernized framework to increase its provision of extraordinary liquidity through a number of facilities. The Bank of Canadas provision of liquidity reached as high as $41 billion in December 2008. The Bank of Canada stands ready to provide extraordinary liquidity as required to support the financial system. The Canada Mortgage and Housing Corporation maintains the Canada Mortgage Bond (CMB) program, whose overall objective is to improve access to lower cost mortgages for Canadians and enhance liquidity in the mortgage market. During the financial market turmoil, the program has been providing an important and growing source of funds for f