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With the recovery well entrenched, the federal government is enjoying a brighter fiscal outlook. The government is reporting a $40.5 billion deficit in fiscal 2010-11, almost a $5 billion improvement relative to what it had predicted in the October 2010 fiscal update. There are also small improvements in the size of the deficits going forward. While the government anticipates economic momentum will wane in the medium term, it is still planning to return to surplus in fiscal 2015-16.

The medium-term fiscal plan hinges on the government’s ability to wrestle annual program spending growth down to an average of about 1.6% per year through fiscal 2015-16—certainly a challenging goal, particularly when about half of the overall spending mix is dedicated to transfer payments which the government has indicated are off bounds. The government continues to rule out tax increases—including increases to business taxes—to balance its books. This is a victory for the Canadian Chamber and the network which launched a national campaign calling on all federal parliamentarians to keep their promise and proceed with the legislated cuts in the general corporate income tax rate.

The debt-to-GDP ratio, an important measure of fiscal sustainability, is on track to fall below 30% by 2015-16, returning it to its pre-recession level. Overall, the federal government’s relatively favourable fiscal position compared to other G7 countries should be well received by markets, as will the plan to eliminate deficits largely on the back of spending restraint.

Given the lingering economic and geo-political uncertainties, the government has chosen to apply additional prudence to its economic assumptions. The Canadian Chamber praises this cautious approach as it will provide the government with greater flexibility in the event of unanticipated economic developments or spending pressures.

For the business community, the government is proposing a number of tax-related measures we believe will build on Canada’s brand as a competitive jurisdiction to do business. Most notable are the two-year extension of the accelerated capital cost allowance rate for investment in machinery and equipment in the manufacturing and processing sector, the one-year extension of the 15% Mineral Exploration Tax Credit, and the expansion of eligibility for the accelerated capital cost allowance for clean energy generation equipment. Additionally, the government is proposing a hiring credit of up to $1,000 against a small business employer’s increase in its 2011 Employment Insurance (EI) premiums over those paid in 2010. This temporary credit will be available to approximately 525,000 small businesses and will assist them in hiring new workers so they can take advantage of emerging opportunities and better compete in the global marketplace.

The government is also renewing the Best 14 Weeks and Working While on Claim Employment Insurance (EI) pilot projects for one year, and is extending work-sharing agreements by up to 16 weeks. Evaluations of these programs have indicated that many claimants took on additional work while on EI and the projects have had a positive impact on employers. The Canadian Chamber of Commerce 2

To facilitate access to global markets, the budget proposes to streamline Canada’s trade instruments, including an overhaul of the Customs Tariff legislation. Additionally, it extends (until March 2012) the temporary powers of Export Development Canada (EDC) to provide financing support to Canadian exporters on an exceptional basis in the domestic market. These measures will help facilitate trade and lower the administrative burden for businesses.

The budget also proposes additional funding to enhance the operating environment for businesses, including a permanent annual investment of $2 billion in the Gas Tax Fund to provide predictable, long-term infrastructure funding for municipalities, which is critical for the efficient movement of people and goods. There is also about $1 billion in infrastructure stimulus spending to come before October 31, 2011.

Additionally, the budget sets the stage for the release of Canada’s Digital Economy Strategy later this spring by introducing measures focused on accelerating the adoption of information and communications technologies by small- and medium-sized businesses, preparing students for careers in the digital economy, and building Canada’s digital content through the Canada Media Fund. It also provides additional support for leading-edge research and assistance to bring research to the marketplace.

For Canadian households, the budget extends (to March 31, 2012) the ecoENERGY retrofit program that has experienced unprecedented demand since it was announced. This program is targeted to homeowners to make their homes more energy efficient.

For low-income seniors, the budget includes an expansion of the Guaranteed Income Supplement (GIS) to reduce the incidence of poverty and help seniors cope with rising expenses. The government is also changing federal rules to eliminate the mandatory retirement age for federally-regulated employees. In light of the coming demographic crunch and looming labour shortages, the Canadian Chamber believes it is crucial that we encourage the participation of under-represented groups—including older workers—in the labour market. Related to this, the government stated it will continue efforts to attract the best foreign students and immigrants to Canada while taking steps to facilitate their integration into the Canadian labour market. Additionally, it has committed additional funding to support partnerships between governments, the private sector and Aboriginal organizations to help Aboriginal people benefit from valuable skills training and employment opportunities. Canada must do its utmost to develop, attract and retain skilled labour.

The federal government announced that it is working with provincial and territorial officials to implement, as soon as possible, defined contribution Pooled Registered Pension Plans (PRPPs) to provide Canadians with a new, low-cost, accessible vehicle to meet their retirement objectives. We believe these plans will be particularly attractive to employees of small firms and the self-employed who currently do not have access to large, pooled pension arrangements.

There is still much unfinished business. While the government’s efforts are rightly focused on tackling the medium-term fiscal challenges, it must not lose sight of the longer-term picture. In its pre-budget submission, the Canadian Chamber called on the federal government to address long-The Canadian Chamber of Commerce 3

standing structural impediments that stifle productivity, hinder growth and negatively affect the operation of markets and the capacity of businesses to operate efficiently. To this end, the government responded to the Canadian Chamber’s "asks" and stated that it will work to improve the personal income tax system, bring the benefits of foreign investment to Canada, secure access to foreign markets for Canadian businesses, improve Canada’s regulatory and marketplace frameworks through better coordination and cooperation with other countries, focus on protecting intellectual property, reduce the administrative burden on Canadian business, engage with the provinces and territories to enhance internal trade and labour mobility, and support the development of new environmental and clean energy technologies.

The Canadian Chamber urges the government to act now with a clear sense of purpose to move forward with these structural reforms to bolster the economy’s long-term growth potential and ensure Canadians continue to prosper.