GOVERNMENT RESPONSE TO

THE INTERIM REPORT OF THE

STANDING COMMITTEE

ON GOVERNMENT OPERATIONS AND ESTIMATES

 “IMPLEMENTATION OF THE ECONOMIC ACTION PLAN”

September 2010

Introduction

In May 2010, the Standing Committee on Government Operations and Estimates tabled the report entitled Implementation of the Economic Action Plan (EAP).

In January 2009 the Government introduced Canada’s Economic Action Plan to boost economic growth and support Canadians during a period of global economic weakness. The two-year Plan is an extraordinary response, taken in co-operation with other G20 governments, to the deepest and most synchronized global recession since World War II. The EAP aims to protect Canadian jobs and incomes by delivering $62‑billion in stimulus measures to the Canadian economy.

The economic recovery underway in Canada suggests Canada’s Economic Action Plan is working.  Real GDP has rebounded strongly over the last three quarters. The labour market is also improving as the Canadian economy gained  430,000 jobs between July 2009 and August 2010, recouping all of the jobs lost during the recession – the only G7 country to do so. 

The Plan is organized around three guiding principles—that stimulus should be:

•  Timely: to support the economy when private demand is weakest.
•  Targeted: to businesses and families most in need.
•  Temporary: to avoid long-term deficits.

The EAP’s two-year timeframe is a key part of the Government’s plan to inject stimulus when the economy needs it and to withdraw stimulus as the recovery gains solid footing.  It is critical for the Government to ensure that the federal budget returns to balance by winding down the stimulus as planned.  

Given the importance of a timely stimulus, the Government has taken unprecedented action to implement the EAP as quickly and effectively as possible, while ensuring effective stewardship of taxpayer dollars and has reported regularly to Canadians on the implementation of the Plan.

Responses to Committee Recommendations

Recommendation 1

The Committee recommends that the Government improve its reporting of the implementation of the Economic Action Plan by enhancing the actionplan.gc.ca website to include more details concerning the projects that have received economic stimulus funds, such as adding the exact amount of federal money committed to a project, the amount of federal money spent and the number of jobs that have been created or maintained by funding the project.

Response 

The actionplan.gc.ca website provides timely, transparent and accountable information to Canadians on Economic Action Plan projects and initiatives happening in their communities.  As of September 14, 2010, the site consists of more than 22,000 web pages, including information on total project funding as well as the exact amount of federal money committed to more than 12,500 completed or ongoing projects.  New projects are being added regularly, and existing projects are updated as information from participating departments and agencies is made available.

The EAP website is intended to be a portal with general information only, guiding Canadians to federal department, agency and organization websites, which provide more detailed information on the various projects and initiatives. Information related to the progress of the overall implementation of the EAP can be found in the Fifth Report to Canadians.

Data featured on the site are supplied by federal organizations, which are responsible for accounting for EAP funding. Given that projects are at various stages of completion, accurately reporting the exact amount of federal spending in real time for each EAP project would be extremely difficult. 

More than 30 departments and agencies are reporting to the Privy Council Office (PCO) on EAP initiatives and a significant portion of the projects involve agreements between municipal and provincial partners. For this reason, projects are closely monitored by responsible departments and spending is tracked based on invoices received.  However, as invoices can often lag significantly behind the achievement of project milestones, dollars spent as of any moment in time does not represent a very informative metric for assessing EAP implementation.  Dollars spent on projects would also fail to capture the very significant portion of the EAP that is not project-based.

Regarding the number of jobs created, see the response to recommendation 4.

The Department of Finance has also been reporting in the monthly Fiscal Monitor on the portion of the deficit attributed to the EAP.

Recommendation 2

The Committee recommends that the Government abide by its obligations under the House of Commons Procedure and Practice, Second Edition, 2009, page 1070, which states that "federal departments and agencies are required to submit documents to committees in both official languages."

Response

Departments and agencies typically provide information in both official languages.

However, House of Commons Procedure and Practice (Second Edition, page 433) notes that the House may waive the requirement that federal departments and agencies submit documents to committees in both official languages.  On those occasions where time constraints would make the translation of documents impractical for the purposes required by the Committee, the Committee may choose to accept documents in one official language. 

The Government supports the statutory and procedural requirement for tabling documents in both official languages, and recognizes that the House has the power to waive that requirement and does so on occasion.

Recommendation 3

The Committee recommends that the Government honour its funding commitments for all projects that have been approved for stimulus spending, even if the implementation of the projects continues past the March 31, 2011 deadline.

Response

Funding under Canada’s Economic Action Plan was designed to provide timely, targeted and temporary stimulus to the Canadian economy in order to support the recovery.  That is why the Government set a March 31, 2011 deadline for federal support for most infrastructure projects.  The two-year timeframe is a key part of the Government’s plan to inject stimulus when the economy needs it and to withdraw stimulus as the recovery gains solid footing.  It reflects the Government’s belief that the private sector is and should be the primary source of jobs and growth.  It is also critical for the federal government to show fiscal leadership in winding down the stimulus as planned and ensuring that the federal budget returns to balance.

As part of the application process to the Infrastructure Stimulus Fund, all funding recipients signed attestations stating that they could complete their projects prior to March 31, 2011. 

The Government is committed to honouring its funding commitments for all projects approved for stimulus spending.  As such, all expenses incurred for project-related work up to March 31, 2011 will be eligible for reimbursement.  Federal officials are working with their provincial, territorial and municipal counterparts to ensure that projects are completed by March 31, 2011.

The Government continues to provide long-term, predictable, and flexible infrastructure funding through the seven-year, $33-billion Building Canada plan.  The Building Canada plan focuses on projects that deliver economic, environmental, and social benefits to all Canadians and allows Canadian provinces, territories and municipalities to plan for the longer-term, using predictable sources of funds to address their ongoing infrastructure needs.  

Recommendation 4

The Committee recommends that the Government must study the direct impact of the Economic Action Plan on the maintenance and creation of jobs, both federally and provincially, and report employment numbers to Canadians as soon as these numbers become available.

Response

Canada’s Economic Action Plan has played an important role in stabilizing the economy and fostering a recovery in Canada. 

In Budget 2009, the Government estimated that the Economic Action Plan would create or maintain 190,000 jobs by the end of 2010.  Budget 2009 also included an annex that provided an assessment of the impact on output (real GDP) and employment of the EAP. Also, as noted on page 237 of Budget 2009: “To gauge the sensitivity of the estimates in this annex, the Department of Finance asked the Conference Board of Canada and the University of Toronto’s Policy and Economic Analysis Program to calculate multipliers comparable to those used in this analysis. Generally speaking, the multipliers of these two private-sector organizations were similar to, or higher than, those presented in this annex.”

Following the announcement of Government’s support for the automotive industry, this estimate was increased to 220,000 in the Third Report to Canadians released in September 2009. 

In Budget 2010, the Government studied and reported on the impact of the EAP on the maintenance and creation of jobs.  This analysis showed that the EAP reduced the size of the contraction in employment in both the second and third quarters of 2009, and led to a larger increase in employment in the fourth quarter.  As of January 2010, it is estimated that the Economic Action Plan had created or maintained 130,000 jobs, on track to create or maintain 220,000 jobs by the end of 2010.

Also, as noted on page 288 of Budget 2010: “The Department of Finance's analysis of the job impact of the Economic Action Plan to date was reviewed by well-respected economic experts from the private sector and academia: Peter Dungan, Director, and Steve Murphy, Research Associate, Policy and Economic Analysis Program, Rotman School of Management, University of Toronto; Glen Hodgson, Senior Vice-President and Chief Economist, and Pedro Antunes, Director of the National and Provincial Forecast, Conference Board of Canada; and Stéfane Marion, Chief Economist and Strategist, National Bank Financial Group. The reviewers believe that the Department of Finance's analysis presents a reasonable representation of the economic impact of the Economic Action Plan to date.”

Because of the inherent uncertainty in estimating the impact of fiscal stimulus, the approach taken was prudent.

• Assumptions used to generate the model-based estimates were similar to or more conservative than those used by the U.S. Council of Economic Advisors and those found in models of recognized Canadian private sector forecasters.
• Employment impacts are typically larger when the policy interest rate is at its effective lower bound as it was during the global recession.  This was not taken into account in these estimates.

Recommendation 5

The Committee recommends that any lapsed funding earmarked for the Infrastructure Stimulus Fund be distributed using the same formula of the Gas Tax Fund.

Response

The $4-billion Infrastructure Stimulus Fund is an important part of the Government of Canada's Economic Action Plan, which provides timely, targeted and temporary stimulus to the Canadian economy and protects Canadians during the global recession. Working together with provincial, territorial, municipal and not-for-profit partners, the federal government has leveraged the $4-billion Infrastructure Stimulus Fund to provide total economic stimulus of $10 billion.

To ensure funds are being put to work quickly, when Canadians need it most, the Infrastructure Stimulus Fund supports projects that are shovel-ready and that can be completed by March 31, 2011.  As part of the Infrastructure Stimulus Fund application process, the Government required every funding recipient to sign an attestation form stating that they could complete their project prior to March 31, 2011.  In addition, eligible projects were required to be an incremental construction activity that would not have taken place by March 31, 2011, were it not for stimulus funding.

Further, in order to allow our partners to meet the timeline, the Government announced in its Fourth Report to Canadians on the Economic Action Plan (released in December 2009) that funding under the Infrastructure Stimulus Fund would need to be fully committed by January 29, 2010.  In the lead up to this deadline, the Government worked closely with provincial, territorial, municipal and other partners to identify and approve projects.   

With regard to the project completion deadline, federal officials are working and monitoring with their provincial, territorial and municipal counterparts to ensure that projects are completed by March 31, 2011.  Where appropriate, the Government of Canada has shown significant flexibility.   In particular, tender prices for many projects have come in under budget and this has reduced the amount of federal funding that these projects require.  Using these savings, the Government of Canada has worked with provinces and municipalities to identify and support additional projects, to create even more jobs.  For example, last January in Alberta, lower than expected tender prices resulted in $66.3 million in federal funding becoming available under the Infrastructure Stimulus Fund.  By working closely with the Province, the Government of Canada was able to reinvest that amount into 27 new projects.  Thanks to funding from other partners, these projects represent a total investment of $132.6 million.

Recommendation 6

The Committee recommends that the Government establish strict guidelines that ensure that all government advertising is seen to be strictly non-partisan in both look and feel and content, and that any links from Government websites do not have links to partisan material.

The current Communications Policy of the Government of Canada establishes clear mandatory direction to departments and agencies for the management of government advertising.  Furthermore, the Policy requires that all government information be objective and that public servants provide information services in a non-partisan fashion, whether through advertising or other communications activities. 

Consistent with the Policy, the EAP website does not include links to partisan material.