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Background to Budget 2009 Presented by Dana, Mrinal & Yoori Aspects of Budget Budgetary Revenues • total $242.4B an increase of $6.5B from last year • Revenues composed of personal and corporate taxes, GST and EI • Other revenues aside from taxes are from crown corporations such as the Bank of Canada, Export Development Canada and Canada Mortgage and Housing Corporation Aspects of Budget Budgetary Expenses Total $232.8B an increase of 4.8% consist of transfer to persons (EI, pension, children’s benefits) and to other government (the Canada Health Transfer, the Canada Social Transfer and transfers to provinces on behalf of Canada’s cities and communties • Government operating costs include: the salaries and benefits of the various members of government as well as facilities, travel and equipment costs • public debt charges which is interest on debt accounts for 14.3% of expenses • a major concern is the rising of transfers to persons especially pensions because of an aging population Aspects of Budget Budgetary Balance • Difference between the government’s revenues and expenses • Represents the expenses when they are incurred and revenues when they are earned as opposed to when cash is paid out • Alternate measure is the source/requirement balance which records the cash inflows vs outflows. • During the past 12 years we have maintained a budget surplus • The surplus has decreased from last year partially because of the reduction in GST Federal Debt • The difference between government’s liabilities and assets • Total liabilities consist of interest-bearing debt, accounts payable and accrued liabilities – Interest-bearing debt includes unmatured debt and liabilities for pension and other accounts – Total liabilities $692.3B annual decrease of $17.4B • Financial assets consist of cash and other accounts receivables, foreign exchange accounts, loans, investments and advances. • Total financial assets $176B a decrease of $5.8B partially due to debt reduction Global Market Turmoil • Liquidity dropped sharply – increasing cost of borrowing – reducing supply of loans – stock markets to tumble • Less pronounced in Canada • Impacts on budget: Expenditures – Gov’t will purchase insured mortgage pools – supporting long-term credit and protect Canadian financial institutions Economic Slowdown • U.S is experiencing a recession • Also entering a technical recession – Euro area – Japan – China • Impacts on budget: Decrease in trade balance – Slowdown in emerging economies result in slower export growth Commodity Prices • Commodities to drop sharply, particularly energy • Reduce the level of nominal GDP in 2009 and 2010 • Will reduce the value of goods produced • Impacts on budget: Decrease trade balance and increase debt – Temporary deficit – A rise in net foreign indebtedness – Still expected to remain near record lows Export Extensive Sectors • Manufacturing sector declined by 7% • Forestry-related sectors – Pulp and paper industry down 16% – Wood product industry down 30% • Impacts on budgets: Expenditures – Job training, community transition plans and infrastructure investments – Automotive Innovation Fund to support R&D Labour Market • Unemployment rate was 6.6 % (30-year low) • Not in the same predicament will see the labour market weaken • Impacts on budgets: Expenditures – Projects like roads, transit, and repairs to colleges, training for laid-off workers – Provide an increase in permanent jobs Taxes • Number of core strengths – Housing sector is sound – Canadian financial institutions are sound – CPI inflation has remained low, stable – Best fiscal position of all G7 countries • Impacts on budget: Revenues – Government to provide permanent tax relief "We will not run a deficit." - Jim Flaherty (Oct. 9) "This country will not go into recession next year and will lead the G7 countries." - Stephen Harper (Oct. 10) “We need an election in February like a hole in the head…” - Michael Ignatieff “Will it protect the vulnerable? Will it save jobs? And most importantly, will it create the jobs of tomorrow?” - Michael Ignatieff Canada’s Economic Stimulus Plan Six-point Action Plan: Stimulate economy: direct government action and by encouraging private investment Build Canada through new infrastructure Protect stability of financial system Ensure access to credit Support Canadian industries Protect the vulnerable Budget 2009 • Projected $30 billion deficit this fiscal year • Another $34 billion deficit in 2010 • Exit strategy: It will take five years to return to balanced budgets – $100 billion in the red for five-year period Budget 2009 • • • • • • • $7 billion in new infrastructure spending $2.4 billion for social housing $1.5 billion to help re-train laid-off workers $1 billion to help the hardest-hit communities $160 million on arts and culture Tax cuts for middle-lower income tax brackets Regulate credit cards Canada's federal debt at the end of March 1997: $583 billion In the last twelve years, federal debt has been reduced by more than $100 billion to $457 billion American Recovery & Reinvestment Plan “… there are millions of Americans trying to find work, even as, all around the country, there is so much work to be done.” - President Barack Obama