EXHIBIT C-3

                          Supplementary Information and
                   Notices of Ways and Means Motions Included


                                                                             THE
                                                                     BUDGET PLAN
                                                                            2003



Department of Finance                           Ministere des Finances
Canada                                          Canada








               (C)HER MAJESTY THE QUEEN IN RIGHT OF CANADA (2003)
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                             Cat. No.: F1-23/2003-3E
                               ISBN 0-660-18999-2

TABLE OF CONTENTS


                                                               
1    INTRODUCTION AND OVERVIEW ................................    7

     Budget 2003--Building the Canada We Want .................    8

     Economic Developments and Prospects ......................   10

     Investing in Canada's Health Care System .................   12

     Investing in Canadian Families and Their Communities .....   14

     Investing in a More Productive, Sustainable Economy ......   17

     Canada in the World ......................................   21

     Improving Expenditure Management and Accountability ......   24

     Sound Financial Management in an Uncertain World .........   27

     Summary of Spending and Revenue Initiatives in
       This Budget.............................................   29


2    ECONOMIC DEVELOPMENTS AND PROSPECTS .......................  33

     Highlights ................................................  34

     Introduction ..............................................  36

     Canada continues to face an uncertain global environment ..  37

     The U.S. recovery has been uneven .........................  38

     Canadian growth outperformed that of the United States
       during the 2001 global downturn and the 2002 recovery....  40

     Canada's performance has been led by solid
       domestic demand .........................................  41

     Canada's employment performance in 2002 was stellar .......  42

     Canada's unemployment rate gap with the U.S. has narrowed .  43

     Strong fundamentals, led by an improved fiscal position
       and low inflation, have supported Canada's solid
       economic performance ....................................  45

     With Canada's stronger economic and fiscal performance,
       our current account balance and net foreign
       indebtedness have improved significantly.................  47

     Sustained balanced budgets and a proven record of low
       and stable inflation have increased the Bank of
       Canada's room to manoeuvre ..............................  49

     Unlike the U.S., Canadian consumer confidence has
       been resilient ..........................................  51

     Housing activity has been exceptionally strong ............  52

     Corporate profits and business confidence remain high .....  54

     ....which bodes well for future investment ................  56


                                       3

                              THE BUDGET PLAN 2003

                                                               
     Improved fundamentals and increased business investment
       have strengthened our productivity performance .........   57

     ..... and this improved productivity growth,
       plus Canada's superior labour market performance,
       has generated stronger growth in living standards ......   58

     Forecasters expect continued solid growth in the
       Canadian economy .......................................   59

     Downside risks to the U.S. and global outlooks remain ....   62


3    INVESTING IN CANADA'S HEALTH CARE SYSTEM..................   63

     Highlights ...............................................   64

     Introduction .............................................   66

     February 2003 Accord--A Five-Year Plan Focused on
       Improving Access .......................................   67

     Support Through Transfers to Provinces and Territories....   69

     Health Reform ............................................   70

     Direct Health Accord Initiatives .........................   72

     Other Health Initiatives in Support of Reform ............   76

     First Nations and Inuit Health ...........................   79

     Federal Transfers to Provinces and Territories ...........   80


4    INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES......   89

     Highlights ...............................................   90

     Introduction .............................................   92

     Supporting Canadian Families .............................   92

     Supporting Communities ...................................  105

     Strengthening Aboriginal Communities......................  109

     Promoting Canadian Culture and Values.....................  111


5    INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY.......  117

     Highlights ...............................................  118

     Introduction .............................................  122

     Strengthening Research and Innovation ....................  123

     Supporting Skills and Learning ...........................  130

     Improving the Tax System .................................  136

     Supporting Canadian Families:

       Increasing the National Child Benefit Supplement and
       Introducing the Child Disability Benefit ...............  137

     Encouraging Savings by Canadians:

       Increasing the RPP/RRSP Limits .........................  137



                                       4


                          BUILDING THE CANADA WE WANT

                                                              
     Promoting Entrepreneurship and Small Business.............  140

     Strengthening the Canadian Tax Advantage .................  143

     Advancing Sustainable Development ........................  148

     Climate Change ...........................................  149

     The Environment ..........................................  153

     Renewing Canadian Agriculture ............................  155


6    CANADA IN THE WORLD.......................................  159

     Highlights ...............................................  160

     Introduction .............................................  162

     Strengthening Canada's Military ..........................  163

     Ensuring Security at Home ................................  164

     Enhancing Canada-U.S. Trade ..............................  167

     Increasing Canada's International Assistance..............  168


7    IMPROVING EXPENDITURE MANAGEMENT AND ACCOUNTABILITY.......  171

     Highlights ...............................................  172

     Introduction .............................................  174

     Commitment to Expenditure Reallocation and Sound
       Program Management .....................................  175

     Implementing Full Accrual Accounting .....................  177

     The Accountability of Foundations ........................  179

     Improving Reporting and Accountability to Parliament......  182

     The Accountability of Health Transfers ...................  182

     Employment Insurance Premium Rates .......................  183

     Regulation and Investor Confidence .......................  184

     Air Travellers Security Charge ...........................  187

     Debt Servicing and Reduction Account .....................  188

     User Charging and Cost Recovery ..........................  189


8    SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD..........  191

     Highlights ...............................................  192

     Introduction .............................................  193

     Approach to Budget Planning ..............................  194

     Implications of the Revised Economic Outlook
       and Current Financial Developments .....................  195

     Impact of Full Accrual Accounting on the
       Fiscal Projections .....................................  197

     Fiscal Surplus for Planning Purposes .....................  199



                                       5


                              THE BUDGET PLAN 2003

                                                              
     Impact of Measures in Budget 2003 on the
       Budgetary Balance ......................................  200

     Summary Statement of Transactions ........................  202

     The Government's Fiscal Progress .........................  203

     Canada only G7 country to record surplus in 2002 .........  204

     Federal debt-to-GDP ratio on downward track ..............  205

     Canada has achieved the largest decline in the debt
       burden among the G7 countries ..........................  206

     Details of the 2003 Budget Plan: Outlook for Revenues ....  207

     Outlook for Budgetary Revenues ...........................  208

     Revenue ratio lowered due to tax cuts ....................  209

     Details of the 2003 Budget Plan:

       Outlook for Program Spending ...........................  210

     Spending-to-GDP ratio down significantly from mid-1990s ..  213

     Market Debt Declining ....................................  214

     Debt Management ..........................................  215

     Public Debt Charges Falling ..............................  216

     Financial Requirements/Source.............................  217

     Sensitivity of the Fiscal Outlook to Economic Shocks .....  219



ANNEXES

     1    Spending and Tax Relief Since the 1997 Budget........  221

     2    Building on the Five-Year Tax Reduction Plan.........  239

     3    Review of the Air Travellers Security Charge:

            Supplementary Information and Notice of Ways and
            Means Motion.......................................  249

     4    Canada's Financial Performance in an International
            Context............................................  259

     5    Fiscal Performance of Canada's Federal-Provincial-
            Territorial Government Sector......................  269

     6    Implementation of Full Accrual Accounting in the
            Federal Government's Financial Statements..........  277

     7    The Budgetary Balance, Financial Requirements/Source,
            and National Accounts Budget Balance...............  299

     8    The Government's Response to the Auditor General's
            Observations on the 2002 Financial Statements......  305

     9    Tax Measures: Supplementary Information and Notices of
            Ways and Means Motions.............................  315



                                       6

1

INTRODUCTION
AND OVERVIEW







                                  THE BUDGET PLAN 2003

BUDGET 2003--BUILDING THE CANADA WE WANT

INTRODUCTION

Now is a moment of great opportunity for Canada. Thanks to the efforts
and sacrifices of Canadians everywhere, our economy is strong. Where once we
followed the economic performance of other nations, particularly the United
States, we now lead--in growth, in job creation, in debt reduction. Our nation
led the Group of Seven (G7) in growth last year and is expected to do the same
in 2003.

     Our resilient economic performance reflects strong economic fundamentals,
which are underpinned by the Government's record of budgetary surpluses and a
commitment to maintaining balanced budgets.

     But this prosperity could be threatened by the uncertain global climate.
Therefore, we will continue to exercise caution in our fiscal planning,
restoring the full Contingency Reserve and economic prudence.

     Budget 2003 recognizes the critical link between social and economic policy
and how an integrated approach produces policies that benefit all Canadians.

     It reflects this balanced approach in three ways:

     FIRST, BY BUILDING THE SOCIETY CANADIANS VALUE--making investments in the
needs of individual Canadians, their families and their communities, in areas
such as health care, education and the environment;

     SECOND, BY BUILDING THE ECONOMY CANADIANS NEED--fiscally prudent,
deficit-free and promoting the productivity, innovation, learning and creativity
that helps Canada not just compete, but win; and

     THIRD, BY BUILDING THE ACCOUNTABILITY CANADIANS DESERVE--through the
elimination of government waste and making government spending more efficient
and transparent, so Canadians know where and how their tax dollars are being
used.



                                       8




                           INTRODUCTION AND OVERVIEW


     In short, Canadians seek a society built on their commonly held values,
an economy that maximizes opportunity for all, and a transparent
accounting of government's efforts to achieve those goals. This is the
challenge Canadians have brought to their government. Budget 2003
is the response to that challenge and opportunity:

o    it fosters a successful economy--one that leads all G7 nations;

o    it continues to deliver prudent management of the nation's finances,
exemplified by this government's sixth consecutive balanced budget;

o    it strengthens medicare with several measures, including an investment
of $34.8 billion over five years, a commitment that supports the 2003 First
Ministers' Accord on Health Care Renewal;

o    it provides support for Canadians where the need is greatest--families,
children, Canadians with disabilities, communities large and small, and our
Aboriginal communities;

o    it makes significant investments in research and development, support for
learning and improvements to the tax system designed to enhance Canada's ability
to compete;

o    it invests $3 billion to promote sustainable development and a healthy
environment;

o    it delivers on the commitment of last fall's economic update to reallocate
spending from lower to higher priorities;

o    it takes steps to improve the accountability and transparency of government
programs; and

o    it provides additional funding for Canada's role on the international stage
by increasing military funding and honouring our commitment to help the poorest
countries in the world.


                                       9




                                  THE BUDGET PLAN 2003


ECONOMIC DEVELOPMENTS AND PROSPECTS

Over the past two years Canada's economy has demonstrated remarkable resilience
in the face of global weakness and uncertainty.

     In 2001 the Canadian economy outperformed that of the United States and
avoided recession during the global economic downturn. This is in sharp contrast
to the recessions of the early 1980s and early 1990s, when Canada suffered more
severe downturns and recovered more slowly than the U.S.

     Thanks to strong domestic demand, the Canadian economy continued to
outperform the U.S. economy in 2002 in the face of an uneven global economic
recovery. The strength of the Canadian economy was particularly evident in
labour markets.

     Canada's resilient performance reflects strong economic fundamentals, large
tax cuts and an increasingly competitive business sector. Low inflation,
combined with the Government's track record of budgetary surpluses and a
commitment to maintaining balanced budgets, provided the Bank of Canada with the
flexibility to respond to economic weakness in 2001 by reducing short-term
interest rates to levels not seen in 40 years. This has helped to support
domestic demand and household confidence. Budgetary surpluses and debt repayment
are also freeing up funds in capital markets for business investment and
reducing Canada's reliance on foreign saving.

     Canada is forecast to lead the G7 countries again in economic growth in
2003. However, the global economic outlook remains uncertain. In the face of a
variety of global challenges, Canada will maintain the prudent approach to
fiscal planning that has served the nation well in recent years.



                                       10




                           INTRODUCTION AND OVERVIEW


HIGHLIGHTS

o  Average economic growth in Canada in the first three quarters of 2002 was 4.4
per cent, the strongest among the G7-countries. Strong domestic demand,
especially consumer spending and residential investment, led Canadian growth as
external demand remained uneven.

o  During 2002 the economy created 560,000 jobs, more than 60 per cent of which
were full-time. All age groups and all regions of the country benefited from the
job gains.

o  The solid performance of the Canadian economy at a time of global weakness
reflects Canada's sound economic policies. Five consecutive budgetary surpluses,
a sharp drop in public debt and large tax cuts supported confidence and domestic
demand. This sound fiscal policy, together with low inflation, allowed the Bank
of Canada to reduce short-term interest rates to their lowest level in more than
40 years, boosting consumer spending and confidence.

o  Unlike the early 1980s and early 1990s, Canada outperformed the U.S. in both
output and employment growth during the global slowdown in 2001 and the recovery
last year. In contrast to Canada's strong job creation record in 2002, the U.S.
economy lost 229,000 jobs. The employment rate in Canada is now about the same
as the U.S. rate for the first time in 20 years.

o  The global recovery is expected to continue but at a moderate pace. In
particular, the U.S. near-term outlook is somewhat weaker than anticipated at
the time of the October 2002 Economic and Fiscal Update and considerable
downside risks remain for the global economy. The external risks include the
ongoing impact of equity market declines on U.S. investor and consumer
confidence, the geopolitical risks associated with the possibility of war in
Iraq and a continuation of the disruption of Venezuelan oil production. If these
risks materialize, global growth would be slower than expected and this would
affect Canada.

o  The Department of Finance survey of private sector economists in December
2002 indicates Canadian growth of 3.3 per cent in 2002 and 3.2 per cent in 2003.
Growth is expected to rise to 3.5 per cent in 2004, consistent with the
expectation that the U.S. economic recovery will gain momentum in the second
half of this year and into next year.

o  The Organisation for Economic Co-operation and Development (OECD) and
International Monetary Fund predict that Canada will outperform all G7 countries
in growth in 2003.


                                       11




                                  THE BUDGET PLAN 2003


INVESTING IN CANADA'S HEALTH CARE SYSTEM

Canada's publicly funded health care system plays a key role in building the
society we value. It is vital to our quality of life and a reflection of the
values we share as a nation. It is also at the leading edge where economic and
social policies interact. It provides Canada with the distinct economic
advantage of a healthy, productive workforce and provides security in
retirement.

     The Romanow Commission on the Future of Health Care in Canada, the Kirby
Senate Study on the State of the Health Care System in Canada and several recent
provincial reports clearly indicated that Canadians want and expect improved
access to quality services from our publicly funded health care system.
Canadians from all parts of the country have said that modernizing medicare
means providing better access to services such as primary care, diagnostic
services, home care, palliative care and catastrophic drug coverage. In short,
they want real, substantive reforms, along with increased transparency and
accountability.

     Canadians have asked that their governments work together to strengthen the
health care system and ensure its long-term sustainability. The new Accord on
Health Care Renewal, agreed to by Canada's first ministers on February 5, 2003,
reflects a common commitment among governments to work together to improve
access, enhance accountability for how health dollars are spent and the results
achieved, and ensure that the system remains sustainable in the long term.


    "Canadians want a sustainable health care system that provides timely access
    to quality health services. They recognize that reform is essential, and
    they support new public investments targeted to achieve this goal."

                            2003 First Ministers' Accord on Health Care Renewal


     The funds provided in this budget build on the significant investments in
health care already made by the Government of Canada since the budget was
balanced in 1997-98, including the September 2000 first ministers' agreement.
This budget confirms increased health care funding of $34.8 billion over the
next five years. The federal government is committed to ensuring that future
generations of Canadians continue to have access to universal, quality
care--care that is based on need, not on the ability to pay.



                                       12




                           INTRODUCTION AND OVERVIEW


HIGHLIGHTS

This budget makes significant investments to address the concerns of Canadians
about their health care system: waiting lists, availability of diagnostic
equipment and accountability for their tax dollars. These federal investments,
in conjunction with those of provincial and territorial partners, will help to
improve access to the health care system for Canadians, enhance accountability
for how health dollars are spent, and ensure the future sustainability of the
system.

o  The 2003 First Ministers' Accord on Health Care Renewal is a commitment
designed to improve the accessibility, quality and sustainability of the public
health care system and enhance transparency and accountability in health care
spending.

o  Federal support to health care will increase by $17.3 billion over the next
three years and by $34.8 billion over the next five years. This includes:

     -   $9.5 billion in transfers to provinces and territories over the next
         five years;

     -   $2.5 billion in an immediate investment through a Canada Health and
         Social Transfer supplement to relieve existing pressures;

     -   $16.0 billion over five years to provinces and territories for a Health
         Reform Fund targeted to primary health care, home care and catastrophic
         drug coverage;

     -   $5.5 billion over five years in health initiatives, including
         diagnostic/medical equipment, health information technology, and the
         creation of a six-week compassionate family care leave benefit under
         employment insurance; and

     -   $1.3 billion over five years to support health programs for First
         Nations and Inuit.

o  First ministers have also agreed to an enhanced accountability framework to
report to Canadians on the progress of reform.

o  The federal government is setting out a long-term funding framework to
provide provinces and territories with predictable, growing and sustainable
support for health care and other social programs.

o  The federal government will create two new transfers on April 1, 2004: a
Canada Health Transfer and a Canada Social Transfer to increase transparency and
accountability.



                                       13



                                  THE BUDGET PLAN 2003


INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES

There is a fundamental relationship between economic success and quality of
life. Only a strong economy can provide the jobs and incomes required to sustain
families and their communities. Equally, the benefits to the economy of strong
families and safe communities are self-evident. Like universal health care,
providing for the needs of Canada's households and neighbourhoods enriches
Canadians' quality of life.

     Strong families and communities also serve a vital role in building
Canada's economy. By being the foundation on which successful lives are built,
they help ensure that all Canadians are prepared for and capable of contributing
to the economy. Just as investments in innovation and productivity strengthen
the economy, investments in key areas of social policy help ensure the
opportunities of that economy are available to all.

     Budget 2003 makes further investments to help build the society Canadians
value. It enhances support for Canadian families with children and persons with
disabilities. It helps communities create more affordable housing, fight
homelessness and improve infrastructure. It enhances the economic and social
opportunities for Aboriginal Canadians. And it strengthens and promotes Canadian
culture and values. These measures increase and enhance opportunities for all
Canadians--helping to build the strongest possible foundation for a truly
successful economy.


HIGHLIGHTS

Budget 2003 makes major investments to help Canadian families and communities,
to improve opportunities for Aboriginal Canadians and to promote Canadian
culture and values.


SUPPORTING CANADIAN FAMILIES

This budget makes long-term investments in support of families with children and
persons with disabilities, including:

o  a $965-million-per-year increase in the National Child Benefit supplement
of the Canada Child Tax Benefit (CCTB) by 2007, to bring the maximum annual
benefit for a first child provided through the CCTB to $3,243. This will bring
the estimated annual support delivered through the CCTB to over $10 billion in
2007, an increase of over 100 per cent since 1996;



                                       14




                           INTRODUCTION AND OVERVIEW

o  $935 million over the next five years to assist provinces and territories and
First Nations in increasing access to quality child care and early learning
opportunities, especially for low-income and single-parent families;

o  $50 million per year for a new Child Disability Benefit for low- and
modest-income families that will provide up to $1,600 annually for a child
qualifying for the disability tax credit;

o  $20 million per year to expand the list of eligible expenses for the medical
expense tax credit; and

o  $80 million per year to improve tax assistance for persons with disabilities,
drawing on a forthcoming evaluation of the disability tax credit and the advice
of a technical advisory committee.


SUPPORTING COMMUNITIES

To help communities, this budget makes significant investments to increase the
supply of affordable housing, address homelessness and improve the state of
Canada's infrastructure:

o  $320 million over the next five years to enhance existing affordable housing
agreements with the provinces and territories, bringing the total federal
investment to $1 billion by the end of 2007-08;

o  $256 million over the next two years to extend the Government's housing
renovation programs to help preserve the existing stock of affordable housing;

o  $270 million over the next two years to continue to fight homelessness;
and

o  an additional $3 billion in infrastructure support over the next ten years,
including $1 billion for municipal infrastructure.



                                       15




                              THE BUDGET PLAN 2003

STRENGTHENING ABORIGINAL COMMUNITIES

Along with the initiatives to address health and other concerns on reserve and
to improve economic opportunities for Aboriginal Canadians described in Chapters
3 and 5, this budget makes strategic investments to strengthen Aboriginal
communities, including:

o  $172.5 million over eleven years to support Aboriginal languages and culture,
of which $18 million will be invested in the next two years;

o  $42 million over the next two years to renew and expand the First Nations
Policing Program; and

o  $17 million over the next two years to work with partners to explore new
ways to better meet the needs of Aboriginal people living in urban centres.

PROMOTING CANADIAN CULTURE AND VALUES

The Government will invest in measures to strengthen and promote Canadian
culture and values, including:

o  $150 million over two years for the Canadian Television Fund to help the
production of quality Canadian programming;

o  $114.5 million in the next two years to launch a five-year action plan on
official languages; and

o  a contribution program of $10 million a year to provide a financial
incentive to the private sector to preserve historic places.


                                       16




                               INTRODUCTION AND OVERVIEW

INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY

Enhancing the well-being of Canadians, through higher living standards and a
better quality of life, lies at the heart of the Government's economic and
social policies. Achieving high and sustainable living standards and a better
quality of life requires that economic and social progress advance together. By
undertaking the right investments and creating favourable conditions for growth,
the Government can help provide the foundation for such progress.

     Beyond a stable fiscal and monetary climate, the key drivers of a stronger
economy are those that allow Canada to improve its productivity performance.
These include such factors as a tax system that encourages economic growth and
job creation, and investments in new technologies and research. Equally
important is ensuring that Canadians have the skills and confidence needed to
participate fully in the new economy. And the country's growth must be
sustainable as well as strong. This means that the Government must deal
effectively with climate change and other environmental challenges.

     Canada has made great strides in recent years, eliminating the deficit and
accelerating the growth in its standard of living. From 1997 to 2002 Canada's
growth in gross domestic product (GDP) per capita, the best measure of living
standards, rose faster than in any of the other leading industrialized
countries, including the U.S.

     This remarkable progress comes with a clear message: continued long-term,
durable economic growth will require ongoing productivity improvements. Faster
productivity growth means more income and better jobs for employees, and more
opportunities for Canadians for personal growth and development. Canada's
economic and social policies come together through investments in people,
particularly in their health and their opportunities for learning.

     The measures announced in this and previous budgets are designed to help
ensure Canada's productivity growth will continue to rise, and with it,
Canadians' standard of living. A key element in raising productivity will be to
make Canada a magnet for talent and investment--a crucial part of how Canada
positions itself as a "Northern Tiger." As part of this effort, the Government
has made and will continue to make substantial investments to strengthen
research and innovation, support skills and learning and improve Canada's health
care system. It will introduce measures that build on the Government's Five-Year
Tax Reduction Plan to further improve the tax system, enhance incentives to
work, save and invest, promote entrepreneurship and small business, and
strengthen the Canadian tax advantage for investment.


                                       17





                              THE BUDGET PLAN 2003


     A more productive economy is not just about higher incomes for Canadians.
It is also about ensuring that our economic choices integrate social and
environmental considerations to ensure Canada's development is sustainable. All
sectors of the economy must confront and act on this challenge to position
themselves for sustainable future growth and competitiveness.

HIGHLIGHTS

STRENGTHENING RESEARCH AND INNOVATION

This budget will invest $1.7 billion in 2002-03 and over the next two years to
support research and innovation, including:

o  a $125-million-per-year increase in funding for Canada's three federal
granting councils beginning in 2003-04;

o  a new Canada Graduate Scholarships program supporting 4,000 new
scholarships at program maturity;

o  $225 million per year to help fund the indirect costs associated with
federally sponsored research through the granting councils beginning in 2003-04;

o  $16 million over the next two years for northern science;

o  investments of $500 million in the Canada Foundation for Innovation for
state-of-the-art health research facilities and $75 million in Genome Canada for
health genomics;

o  $15 million to the Rick Hansen Man In Motion Foundation and $20 million to
the Medical and Related Sciences project;

o  $30 million for SchoolNet and the Community Access Program;

o  an additional $70 million over two years for the National Research Council
of Canada to strengthen the Industrial Research Assistance Program, support
astronomy and establish new regional innovation centres; and

o  an additional $190 million in equity to expand venture capital by the
Business Development Bank of Canada and $20 million for Aboriginal Business
Canada in support of entrepreneurship and business development.



                                       18




                           INTRODUCTION AND OVERVIEW

SUPPORTING SKILLS AND LEARNING

This budget provides $285 million in 2002-03 and over the next two years for
skills and learning, including:

o  $41 million to better attract and facilitate the integration of skilled
immigrants into the Canadian labour market and society;

o  $60 million over two years to improve the Canada Student Loans Program;

o  $100 million for the creation of the proposed Canadian Learning
Institute; and

o  $72 million to improve educational outcomes for Aboriginal people and ensure
they are provided with training and employment opportunities on major projects
across Canada.

IMPROVING THE TAX SYSTEM

This budget builds on the Government's Five-Year Tax Reduction Plan to further
improve the tax system and enhance incentives to work, save and invest. This
budget:

o  supports Canadian families by increasing the National Child Benefit
supplement and introducing a new Child Disability Benefit;

o  encourages savings by Canadians by increasing the registered retirement
savings plan annual contribution limit to $18,000 by 2006 and making
corresponding increases for employer-sponsored registered pension plans;

o  promotes entrepreneurship and small business through a number of tax changes,
including an increase in the small business deduction limit to $300,000 over
four years;

o  strengthens the Canadian advantage for investment by legislating the
elimination of the federal capital tax over five years, eliminating it for
medium-sized corporations as early as 2004;

o  improves the taxation of resource income in Canada by reducing the corporate
tax rate of the sector to 21 per cent over the next five years while making
changes to the tax structure of this key sector;

o  extends the temporary mineral exploration tax credit; and

o  enhances the Film or Video Production Services Tax Credit.



                                       19




                              THE BUDGET PLAN 2003


ADVANCING SUSTAINABLE DEVELOPMENT

Budget 2003 includes measures totalling $3 billion to promote sustainable
development and a healthier environment, such as:

o  $2 billion over five years in measures to help implement the Climate Change
Plan for Canada through: increased government support for Sustainable
Development Technology Canada and the Canadian Foundation for Climate and
Atmospheric Sciences; improved tax incentives in renewable energy; and funding
for other climate change measures, including targeted initiatives and
partnerships. Actions to promote energy efficiency, renewable energy,
sustainable transportation and new alternative fuels, in such areas as building
retrofits, wind power, fuel cells and ethanol, will be considered;

o  an investment of $340 million over two years to address federal contaminated
sites, improve air quality, better assess and manage toxic substances, further
protect Canada's species at risk, and support implementation of Canada's
commitments at the World Summit on Sustainable Development;

o  $600 million over five years to upgrade, maintain and monitor water and
waste water systems on reserves; and

o  $74 million over two years as an initial investment for the establishment of
10 new national parks and 5 new national marine conservation areas and to
restore the ecological health of existing parks.

RENEWING CANADIAN AGRICULTURE

In June 2002 the Government delivered on its previous commitment to provide
predictable, long-term funding for agriculture by allocating $5.2 billion over
six years to the sector. Budget 2003 builds on the new direction for
agricultural policy through new investments in several areas:

o  $220 million this fiscal year to provide an advance to the Crop Reinsurance
Fund, ensuring that farmers will receive future payments;

o  $100 million over the next two fiscal years to the Canadian Food Inspection
Agency to help it maintain the food safety system;

o  $30 million over the next two fiscal years to the Canadian Grain Commission
to allow it to maintain its level of service to farmers;

o  $113 million this fiscal year for infrastructure improvements at Canada's
four veterinary colleges; and

o  $20 million over the next two years to supplement Farm Credit Canada
investments for further promotion of innovation in the agricultural sector.



                                       20



                               INTRODUCTION AND OVERVIEW

CANADA IN THE WORLD

Canada has a long history of successfully embracing global markets, and
Canadians recognize that international stability, security and prosperity are
key to their well-being.

     Developments over the last 18 months have reminded Canadians that security
and prosperity cannot be taken for granted. The global environment requires a
military that is funded and equipped to help shoulder its international
responsibilities, as our efforts in the war against terrorism, and particularly
in Afghanistan, have demonstrated. This budget provides further support to
Canada's military this year and beyond.

     New security concerns have demanded action to keep our borders secure,
while facilitating the legitimate flow of goods, services and people. In the
aftermath of September 11, 2001, the Government introduced a $7.7-billion
package of measures to ensure the security of Canadians--the largest in Canadian
history. Much has been achieved since then. The Government has moved ahead with
important new initiatives in the areas of air, marine and border security and is
committed to do more.

     The Government has partnered with Canadian businesses to help them make the
most of the opportunities available in Canada's major foreign markets and enter
and thrive in new ones. As the pace of global competition quickens, it becomes
ever more important that the Government continue to advance the interests of
Canadians in active, innovative and responsive ways. This budget boosts Canada's
presence in its most important foreign market, the United States.

     The unrest in many parts of the world and the poverty that afflicts so many
in the developing world offend Canadians' values and threaten Canada's security
and economic prosperity. That is why, from its peacekeeping activities to land
mine treaties to the G8 Africa Action Plan, to its leadership on debt relief and
providing free access to the Canadian market for virtually all goods from the
least developed countries, Canada has a rich history of effective, compassionate
responses to international challenges. Such actions to combat global instability
and poverty are the responsible actions of a country dedicated to helping build
strong societies beyond its own borders.


                                       21





                              THE BUDGET PLAN 2003


HIGHLIGHTS

STRENGTHENING CANADA'S MILITARY

o  This budget makes a significant, long-term investment in Canada's defence
capabilities, including:

     -   an immediate allocation of $270 million this fiscal year for Operation
         Apollo in Afghanistan and to address urgent capital and other
         requirements; and

     -   an ongoing increase of $800 million per year of new funding beginning
         in 2003-04.

o  It also sets aside a $125-million reserve for contingencies in 2002-03 and
$200 million for 2003-04.

ENSURING SECURITY AT HOME

o  Budget 2003 builds on the large investment by the Government in 2001 to
respond to Canada's changed domestic security needs. New measures include:

     -   a reduction in the level of the Air Travellers Security Charge for
         travel within Canada from $12 to $7 for one-way travel and from $24 to
         $14 for round-trip travel;

     -   an additional $50 million next fiscal year and $25 million in 2004-05
         for the Security Contingency Reserve to help the Government to respond
         to unforeseen future security needs, including border security; and

     -   to ensure the Canadian Coast Guard can provide necessary safety
         services, $94.6 million over the next two years for major repairs to
         its fleet for shore-based infrastructure and capital replacement
         purchases.

ENHANCING CANADA-U.S.TRADE

o  Recognizing that cross-border trade is critical to Canada's economy, Budget
2003:

     -   supports the implementation of the Canada-U.S. 30-point Smart Border
         Action Plan to enhance the security of the border and facilitate the
         legitimate flow of people and goods; and

     -   commits $11 million over the next two years to bolster Canada's
         representation and trade promotion activities in the U.S.



                                       22




                           INTRODUCTION AND OVERVIEW


INCREASING CANADA'S INTERNATIONAL ASSISTANCE

o  Budget 2003 confirms Canada's commitment to meeting its international
obligations:

     -   the budget increases Canada's International Assistance Envelope by 8
         per cent annually through 2004-05 toward the objective of doubling the
         assistance budget by 2010. This translates into an increase of
         $1.4 billion this fiscal year and the next two fiscal years; and

     -   effective January 1, 2003, Canada is providing duty-free and quota-
         free access to all imports from 48 of the world's least developed
         countries, with the exception of certain agricultural products.



                                       23



                                  THE BUDGET PLAN 2003

IMPROVING EXPENDITURE MANAGEMENT AND ACCOUNTABILITY

The Government has been successful in keeping the country on a sound financial
footing by maintaining balanced budgets for six consecutive years since 1997-98.
It has achieved this through a balanced approach to spending growth and debt and
tax reduction. However, as the Minister of Finance said in the October 2002
Economic and Fiscal Update, "...sound fiscal management means more than simply
avoiding deficits and reducing debt. It also means managing tax dollars well and
responsibly, and delivering cost-effective and efficient government services."

      Sound fiscal management requires continually reassessing the value of
existing programs so that the Government can reallocate resources from low
priorities to high priorities. It also requires continually looking for new,
more cost-effective ways to deliver government programs. And it means being
transparent about how Canadians' tax dollars are being spent so that the
Government can be fully accountable to Canadians.

     Controlling total expenditure growth contributed significantly to bringing
the budget into balance in 1997-98 after almost three decades of uninterrupted
deficits, and has helped to keep it in balance since then. This has allowed the
Government to reduce debt and invest in key social and economic priorities,
while at the same time implementing the largest tax cuts in Canadian history.
The Program Review process, during which the Government reassessed its programs
to identify those that no longer served a national purpose or could be delivered
more efficiently through other means, was an important contributor to
controlling expenditure growth.

     With this budget, the Government is undertaking new measures to better
manage taxpayers' dollars, building on the experience of Program Review. These
initiatives include launching an ongoing review of the relevance and efficiency
of government programs, and reallocating resources from across government to
highest priority areas.

     Greater accountability will further support the Government's effort to
improve the management of taxpayers' dollars. It will support better decision
making and greater efficiency. The Government's plans to enhance accountability
to Canadians include: more comprehensive and up-to-date financial reporting;
clearer transparency and accountability for transfer payments to the provinces
and territories in support of health care; enhanced accountability for
non-governmental foundations; clear rate-setting processes for non-tax revenues
including employment insurance contributions, the Air Travellers Security Charge
and user charges; and measures to improve investor confidence by strengthening
enforcement against securities and corporate fraud offences.



                                       24




                           INTRODUCTION AND OVERVIEW

HIGHLIGHTS

o  REALLOCATION: The Government is implementing its commitment in the
October 2002 Economic and Fiscal Update to reallocate funding from
lower to higher priorities.

     -   The Government will launch an ongoing examination of all non-statutory
         programs on a five-year cycle under the leadership of the Treasury
         Board, drawing on the experience of the 1994 Program Review. The goals
         will be to ensure that government programs continue to be relevant,
         effective and affordable.

     -   The Government will reallocate $1 billion per year from existing
         spending programs, beginning in 2003-04. This will fund close to
         15 per cent of the costs of the new initiatives announced in this
         budget over the next two years.

o  ACCRUAL ACCOUNTING: Beginning with this budget, the Government will
implement its commitment to present its financial statements on a full accrual
accounting basis.

     -   Under full accrual accounting, the Government will provide a more
         comprehensive accounting of its assets and liabilities, presenting a
         more transparent picture of the Government's financial position and
         enhancing accountability, the management of liabilities and the
         stewardship of assets.

     -   Implementing full accrual accounting responds to a long-standing
         recommendation of the Auditors General of Canada.

o  ACCOUNTABILITY OF FOUNDATIONS: The Government will make a number of changes
to improve the accountability and governance arrangements of arm's-length
foundations. This, in combination with clarifying the policy principles
underlying the use of foundations, will ensure their continued effective use.

o  ACCOUNTABILITY TO PARLIAMENT: To reinforce accountability and transparency in
public reporting, the Government will continue to improve the relevance,
timeliness and clarity of the information it provides to Parliament.

o  CANADA HEALTH TRANSFER: As part of the 2003 First Ministers' Accord on Health
Care Renewal, the Government will implement a new Canada Health Transfer and a
new Canada Social Transfer effective April 1, 2004, to improve the transparency
and accountability of monies transferred for health care.



                                       25




                              THE BUDGET PLAN 2003

o  EMPLOYMENT INSURANCE (EI) CONTRIBUTION RATE SETTING: With this budget:

     -   The Government will reduce the EI employee contribution rate for 2004
         to $1.98 per $100 of insurable earnings. This is the 10th reduction in
         the rate since 1994.

     -   As well, the Government will consult on a new EI rate-setting regime
         for 2005 and beyond, based on the principles of transparency and of
         balancing premium revenues with expected program costs.

o  STRENGTHENING INVESTOR CONFIDENCE: This budget advances the Speech from the
Throne commitment to improve regulations and to help foster a healthy
marketplace and inspire confidence among investors by strengthening enforcement
against securities and corporate fraud offences.

o  AIR TRAVELLERS SECURITY CHARGE: This budget follows up on the Government's
commitment to review the Air Travellers Security Charge to ensure that revenue
from the charge remains in line with planned expenditures for the enhanced air
travel security system through 2006-07.

     -   As a result of that review, and reflecting the impact of the move to
         full accrual accounting in this budget, the Government will reduce the
         charge on flights within Canada by over 40 per cent, from $12 to $7 for
         one-way travel and from $24 to $14 for round-trip travel.

o  DEBT SERVICING AND REDUCTION ACCOUNT: Legislation to terminate the Debt
Servicing and Reduction Account, as recommended by the Auditor General,
will be introduced.

o  USER CHARGING AND COST RECOVERY: The President of the Treasury Board will set
out the principles for improved management practices relating to user charging
and cost recovery. The new policy will include annual reporting of revenues and
performance information to stakeholders and Parliament.



                                       26




                           INTRODUCTION AND OVERVIEW


SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD

Sound financial management has resulted in the Government recording five
consecutive annual surpluses through 2001-02 and reducing the federal debt by
$47.6 billion. At the same time, it has allowed the Government to implement the
largest tax cut in Canadian history and to invest in key priorities of
Canadians, such as health care, support for lower-income families with children,
education, and research and development.

     This sound financial management played an important role in helping Canada
avoid a recession in 2001 despite the global economic downturn. It enabled
fiscal and monetary policy to provide timely support to the Canadian economy
through lower taxes and interest rates. The continual commitment to fiscal
discipline allowed Canada to post a budgetary surplus in 2002, while all other
G7 countries posted deficits. It also helped Canada record the best economic
performance among the G7 countries in 2002, notwithstanding an uneven global
recovery.

     The Government is committed to maintaining this prudent approach to fiscal
planning--an approach that has paid off and remains essential given the
uncertain times. It includes a prudent approach to budget planning, with most
budget decisions made over a rolling two-year horizon. To ensure the federal
budget remains in balance or better, this budget restores the full $3-billion
annual Contingency Reserve and economic prudence in the fiscal projections.

     This budget provides projections of the federal government's finances for
2002-03 and the next two years of the Government's budget plan. It updates the
fiscal projections contained in the October 2002 Economic and Fiscal Update for:

o  the impact of the revised economic outlook, reflecting the most recent
survey of Canadian private sector economists, and recent financial developments;

o  the impact of the implementation of full accrual accounting; and

o  the impact of the spending and revenue measures proposed in this budget.

     Canada's fiscal performance stands out among the major industrialized
countries. According to the OECD, Canada is the only G7 country in surplus in
2002. It is also the only G7 country the OECD expects to be in surplus in 2003.



                                       27




                              THE BUDGET PLAN 2003

HIGHLIGHTS

o  After accounting for the fiscal impact of the proposed new spending
initiatives and tax cuts, this budget projects balanced budgets or better in
2002-03--the sixth consecutive balanced budget--and in each of the next two
fiscal years.

o  These balanced budgets are backed by the normal annual Contingency Reserve of
$3 billion, and economic prudence of $1 billion in 2003-04 and $2 billion in
2004-05. The Contingency Reserve, if not needed, will reduce debt.

o  On an accrual basis, the federal debt (accumulated deficit) as a percentage
of the economy is projected to fall to 44.5 per cent in 2002-03, down from its
peak of 67.5 per cent in 1995-96. With the commitment to balanced budgets in
each of the next two fiscal years, it is forecast to decline to about 40 per
cent in 2004-05.

o  Program spending is expected to increase by 11.5 per cent, or $14.3 billion,
in 2002-03 and average about 4 per cent growth over the next two fiscal years.
In 2002-03 health-related spending, increased transfers to the elderly and the
unemployed, and higher defence and security-related spending account for nearly
three-quarters of the increase. As a percentage of GDP, program spending
averages about 12 per cent over the 2002-03 to 2004-05 period.

o  Budgetary revenues are estimated at 15.7 per cent of GDP in 2002-03--the
lowest share of the economy since the late 1970s. This reflects the impact of
the Government's Five-Year Tax Reduction Plan. This ratio is expected to
continue to decline over the next two years, reflecting the Five-Year Tax
Reduction Plan and further tax reductions proposed in this budget.


FEDERAL DEBT (ACCUMULATED DEFICIT)

In response to the Auditor General of Canada, this budget is presented on a full
accrual basis of accounting. Under the previous accounting standard--modified
accrual accounting--net debt and the accumulated deficit were identical. Under
the new standard, net debt now includes a more comprehensive costing for
financial liabilities but excludes non-financial assets. The accumulated deficit
includes both. It is the sum of all surpluses and deficits in the past. The
accumulated deficit will also be referred to in the Annual Financial Report of
the Government of Canada and budget documents as the "federal debt."



                                       28



                               INTRODUCTION AND OVERVIEW

SUMMARY OF SPENDING AND REVENUE INITIATIVES IN THIS BUDGET

Table 1.1 presents the fiscal impact of the spending and revenue initiatives
proposed in this budget. The net cumulative fiscal cost of the measures over the
three years 2002-03 to 2004-05 amounts to $17.6 billion.

     Table 1.2 presents the fiscal outlook to 2004-05, taking into account the
impact of the revised economic outlook and financial developments to date, the
shift to full accrual accounting and the spending and revenue initiatives
proposed in this budget.


                                       29




                              THE BUDGET PLAN 2003


TABLE 1.1

Spending and Revenue Initiatives: 2003 Budget



                                                              2002-          2003-        2004-
                                                              2003           2004         2005
                                                             ------         ------       ------
                                                                    (millions of dollars)
                                                                                
SPENDING INITIATIVES
   Investing in Canada's health care system
       CHST supplement                                        2,500
       Health Reform Fund                                                    1,000        1,500
       Diagnostic/Medical Equipment Fund                      1,500
       Health information technology                            600
       EI compassionate care                                                    86          221
       Other health initiatives                                 120            283          374
                                                              -----          -----        -----
       Total                                                  4,720          1,369        2,095

   Investing in Canadian families and
    their communities
       Families with children                                                   25           81
       Canadians with disabilities                                             193          193
       Child and family law strategy                                            27           26
       Supporting communities
          Affordable housing and support for homeless                          293          313
          Infrastructure                                                       100          150
          Other                                                                 23           23
       Strengthening Aboriginal communities                                     38           45
       Promoting Canadian culture and values                                   188          233
                                                              -----          -----        -----
       Total                                                                   886        1,065

   Investing in a more productive,
    sustainable economy
       Strengthening research and innovation                    575            470          470
       Skills and learning                                       12            171          102
       Advancing sustainable development                          4            699          437
       Agriculture                                              333             65           65
                                                              -----          -----        -----
       Total                                                    924          1,405        1,074

   Canada in the world
       Defence                                                  270            800          800
         Contingency                                            125            200
       International assistance                                 353            202          820
       Other                                                                    99           81
                                                              -----          -----        -----
       Total                                                    748          1,301        1,704

   Expenditure management and accountability
       Regulation                                                 7             25           34
       Expenditure reallocation                                             -1,000       -1,000

TOTAL SPENDING INITIATIVES                                    6,398          3,986        4,969



                                       30




                           INTRODUCTION AND OVERVIEW


TABLE 1.1

Spending and Revenue Initiatives: 2003 Budget (cont'd)



                                                              2002-          2003-        2004-
                                                              2003           2004         2005
                                                             ------         ------       ------
                                                                    (millions of dollars)
                                                                                
REVENUE INITIATIVES
    Investing in Canada's health care system
       GST rebate for health care institutions                                  30           55
    Investing in Canadian families and their communities
       Families with children
         National Child Benefit supplement                                     200          300
       Canadians with disabilities                                              95          160
    Investing in a more productive,
     sustainable economy
       Advancing sustainable development                                         5            5
    Improving the tax system
       Supporting savings by Canadians                           25            105          165
       Supporting entrepreneurship and small business                           90          140
       Building the Canadian tax advantage                       10            140          545
    EI premium rate reduction                                                   53          178
                                                              -----          -----        -----
    TOTAL REVENUE INITIATIVES                                    35            718        1,548

TOTAL SPENDING AND REVENUE INITIATIVES                        6,433          4,704        6,517
                                                              =====          =====        =====



                                       31



                              THE BUDGET PLAN 2003


TABLE 1.2

Summary Statement of Transactions: Budget 2003: Full Accrual With Measures




                                                           2001-      2002-        2003-       2004-
                                                           2002       2003         2004        2005
                                                          ------     ------       ------      ------
                                                                (billions of dollars)
                                                                                   
BUDGETARY TRANSACTIONS
     Budgetary revenues                                    171.7      178.7        184.7       192.9
     Total expenditures
        Program spending                                   124.3      138.6        143.0       149.6
        Public debt charges                                 39.3       37.2         37.6        38.4
                                                           -----      -----        -----       -----
        Total expenditures                                 163.5      175.8        180.7       188.0

     UNDERLYING BUDGETARY SURPLUS                            8.2        3.0          4.0         5.0

     Less prudence
        Contingency Reserve                                             3.0          3.0         3.0
        Economic prudence                                                            1.0         2.0
                                                           -----      -----        -----       -----
        Total                                                           3.0          4.0         5.0

     Budgetary balance                                       8.2        0.0          0.0         0.0

FEDERAL DEBT (ACCUMULATED DEFICIT)
     Balanced budget (no debt reduction)                   507.7      507.7        507.7       507.7

NON-BUDGETARY TRANSACTIONS
     Loans, investments and advances                        -0.1       -1.3         -1.4        -1.5
     Pensions and other accounts                            -0.1        0.4         -0.6        -1.4
     Other                                                  -3.2        4.3         -3.7         0.7
                                                           -----      -----        -----       -----
     Total                                                  -3.5        3.4         -5.8        -2.1

FINANCIAL REQUIREMENTS/SOURCE                                4.7        3.4         -5.8        -2.1

PER CENT OF GDP
     Budgetary revenues                                     15.7       15.7         15.4        15.2
     Program spending                                       11.4       12.2         11.9        11.8
     Public debt charges                                     3.6        3.3          3.1         3.0
     Budgetary balance                                       0.7        0.0          0.0         0.0
     Federal debt (accumulated deficit)
        Balanced budget (no debt reduction)                 46.5       44.5         42.2        40.1
        Debt reduced by $3 billion per year                 46.5       44.3         41.7        39.6
                                                           -----      -----        -----       -----


Note: Numbers may not add due to rounding.



                                       32

2

ECONOMIC DEVELOPMENTS
AND PROSPECTS








                              THE BUDGET PLAN 2003


      HIGHLIGHTS
      _________________________________________________________________________

o     Average economic growth in Canada in the first three quarters of 2002 was
      4.4 percent, the strongest among the Group of Seven (G7) countries. Strong
      domestic demand, especially consumer spending and residential investment,
      led Canadian growth as external demand remained uneven.

o     During 2002 the economy created 560,000 jobs, more than 60 per cent of
      which were full-time. All age groups and all regions of the country
      benefited from the job gains.

o     The solid performance of the Canadian economy at a time of global weakness
      reflects Canada's sound economic policies. Five consecutive budgetary
      surpluses, a sharp drop in public debt and large tax cuts supported
      confidence and domestic demand. This sound fiscal policy, together with
      low inflation, allowed the Bank of Canada to reduce short-term interest
      rates to their lowest level in more than 40 years, boosting consumer
      spending and confidence.

o     Unlike the early 1980s and early 1990s, Canada outperformed the U.S. in
      both output and employment growth during the global slowdown in 2001 and
      the recovery last year. In contrast to Canada's strong job creation record
      in 2002, the U.S. economy lost 229,000 jobs. The employment rate in Canada
      is now about the same as the U.S. rate for the first time in 20 years.

o     The global recovery is expected to continue but at a moderate pace. In
      particular, the U.S. near-term outlook is somewhat weaker than anticipated
      at the time of the October 2002 Economic and Fiscal Update and
      considerable downside risks remain for the global economy. The external
      risks include the ongoing impact of equity market declines on U.S.
      investor and consumer confidence, the geopolitical risks associated with
      the possibility of war in Iraq and a continuation of the disruption of
      Venezuelan oil production. If these risks materialize, global growth would
      be slower than expected and this would affect Canada.



                                       34




                      ECONOMIC DEVELOPMENTS AND PROSPECTS



o     The Department of Finance survey of private sector economists in December
      2002 indicates Canadian growth of 3.3 per cent in 2002 and 3.2 per cent in
      2003. Growth is expected to rise to 3.5 per cent in 2004, consistent with
      the expectation that the U.S. economic recovery will gain momentum in the
      second half of this year and into next year.

o     The Organisation for Economic Co-operation and Development (OECD) and
      International Monetary Fund (IMF) predict that Canada will outperform all
      G7 countries in growth in 2003.



                                       35



                                  THE BUDGET PLAN 2003


INTRODUCTION

This chapter reviews recent economic developments and prospects. It establishes
the economic-planning assumptions that underlie the Government's budget plan.

     Over the past two years Canada's economy has demonstrated remarkable
resilience in the face of global weakness and uncertainty.

     In 2001 the Canadian economy outperformed that of the United States and
avoided recession during the global economic downturn. This is in sharp contrast
to the recessions of the early 1980s and early 1990s, when Canada suffered more
severe downturns and recovered more slowly than the U.S.

     Thanks to strong domestic demand, the Canadian economy continued to
outperform the U.S. economy in 2002 in the face of an uneven global economic
recovery. The strength of the Canadian economy was particularly evident in
labour markets.

     Canada's resilient performance reflects strong economic fundamentals, large
tax cuts and an increasingly competitive business sector. Low inflation,
combined with the Government's track record of budgetary surpluses and a
commitment to maintaining balanced budgets, provided the Bank of Canada with the
flexibility to respond to economic weakness in 2001 by reducing short-term
interest rates to levels not seen in 40 years. This has helped to support
domestic demand and household confidence. Budgetary surpluses and debt repayment
are also freeing up funds in capital markets for business investment and
reducing Canada's reliance on foreign saving.

     Canada is forecast to lead the G7 countries again in economic growth in
2003. However, the global economic outlook remains uncertain. In the face of a
variety of global challenges, Canada will maintain the prudent approach to
fiscal planning that has served the nation well in recent years.

_______________________________________________________________________________
Note: This chapter incorporates data available up to February 7, 2003.



                                       36



                         ECONOMIC DEVELOPMENTS AND PROSPECTS


            CANADA CONTINUES TO FACE AN UNCERTAIN GLOBAL ENVIRONMENT


OECD REAL GDP GROWTH

[BAR CHART SHOWING OECD REAL GDP GROWTH]


(1) Projection for 2002 except the U.S.
Sources: OECD Economic Outlook, No. 72 (December 2002); U.S. Bureau of Economic
Analysis.



o  The external economic environment has been challenging over the past two
years.

o  World economic conditions deteriorated considerably in 2001, with all major
economies experiencing a significant slowdown in growth, including recessions in
the U.S., Japan and Germany.

o  While the global economy began to recover in late 2001, the recovery through
2002 has been relatively modest and uneven, in the context of ongoing economic,
financial and geopolitical uncertainties.

o  Growth weakened in Europe in 2002. Japan, which experienced negative growth
in 2001, is expected to have remained in recession in 2002. While the U.S.
experienced a recovery in 2002, quarterly growth has remained uneven.



                                       37



                              THE BUDGET PLAN 2003


THE U.S. RECOVERY HAS BEEN UNEVEN


S&P 500 INDEX AND U.S. CONSUMER CONFIDENCE

[LINE GRAPH SHOWING CHANGE IN S&P 500 INDEX AGAINST U.S. CONSUMER CONFIDENCE]

Sources: Standard & Poor's and the Conference Board.

U.S. REAL GDP GROWTH

[BAR CHART SHOWING U.S. REAL GDP GROWTH]



                                       38




                      ECONOMIC DEVELOPMENTS AND PROSPECTS


o  After stabilizing late in 2001, U.S. equity markets declined sharply again in
the summer of 2002 in the wake of accounting and corporate scandals which
undermined investor confidence. Combined with a weak labour market and
uncertainty about the impact of a possible conflict in Iraq, U.S. consumer
confidence declined throughout most of 2002.

o  The pace of the U.S. economic recovery to date has been uneven and has not
maintained solid momentum. While low interest rates and recent fiscal measures
have generally helped to support household demand over the recovery, the pattern
of real output growth through 2002 has been strongly influenced by special
factors such as the need for firms to replenish depleted inventories early in
the year, and later in the year by generous automotive sales incentives that led
consumers to bring forward expenditures. Business investment levels remain well
below those in 2000.

o  The pull-back of the temporary automotive incentives early in the fourth
quarter of 2002, along with the impact of significant equity market declines on
household wealth and consumer confidence, led to a sharp slowdown in consumer
spending. As a result, U.S. real gross domestic product (GDP) growth in the
fourth quarter was only 0.7 per cent--down from 4 per cent in the third quarter.
For 2002 as a whole, real GDP growth in the U.S. was 2.4 per cent.



                                       39



                              THE BUDGET PLAN 2003

CANADIAN GROWTH OUTPERFORMED THAT
OF THE UNITED STATES DURING THE 2001 GLOBAL DOWNTURN
AND THE 2002 RECOVERY



CHANGE IN REAL GDP AND EMPLOYMENT


[BAR CHART SHOWING CHANGE IN REAL GDP AND EMPLOYMENT (CANADA AND U.S.)]

(1) GDP: Q1 2002 to Q3 2002; employment: January to December 2002.



o  Over the past two years Canada's economy has demonstrated remarkable
resilience in the face of global uncertainty.

o  The Canadian economy performed better than the U.S. economy in the 2001
global slowdown; real GDP actually rose in Canada while it declined in the U.S.

o  This stands in sharp contrast to our poorer performance in the recessions of
the early 1980s and early 1990s. During those two recessions real GDP in Canada
declined more than in the U.S.

o  The Canadian economy also continued to outperform the U.S. economy
during the 2002 recovery. Over the first three quarters of 2002 real GDP
growth averaged 4.4 per cent (annualized) in Canada compared to 3.4 per cent
in the U. S.

o  The robust performance of the Canadian economy was reflected in a surging
labour market throughout 2002. During the year 560,000 jobs were created in
Canada, compared with a decline of 229,000 jobs in the U.S.



                                       40



                         ECONOMIC DEVELOPMENTS AND PROSPECTS

CANADA'S PERFORMANCE HAS BEEN LED BY SOLID
DOMESTIC DEMAND


CONTRIBUTIONS TO CANADIAN REAL GDP GROWTH

[BAR CHART SHOWING CONTRIBUTIONS TO CANADIAN REAL GDP GROWTH]


o  Domestic demand was a source of strength for Canada in the global downturn of
2001 and recovery of 2002, in sharp contrast to the early 1980s and early 1990s.
Strong consumer demand and significant growth in residential investment led the
solid recovery from the 2001 slowdown, supported by lower taxes, low interest
rates, strong employment growth and rising incomes.



                                       41



                              THE BUDGET PLAN 2003

CANADA'S EMPLOYMENT PERFORMANCE IN 2002 WAS STELLAR

EMPLOYMENT GAINS IN CANADA (JANUARY TO DECEMBER 2002)


[BAR CHART SHOWING 2002 EMPLOYMENT GAINS IN CANADA]

o  During 2002 the Canadian economy created 560,000 new jobs. This represents
the largest number of jobs created over any 12-month period on record back to
1976 and the fastest growth rate in 15 years (3.7 per cent). Moreover, there
were job gains in most sectors of the economy and over 60 per cent of these new
jobs were full-time.

o  All age groups benefited from the strong job creation, including youths and
adults over the age of 55--two groups that often face more difficulty finding
employment.

o  The strength in the labour market translated into employment growth for all
regions, with Saskatchewan and Quebec leading the way. Employment growth was
also robust in British Columbia, Alberta, New Brunswick and Ontario.

o  Employment fell slightly in January 2003, as a gain of 34,400 full-time jobs
was offset by a decline of 36,500 part-time jobs.



                                       42



                         ECONOMIC DEVELOPMENTS AND PROSPECTS

CANADA'S UNEMPLOYMENT RATE GAP WITH THE U.S.
HAS NARROWED

EMPLOYMENT RATE


[LINE GRAPH SHOWING CHANGE IN CANADA'S EMPLOYMENT RATE AS COMPARED TO THE U.S.]


UNEMPLOYMENT RATE


[LINE GRAPH SHOWING CHANGE IN CANADA'S UNEMPLOYMENT RATE AS COMPARED
 TO THE U.S.]


                                       43




                              THE BUDGET PLAN 2003


o  Strong employment gains in Canada raised the proportion of the working-age
population holding a job--the employment rate--to an all-time high of 62.4 per
cent in December 2002 (it stood at 62.3 per cent in January 2003). In contrast,
the weakness in the U.S. labour market led to a decline in the employment rate
over the course of 2002. The employment rates in Canada and the U.S. are now
about the same for the first time since 1982.

o  The Canadian unemployment rate edged down from 8 per cent at the end of 2001
to 7.4 per cent in January 2003. As a result, the Canada-U.S. unemployment rate
gap fell to 1.7 percentage points in January 2003. If the Canadian unemployment
rate were measured using U.S. methodology, the gap would be only 1 percentage
point--one of the smallest gaps since the early 1980s.

o  The strength of the Canadian labour market in 2002 is further evidenced by
the large rise in the participation rate (the share of the working-age
population that is working or actively looking for work). This increase is
notable, particularly at this stage of the economic cycle. The participation
rate reached 67.5 per cent in December, a level equalled only once before in
January 1990. The participation rate fell slightly in January 2003 to 67.3 per
cent.



                                       44



                         ECONOMIC DEVELOPMENTS AND PROSPECTS


STRONG FUNDAMENTALS, LED BY AN IMPROVED FISCAL POSITION
AND LOW INFLATION, HAVE SUPPORTED CANADA'S SOLID
ECONOMIC PERFORMANCE


TOTAL GOVERNMENT FINANCIAL BALANCES:(1)
CANADA AND THE G7

[CHART SHOWING CHANGE IN FINANCIAL BALANCES AS COMPARED TO G7 AVERAGE]


(1) National Accounts basis.
(2) OECD December 2002 projections for 2002.
Sources: OECD Economic Outlook, No. 72 (December 2002), Department of
Finance calculations.


NET ISSUANCES(1) IN CAPITAL MARKETS


[CHART SHOWING CANADA'S NET ISSUANCES IN THE CAPITAL MARKETS]


(1) Total net issues of government bonds and net issues of corporate bonds and
equities.
Source: Bank of Canada, Banking and Financial Statistics (January 2003).



                                       45




                              THE BUDGET PLAN 2003


o  Canada's resilient economic performance during the global slowdown was
underpinned by the sharp turnaround in the fiscal situation and sustained low
inflation. This enabled fiscal and monetary policy to provide support to the
Canadian economy through lower taxes and low interest rates.

o  Over the last few years the fiscal position of Canadian governments has
improved dramatically--moving from large chronic deficits to consistent
budgetary surpluses. Canada has recorded the highest financial surplus relative
to the size of the economy of all G7 countries annually since 1997.

o  2002 will mark the sixth consecutive year of budget surpluses for Canada.
This is the result of a systematic fiscal strategy, based on a prudent approach
to budget planning.

o  This fiscal strategy enabled the federal government to stay in surplus during
the recent global economic downturn while fully implementing the five-year
$100-billion tax cut plan and taking new measures in the December 2001 budget to
enhance security for Canadians. This is in stark contrast to the U.S. and other
G7 countries, which have growing fiscal deficits.

o  One of the many benefits of eliminating government deficits can be seen in
capital markets. A sharp reduction in government borrowing in Canadian capital
markets, together with lower interest rates, has encouraged business investment.
Canada's corporate bond and equity issues have expanded as government debt
issuance has declined.



                                       46



                        ECONOMIC DEVELOPMENTS AND PROSPECTS



WITH CANADA'S STRONGER ECONOMIC AND FISCAL PERFORMANCE,
OUR CURRENT ACCOUNT BALANCE AND NET FOREIGN INDEBTEDNESS
HAVE IMPROVED SIGNIFICANTLY


CURRENT ACCOUNT BALANCE

[LINE GRAPH SHOWING CHANGE IN CURRENT ACCOUNT BALANCE]


NET FOREIGN DEBT

[LINE GRAPH SHOWING CHANGE IN NET FOREIGN DEBT AS PERCENTAGE OF
GDP - CANADA VS. U.S.]



(1) Estimates: Based on current account estimates from the Department of
Finance for Canada and Global Insight for the U.S.



                                       47




                              THE BUDGET PLAN 2003

o  Canada's stronger economic performance and improved business competitiveness
in recent years can also be seen in our current account balance, which has gone
from large deficits through the 1980s and most of the 1990s to large surpluses
today despite the U.S. slowdown.

o  As a result, Canada's net foreign debt as a per cent of GDP fell from 44 per
cent in the early 1990s to an estimated 16 per cent in 2002--the lowest level in
more than 50 years. This benefits us by reducing our net investment income flows
to foreigners and lowering our exposure to global financial market shocks.

o  Canada's net foreign debt is now below that of the U.S. With continuing
budgetary and current account surpluses expected in Canada, and continuing
deficits anticipated in the U.S., Canada's net foreign indebtedness should
continue to fall and the gap vis-a-vis the U.S. continue to widen.



                                       48



                        ECONOMIC DEVELOPMENTS AND PROSPECTS

SUSTAINED BALANCED BUDGETS AND A PROVEN RECORD OF LOW
AND STABLE INFLATION HAVE INCREASED THE BANK OF CANADA'S
ROOM TO MANOEUVRE


AVERAGE ANNUAL INFLATION:(1) 1992-2001


[BAR CHART SHOWING AVERAGE ANNUAL INFLATION OF ITALY, UK, GERMANY, U.S., CANADA
AND FRANCE]



(1) Private consumption deflator growth.
Source: OECD Economic Outlook, No. 72 (December 2002).


CONSUMER PRICE INFLATION AND 3-MONTH TREASURY BILL RATES

[LINE GRAPH SHOWING CHANGE IN CONSUMER PRICE INFLATION AGAINST 3-MONTH TREASURY
BILL RATES]

(1) Core CPI inflation is the all-items CPI excluding the eight most volatile
components and the effect of changes in indirect taxes on the remaining
components, as defined by the Bank of Canada.



                                       49




                              THE BUDGET PLAN 2003

o  Low and stable inflation in Canada over the past decade--among the lowest in
the world--has established the credibility of Canadian inflation targets.

o  Combined with the turnaround in Canada's fiscal position, this credibility
has given monetary authorities room to manoeuvre through the economic downturn
and uneven global recovery. The Bank of Canada was able to lower interest rates
in 2001 as soon as the economy showed signs of weakness. Short-term interest
rates remain close to their lowest level in more than 40 years and continue to
support growth in Canadian domestic demand.

o  Total consumer price inflation rose above the 1 to 3 per cent target band to
3.8 per cent in the fourth quarter of 2002, partly reflecting one-off factors
such as higher electricity prices in Ontario and substantial increases in
insurance premiums, as well as rising prices for gasoline, fuel oil and natural
gas. Core consumer price inflation, which excludes the volatile components of
the Consumer Price Index and the effect of indirect taxes, was 2.8 per cent in
the fourth quarter of 2002, above the 2-per-cent mid-point but within the target
band. The Bank of Canada expects core inflation to move down to 2 per cent in
early 2004.



                                       50



                         ECONOMIC DEVELOPMENTS AND PROSPECTS


UNLIKE THE U.S., CANADIAN CONSUMER CONFIDENCE
HAS BEEN RESILIENT



CONSUMER CONFIDENCE

[LINE GRAPH SHOWING CHANGE IN CANADIAN CONSUMER CONFIDENCE AGAINST U.S.
CONSUMER CONFIDENCE]


Sources: The Conference Board and The Conference Board of Canada.



o  Canadian consumer confidence remained high in 2002, at almost 15 per cent
above its historical average and 12 per cent above its trough in the third
quarter of 2001.

o  The resilience of Canadian consumer confidence reflects strong employment
growth, sustained strong disposable income growth boosted by large tax cuts, and
historically low interest rates.

o  In contrast, U.S. consumer confidence has fallen by over 40 per cent since
the third quarter of 2000, reflecting weak labour market conditions, declines in
equity market prices and geopolitical risks.



                                       51



                              THE BUDGET PLAN 2003


HOUSING ACTIVITY HAS BEEN EXCEPTIONALLY STRONG


HOUSING STARTS

[BAR GRAPH SHOWING HOUSING STARTS]

HOUSING AFFORDABILITY INDEX AND ONE-YEAR MORTGAGE RATE

[LINE GRAPH SHOWING CHANGE IN HOUSING AFFORDABILITY INDEX AGAINST ONE-YEAR
MORTGAGE RATE]



                                       52





                      ECONOMIC DEVELOPMENTS AND PROSPECTS



o  Residential investment has been particularly strong in the recovery, with the
robust performance of both housing starts and renovations.

o  Strong employment and income gains, along with low mortgage rates, boosted
housing starts to a record level of over 200,000 in 2002. Robust housing
activity has been spread across all regions of the country.

o  The housing affordability index, which represents the proportion of average
disposable household income needed to make mortgage payments on an average
house, improved throughout 2001 and remained close to its historical best in
2002.

o  In February 2003 one-year and five-year mortgage rates, at 4.9 per cent and
6.6 per cent, were 280 and 135 basis points lower than their levels at the
beginning of 2001. As a result, homeowners now save close to $2,000 annually on
a typical one-year mortgage of $100,000 compared to what they would have paid at
the beginning of 2001, while they save $1,000 annually on a five-year mortgage.

o  Similarly, declines in interest rates for businesses mean that annual
payments on small business loans of $250,000 tied to the prime rate would be
$7,500 lower than they were at the beginning of 2001.



                                      53



                              THE BUDGET PLAN 2003

CORPORATE PROFITS AND BUSINESS CONFIDENCE REMAIN HIGH...


CORPORATE PROFITS AS A SHARE OF GDP

[LINE GRAPH SHOWING CHANGE IN CORPORATE PROFITS AS A SHARE OF GDP]


BUSINESS CONFIDENCE

[LINE GRAPH SHOWING CHANGE IN BUSINESS CONFIDENCE]



Source: The Conference Board of Canada.



                                       54




                      ECONOMIC DEVELOPMENTS AND PROSPECTS


o  Following a sharp decline to 9.4 per cent of nominal GDP in the fourth
quarter of 2001, corporate profits in Canada rebounded to 11.1 percent of GDP by
the third quarter of 2002, well above the historical average of 9.9 per cent.

o  Supported by this recovery in corporate profits, business confidence in
Canada bounced back in the first half of 2002 after declining in 2001. Although
business confidence fell somewhat in the second half of 2002, reflecting
geopolitical risks and uncertainty about the pace of the U.S. economic recovery,
the index has remained above its historical average.

o  The December 2002 Quarterly Business Barometer of the Canadian Federation of
Independent Business indicated that confidence of small and medium-sized
businesses--which is much more dependent on domestic demand conditions--remains
close to historical highs.



                                       55



                              THE BUDGET PLAN 2003



....WHICH BODES WELL FOR FUTURE INVESTMENT


GROWTH IN REAL BUSINESS INVESTMENT IN MACHINERY AND EQUIPMENT

[BAR GRAPH SHOWING GROWTH IN REAL BUSINESS INVESTMENT IN MACHINERY AND
EQUIPMENT]

o  Business investment in machinery and equipment (M&E) has recently shown
signs of improvement, supported by rising profits and indications that the
Canadian economy's pace of growth will be sustained.

o  While the level of M&E investment in the third quarter of 2002 was still
below the level recorded a year earlier, the ongoing recovery in corporate
profits and business confidence should support further gains in business
investment.

o  Canadian real M&E investment has improved significantly in recent years,
growing by an average of over 8 per cent a year since 1997. M&E investment,
which frequently embodies new technologies and enables further innovation, is an
important element of sustaining productivity gains in the long run.



                                       56



                       ECONOMIC DEVELOPMENTS AND PROSPECTS


IMPROVED FUNDAMENTALS AND INCREASED BUSINESS INVESTMENT
HAVE STRENGTHENED OUR PRODUCTIVITY PERFORMANCE...


LABOUR PRODUCTIVITY GROWTH IN G7 COUNTRIES

[CHART SHOWING LABOUR PRODUCTIVITY GROWTH IN G7 COUNTRIES]


(1) 2002 growth projections from the OECD; actual employment data for 2002 for
Canada and the U.S.
Sources: OECD Economic Outlook, No. 72 (December 2002); Statistics Canada;
Bureau of Labour Statistics.



o  Canada's productivity performance has improved significantly since 1997.
Measured as real GDP per worker, labour productivity growth in Canada rose from
an average of 1 per cent per year over the 1980-96 period to an estimated 1.5
per cent over the 1997-2002 period.

o  Growth in real GDP per hour worked in the Canadian business sector was even
stronger, with productivity growth averaging 2.1 per cent from 1997 to 2002, up
from 1.2 per cent over the 1980-96 period.(1)

o  Despite this improvement, productivity growth in the U.S. was still higher
than in Canada over the past two decades. Nevertheless, over the 1997-2002
period Canada ranked second in the G7 in productivity growth--an improvement
from second to last over the 1980-96 period.

o  The shift to budgetary surpluses from sustained deficits, a lower debt-to-GDP
ratio, lower tax burdens and low inflation have stimulated investment and
contributed to Canada's improved productivity growth.


_______________________________________________________________________________
(1) The estimate for the 1997-2002 period assumes that 2002 Q4 growth equals the
average growth over the first three quarters of the year.



                                       57



                              THE BUDGET PLAN 2003

....AND THIS IMPROVED PRODUCTIVITY GROWTH, PLUS CANADA'S SUPERIOR LABOUR MARKET
PERFORMANCE, HAS GENERATED STRONGER GROWTH IN LIVING STANDARDS


LIVING STANDARDS GROWTH IN G7 COUNTRIES

[CHART SHOWING LIVING STANDARDS GROWTH IN G7 COUNTRIES]


(1) 2002 growth projections from the OECD; actual population estimates for 2002
for Canada and the U.S.
Sources: OECD Economic Outlook, No. 72 (December 2002); Statistics Canada;
Bureau of Labour Statistics.



o  Living standards can be raised both by increasing the share of the population
that is working and by increasing the productivity of workers.

o  Canada has improved its performance on both fronts since 1997 and, as a
result, has recorded the strongest growth in real GDP per capita--the most
common measure of living standards--of all G7 countries. In contrast, over the
1980-96 period Canada ranked second to last among the G7 countries in living
standards growth.

o  Canadian employment growth relative to the population surpassed that of all
other G7 economies over the 1997-2002 period. While the U.S. has continued to
achieve faster labour productivity growth than Canada since 1997, these gains
have been offset by a weaker labour market performance, resulting in slower
living standards growth than in Canada.

o  Further improvement in Canada's productivity performance will be necessary to
sustain growth in living standards in the long run. Economic factors such as
fiscal and monetary stability, competitive taxes, investment in learning, new
technologies and research and innovation are all key to helping Canada improve
its productivity performance. Equally important is investing in our social
capital to provide Canadians with the skills, confidence and opportunities to
participate in the changing economy.



                                       58



                       ECONOMIC DEVELOPMENTS AND PROSPECTS


FORECASTERS EXPECT CONTINUED SOLID GROWTH IN THE CANADIAN ECONOMY


REAL GDP GROWTH: PRIVATE SECTOR FORECASTERS

[BAR CHART SHOWING REAL GDP GROWTH (PRIVATE SECTOR FORECASTERS)]


Sources: September 2002 and December 2002 Department of Finance survey of
private sector forecasters.



REAL GDP GROWTH: OECD FORECAST FOR G7 COUNTRIES


[BAR CHART SHOWING REAL GDP GROWTH (OECD FORECAST FOR G7 COUNTRIES)]

Source: OECD Economic Outlook, No. 72 (December 2002).



                                       59




                              THE BUDGET PLAN 2003


o  The fiscal projections in the budget are based on private sector economists'
forecasts for the Canadian and global economies.

o  In September 2002 the Department of Finance conducted its regular survey of
Canadian private sector economists. The average economic forecast from that
survey was the basis for the status quo fiscal projections provided in the
October 2002 Economic and Fiscal Update.

o  In December 2002 the Department of Finance updated this survey of Canadian
private sector economists in preparation for the 2003 budget. The fiscal
projections provided in Chapter 8 of this budget are based on this updated
outlook.

o  Private sector forecasters now expect Canadian economic growth of 3.3 per
cent in 2002, with roughly 2 1/2 per cent growth in the fourth quarter.
Forecasters have modestly revised downward their projection for real GDP growth
in 2003 to 3.2 per cent from the 3.5 per cent expected at the time of the
October 2002 Economic and Fiscal Update, reflecting a weaker short-term U.S.
outlook. For 2004 private sector forecasters have revised up slightly their
growth outlook for Canada to 3.5 per cent, reflecting an expected rebound in
U.S. growth.

o  GDP inflation is expected to remain low at 1.1 per cent in 2002, but to
increase to about 2 per cent in 2003 and 2004. Stronger GDP inflation in 2003
largely reflects rising oil prices. Overall, this results in expected nominal
GDP growth of 4.4 per cent in 2002 and 5.4 per cent in both 2003 and 2004.

o  Private sector forecasters expect short-term interest rates to be 60 basis
points lower in 2003 and 20 basis points lower in 2004 than projected at the
time of the October 2002 Economic and Fiscal Update. They expect short-term
interest rates of 3.3 per cent in 2003 and 4.5 per cent in 2004. Current private
sector expectations for 10-year government bonds are at 5.4 per cent in 2003 and
5.9 per cent in 2004.

o  Private sector forecasters expect continuing robust employment growth, with
the unemployment rate falling to 7 per cent by the end of 2003.

o  The IMF and OECD continue to expect that Canadian growth will be the
strongest in the G7 in 2003.



                                       60



                       ECONOMIC DEVELOPMENTS AND PROSPECTS

TABLE 2.1

Private Sector Forecasts for 2002 to 2004




                                           2002          2003        2004
                                           ----          ----        ----
                                                             
REAL GDP GROWTH
December 2001 budget                        1.1           3.9         3.6
October 2002 update                         3.4           3.5         3.3
February 2003 budget                        3.3           3.2         3.5

GDP INFLATION
December 2001 budget                        0.2           1.9         2.0
October 2002 update                         1.1           2.3         2.1
February 2003 budget                        1.1           2.2         1.9

NOMINAL GDP GROWTH
December 2001 budget                        1.3           5.9         5.7
October 2002 update                         4.6           5.9         5.4
February 2003 budget                        4.4           5.4         5.4

3-MONTH TREASURY BILL RATE
December 2001 budget                        2.4           4.0         5.3
October 2002 update                         2.6           3.9         4.7
February 2003 budget                        2.6           3.3         4.5

10-YEAR GOVERNMENT BOND RATE
December 2001 budget                        5.5           5.9         6.1
October 2002 update                         5.3           5.5         5.6
February 2003 budget                        5.3           5.4         5.9

UNEMPLOYMENT RATE
December 2001 budget                        7.6           7.1         6.6
October 2002 update                         7.6           7.1         6.9
February 2003 budget                        7.6           7.3         7.0

EMPLOYMENT GROWTH
December 2001 budget                        0.6           1.9         1.8
October 2002 update                         1.9           2.1         1.8
February 2003 budget                        2.1           2.1         1.8

Addendum:
U.S. REAL GDP GROWTH
December 2001 budget                        1.1           n/a         n/a
October 2002 update                         2.4           3.0         n/a
February 2003 budget                        2.4           2.7         3.6



Sources: September 2001, September 2002 and December 2002 Department of Finance
surveys of private sector forecasters; November 2001, October 2002 and February
2003 Blue Chip Economic Indicators.



                                       61



                              THE BUDGET PLAN 2003



DOWNSIDE RISKS TO THE U.S. AND GLOBAL OUTLOOKS REMAIN


GROWTH OUTLOOK FOR MAJOR ECONOMIC BLOCS


[BAR CHART SHOWING GROWTH OUTLOOK FOR MAJOR ECONOMIC BLOCS]

Source: OECD Economic Outlook, No. 72 (December 2002).



o  Canada will continue to face a challenging global and U.S. economic
environment over the coming year. The global recovery, particularly outside
North America, is proceeding at a relatively slow pace.

o  Japan is expected to emerge from recession in 2003, although the outlook for
the next two years remains weak. Growth is expected to be stronger in Europe in
2003 than in 2002, although it is forecast to remain below 2 per cent.

o  The U.S. recovery is expected to continue and gain momentum in the second
half of 2003 as the recovery in business investment takes hold. However, the
U.S. outlook continues to be subject to considerable uncertainty arising from
the impact of last year's equity market declines and the geopolitical risks
associated with a possible conflict in Iraq.

o  These factors likely played a role in the slowing of U.S. growth late in 2002
and could continue to negatively affect business investment and consumer
sentiment in the near term. Moreover, if the disruption of Venezuelan oil
production continues, this may place additional upward pressure on oil prices,
further reducing global growth prospects.



                                       62







3

INVESTING IN CANADA'S
HEALTH CARE SYSTEM








                              THE BUDGET PLAN 2003


     HIGHLIGHTS

     This budget makes significant investments to address the concerns of
     Canadians about their health care system: waiting lists, availability of
     diagnostic equipment and accountability for their tax dollars. These
     federal investments, in conjunction with those of provincial and
     territorial partners, will help to improve access to the health care system
     for Canadians, enhance accountability for how health dollars are spent, and
     ensure the future sustainability of the system.

o    The 2003 First Ministers' Accord on Health Care Renewal is a commitment
     designed to improve the accessibility, quality, and sustainability of the
     public health care system and enhance transparency and accountability in
     health care spending.

o    Federal support to health care will increase by $17.3 billion over the next
     three years and by $34.8 billion over the next five years. This includes:

     -    $9.5 billion in transfers to provinces and territories over the next
          five years;

     -    $2.5 billion in an immediate investment through a Canada Health and
          Social Transfer (CHST) supplement to relieve existing pressures;

     -    $16.0 billion over five years to provinces and territories for a
          Health Reform Fund targeted to primary health care, home care and
          catastrophic drug coverage;

     -    $5.5 billion over five years in health initiatives, including
          diagnostic/medical equipment, health information technology, and the
          creation of a six-week compassionate family care leave benefit under
          employment insurance; and

     -    $1.3 billion over five years to support health programs for First
          Nations and Inuit.

o    First ministers have also agreed to an enhanced accountability framework to
     report to Canadians on the progress of reform.



                                       64




                    INVESTING IN CANADA'S HEALTH CARE SYSTEM


o    The federal government is setting out a long-term funding framework to
     provide provinces and territories with predictable, growing and sustainable
     support for health care and other social programs.

o    The federal government will create two new transfers on April 1, 2004: a
     Canada Health Transfer (CHT) and a Canada Social Transfer (CST) to increase
     transparency and accountability.



                                       65



                              THE BUDGET PLAN 2003


INTRODUCTION

Canada's publicly funded health care system plays a key role in building the
society we value. It is vital to our quality of life and a reflection of the
values we share as a nation. It is also at the leading edge where economic and
social policies interact. It provides Canada with the distinct economic
advantage ofa healthy, productive workforce and provides security in retirement.

     The Romanow Commission on the Future of Health Care in Canada, the Kirby
Senate Study on the State of the Health Care System in Canada and several recent
provincial reports clearly indicated that Canadians want and expect improved
access to quality services from our publicly funded health care system.
Canadians from all parts of the country have said that modernizing medicare
means providing better access to services such as primary care, diagnostic
services, home care, palliative care and catastrophic drug coverage. In short,
they want real, substantive reforms, along with increased transparency and
accountability.

     Canadians have asked that their governments work together to strengthen the
health care system and ensure its long-term sustainability. The new Accord on
Health Care Renewal, agreed to by Canada's first ministers on February 5, 2003,
reflects a common commitment among governments to work together to improve
access, enhance accountability for how health dollars are spent and the results
achieved, and ensure that the system remains sustainable in the long term.


    "Canadians want a sustainable health care system that provides timely access
    to quality health services. They recognize that reform is essential, and
    they support new public investments targeted to achieve this goal."

                2003 First Ministers' Accord on Health Care Renewal


     The funds provided in this budget build on the significant investments in
health care already made by the Government of Canada since the budget was
balanced in 1997-98, including the September 2000 first ministers' agreement.
This budget confirms increased health care funding of $34.8 billion over the
next five years. The federal government is committed to ensuring that future
generations of Canadians continue to have access to universal, quality
care--care that is based on need, not on the ability to pay.



                                       66




                    INVESTING IN CANADA'S HEALTH CARE SYSTEM


FEBRUARY 2003 ACCORD--A FIVE-YEAR PLAN FOCUSED
ON IMPROVING ACCESS

The agreement reached by the first ministers on February 5, 2003, sets out a
plan for reforms to improve access to quality health care for Canadians. This
plan builds on the September 2000 first ministers' agreement on health. Its
reform themes are consistent with the recommendations of the Romanow Commission
and the Kirby Senate Committee, as well as those of numerous provincial
commissions on health reform.

     Federal support for health care will increase by $17.3 billion over the
next three years and by $34.8 billion over the next five years. It includes:

o  $9.5 billion in increased cash transfers to provinces and territories over
the next five years;

o  $2.5 billion in a CHST supplement to relieve existing pressures, available
to provinces and territories up to the end of 2005-06;

o  $16.0 billion over five years in a Health Reform Fund for the provinces and
territories, to target primary care, home care and catastrophic drug coverage;

o  $1.5 billion to improve access to publicly funded diagnostic services;

o  $600 million to accelerate the development of a national system of
electronic health records;

o  $500 million for research hospitals;

o  $1.6 billion in direct Health Accord initiatives;

o  $1.4 billion for other initiatives in support of health reform; and

o  $1.3 billion to support health programs for First Nations and Inuit.

     The 2003 Accord established an enhanced accountability framework under
which all governments committed to providing comprehensive and regular reports
to Canadians based on comparable indicators relating to health status, health
outcomes and quality of service.



                                       67



                              THE BUDGET PLAN 2003


TABLE 3.1

Increased Federal Support for Health Care (2003-04 to 2007-08)




                                              2003-   2004-    2005-    2006-   2007-
                                              2004    2005     2006     2007    2008     TOTAL
                                             ------  ------   ------   ------  ------    ------
                                                            (millions of dollars)
                                                                       
TRANSFERS
CANADA HEALTH AND
    SOCIAL TRANSFER (CHST) CASH
      Cumulative increases (2000)(1)           700   1,300    1,900    2,500    3,100     9,500
      CHST supplement(2)                     1,000   1,000      500                       2,500

HEALTH REFORM
     Health Reform Fund                      1,000   1,500    3,500    4,500    5,500    16,000
     Diagnostic/medical equipment(3)           500     500      500                       1,500
     Health information technology(4)          200     200      200                         600
     Research hospitals
       (Canada Foundation
       for Innovation)(5)                      100     100      200      100                500
     Direct Health Accord initiatives          221     336      341      341      346     1,585

OTHER HEALTH INITIATIVES
   IN SUPPORT OF REFORM                        337     253      258      258      258     1,364

FIRST NATIONS
   AND INUIT HEALTH                            180     230      280      280      280     1,250

CUMULATIVE FUNDING INCREASES                                 17,336            34,800
                                                             (3-Yr)            (5-Yr)


Note: Totals may not add due to rounding. Payments under both trusts to be made
in a manner that treats all jurisdictions equitably, regardless of when they
draw down funds.
(1)  Includes an increase of $1.8 billion over 2006-07 ($600 million) and
     2007-08 ($1.2 billion).
(2)  $2.5 billion to be paid to a third-party trust and accounted for in 2002-03
     by the federal government. Profile based on an assumed drawdown by
     provinces and territories.
(3)  $1.5 billion to be paid to a third-party trust and accounted for by the
     federal government in 2002-03. Profile based on an assumed drawdown by
     provinces and territories.
(4)  $600 million to be paid to Canada Health Infoway and accounted for by the
     federal government in 2002-03.
(5)  $500 million to be paid to the Canada Foundation for Innovation and
     accounted for by the federal government in 2002-03.


A PLAN FOR CHANGE

Under the 2003 Accord on Health Care Renewal, first ministers set out a range of
initiatives aimed at ensuring real and lasting change for the Canadian health
care system. The ultimate purpose of the Accord is to ensure that Canadians:

o  have access to a health care provider 24 hours a day, 7 days a week;

o  have timely access to diagnostic procedures and treatments;

o  are not required to repeat their health histories or undergo the same test
for every provider they see;



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                    INVESTING IN CANADA'S HEALTH CARE SYSTEM

o  have access to quality home and community care services;

o  have access to the drugs they need without undue financial hardship;

o  have access to quality care no matter where they live; and

o  see their health care system as efficient, responsive and adaptive to their
changing needs and those of their families and communities, now and in the
future.

      These initiatives build on the multi-year action plan for health reform
outlined by first ministers in September 2000.

      Reflecting their collective commitment to reform, Canada's first ministers
have also agreed to pursue enhanced accountability for their health expenditures
through annual public reporting on health system performance. These reports will
include the indicators set out in the September 2000 agreement, as well as
additional comparable indicators on the themes of quality, access, system
efficiency and effectiveness. This will allow Canadians to monitor progress
towards reform, track the level of access to health services and assess the
overall efficiency of the health care system.


SUPPORT THROUGH TRANSFERS TO PROVINCES AND TERRITORIES

This budget confirms:

o  A two-year extension of the original CHST five-year legislative framework put
in place in September 2000, with an additional $1.8 billion, which will bring
total cash transfers to $21.6 billion in 2006-07 and $22.2 billion in 2007-08.

o  The restructuring of the existing CHST, to create a separate Canada Health
Transfer and Canada Social Transfer effective April 1, 2004.

o  A $2.5-billion CHST cash supplement to meet immediate needs in provincial and
territorial health care systems. Provinces and territories will have flexibility
to draw down this amount as they require up to the end of 2005-06. It will be
accounted for by the federal government in fiscal year 2002-03.

o  A federal government commitment to provide up to an additional $2.0 billion
for health for the provinces and territories at the end of fiscal year 2003-04,
if the Minister of Finance determines during the month of January 2004 that
there will be a sufficient surplus above the normal Contingency Reserve to
permit such an investment.



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                              THE BUDGET PLAN 2003


HEALTH REFORM

Federal, provincial and territorial governments have all taken steps to improve
the quality, accessibility and sustainability of Canada's public health care
system and have implemented important reforms. All governments recognize that
reform is essential, and support new public investments targeted to achieve this
goal. Priorities for reform include primary health care, targeted home care,
catastrophic drug coverage, access to diagnostic/medical equipment and the
development of a system of electronic health records.


HEALTH REFORM FUND

This budget provides $16 billion over five years through a special Health Reform
Fund to help provinces and territories accelerate reform in priority areas
identified in the first ministers' 2003 Accord. Specifically, these are:

o  primary health care: to significantly increase the number of Canadians
routinely receiving needed care from multidisciplinary primary health care
organizations or teams, with a goal of ensuring that at least half of the
population within each jurisdiction has access to an appropriate health care
provider 24 hours a day, 7 days a week as soon as possible, and that this target
is fully met within 8 years;

o  home care: to provide first dollar coverage for a basket of services in the
home and community for short-term acute home care, including acute community
mental health and end-of-life care. First ministers have directed health
ministers to determine by September 30, 2003, the minimum services to be
provided; and

o  catastrophic drug coverage: to take measures by the end of 2005-06 to
ensure that Canadians, wherever they live, have reasonable access to
catastrophic drug coverage.

    Governments will have flexibility in determining the best ways to achieve
these reform objectives, based on the particular needs of their residents and
the status of reform in each jurisdiction.

    Governments will prepare annual public reports on these Health Reform Fund
priorities commencing in 2004, using comparable indicators to inform Canadians
on progress achieved and key outcomes.

    Investments under the Health Reform Fund will begin to flow to provinces and
territories in 2003-04, upon passage of relevant legislation. Subject to a
review of progress made in achieving the agreed-upon reforms



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                    INVESTING IN CANADA'S HEALTH CARE SYSTEM


and following a first ministers' meeting, by March 31, 2008, the federal
government will ensure that the level of funding provided through the Health
Reform Fund is integrated into the Canada Health Transfer starting in 2008-09.

DIAGNOSTIC/MEDICAL EQUIPMENT FUND

Waiting times for diagnostic services and medical treatments that rely on new
equipment continue to be a major concern for Canadians. This budget builds on
the $1 billion over two years provided for medical equipment in 2000 with an
additional investment of $1.5 billion over the next three years. This funding
will be provided to provincial and territorial governments in support of
specialized staff training and equipment which improve access to publicly funded
diagnostic services.

     The $1.5-billion fund will be allocated to provinces and territories on an
equal per capita basis. The amount will be paid into a third-party trust upon
passage of relevant legislation. Provinces and territories will have flexibility
to draw down funds as they require up to the end of 2005-06. It will be
acccounted for by the federal government in fiscal year 2002-03.

     As agreed by first ministers, governments will begin in 2004 to report to
their residents annually on enhancements to diagnostic and medical equipment and
services, using comparable indicators, and to develop the necessary data
infrastructure for these reports. This reporting will inform Canadians on
service levels and outcomes, progress achieved, and current programs and
expenditures, which will provide a baseline against which new investments can be
tracked.


HEALTH INFORMATION TECHNOLOGY--ELECTRONIC HEALTH RECORDS

Under the September 2000 agreement on health, the Government of Canada announced
$500 million to expand the use of health information and communications
technologies, including the adoption of electronic health records (EHRs). Canada
Health Infoway was incorporated in 2001, and is working to develop a
pan-Canadian, interoperable electronic health information system, in close
partnership with federal-provincial-territorial governments and health care
providers.

     Electronic health records are an essential building block for a modernized,
more integrated health care system. They give health providers rapid access to
the medical records of their patients, including physician visits, hospital
stays, prescription drugs and laboratory tests, while safeguarding patient
privacy. A pan-Canadian EHR will:



                                       71




                              THE BUDGET PLAN 2003

o  improve Canadians' access to health services by expediting diagnosis and
treatment, supporting more accurate diagnosis and treatment, and eliminating
distance barriers between patients and health care professionals;

o  significantly improve the quality and safety of patient care by reducing the
possibility of adverse drug events, such as handwritten prescription errors or
allergic reactions; and

o  enhance the efficiency of the health care system by reducing the costly
duplication of tests, improving the quality of data, and supporting evidence-
based management, decision making and research.

     This budget provides an additional $600 million to Canada Health Infoway to
accelerate the development of EHRs, common information technology standards
across the country, and the further development of telehealth applications,
which are critical to care in rural and remote areas. It will be accounted for
by the federal government in fiscal year 2002-03.

     Canada Health Infoway will report to the Canadian public and to the members
of Infoway on an annual basis on its progress in implementing these initiatives.
This reporting will inform Canadians on current programs, investment
expenditures and milestones.


RESEARCH HOSPITALS (CANADA FOUNDATION FOR INNOVATION)

The integration of biomedical, clinical and health services research has given
rise to needs for new and different facilities that will house sophisticated
equipment and bring together researchers in new and innovative ways. The Canada
Foundation for Innovation was established in 1997 to support the modernization
of research infrastructure in Canadian universities and colleges, research
hospitals and other non-profit research institutions across Canada.

     This budget is providing new funding of $500 million in 2002-03 to the
Canada Foundation for Innovation in support of such state-of-the-art health
research facilities. Further details on this measure are provided in Chapter 5.


DIRECT HEALTH ACCORD INITIATIVES

This budget also confirms funding of $1.6 billion over the reform period of five
years for direct Health Accord initiatives, including an employment insurance
(EI) compassionate family care leave benefit, the Canadian Coordinating Office
for Health Technology Assessment, greater patient safety, enhanced governance
and accountability, a national immunization strategy, and sales tax measures in
support of health care reform.



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                    INVESTING IN CANADA'S HEALTH CARE SYSTEM

EMPLOYMENT INSURANCE COMPASSIONATE FAMILY CARE LEAVE BENEFIT

The need for economic security is particularly significant when a family is
facing a crisis related to the grave illness and possible death of a family
member. The Government of Canada recognizes that income support and job
protection are key for workers who take time off work to care for gravely ill
family members, as they often lose income and benefits due to time lost from
paid employment. Therefore, on January 4, 2004, the Government will implement an
employment insurance compassionate family care leave benefit.

     Individuals who meet the eligibility requirements for EI special benefits,
and have served the two-week waiting period, will be entitled to a six-week EI
compassionate family care leave benefit to care for their gravely ill or dying
child, parent or spouse. To provide flexibility in meeting the varying needs of
individual families, eligible family members will be able to share the benefit.
The Government will propose legislative changes so that permanent employees
governed by the Canada Labour Code can benefit from the new leave provision by
making sure that their jobs are protected during the leave period.

     The compassionate family care leave benefit is estimated to cost $86
million in 2003-04 and $221 million in 2004-05 and each year thereafter.


CANADIAN COORDINATING OFFICE FOR HEALTH TECHNOLOGY ASSESSMENT

With the development of new diagnostic and treatment technologies, there is
increasing need for reliable, evidence-based information to ensure that these
technologies are used in clinically beneficial, cost-effective ways.

     This budget provides $45 million over the next five years to develop a
Canadian Strategy for Technology Assessment. This funding will be provided to
the Canadian Coordinating Office for Health Technology Assessment (CCOHTA), a
non-profit organization supported by federal-provincial-territorial ministers of
health. CCOHTA encourages the appropriate use of health technology through the
collection, analysis, creation and dissemination of information concerning the
effectiveness and cost of technology and its impact on health.


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                              THE BUDGET PLAN 2003

PATIENT SAFETY

Canadian health professionals are committed to achieving positive outcomes for
their patients. Recently the National Steering Committee on Patient Safety
issued a comprehensive report that recommended a national strategy to further
reduce the incidence of medical errors and other preventable events in Canada.
Among its main recommendations was the establishment of a Canadian Patient
Safety Institute to promote innovative ways of improving patient safety,
including professional development programs, as well as research and analysis of
patient safety issues.

     This budget responds to this report by providing $10 million annually to
support the creation of a new Canadian Patient Safety Institute. The specific
mandate, membership and activities of the Institute will be developed by
federal, provincial and territorial ministers of health, in collaboration with
health professional organizations and other stakeholders.


GOVERNANCE AND ACCOUNTABILITY

This budget provides $205 million over five years for governance and
accountability initiatives, including funding for the Canadian Institute for
Health Information (CIHI), Statistics Canada and Health Canada to enhance their
ability to report on the health system and the health of Canadians. A portion of
this funding will also contribute to the creation and operation of a Health
Council.

CANADIAN INSTITUTE FOR HEALTH INFORMATION AND STATISTICS CANADA

The availability of accurate and timely information on trends in health status
and health system performance is a crucial tool to inform responsive,
patient-centred health policy decisions. CIHI and Statistics Canada have gained
an international reputation for their work in expanding the basic information
necessary to understand and address emerging health issues. Budget 2001 provided
$95 million to support CIHI's work over four years, to be used in partnership
with Statistics Canada.

HEALTH COUNCIL

Canadians have made it clear that they want to see how their tax dollars are
spent for health care and what results are achieved. Under the February 2003
Accord on Health Care Renewal, first ministers agreed to establish a Health
Council to monitor and make annual public reports on the implementation of
Accord priorities.



                                       74



                    INVESTING IN CANADA'S HEALTH CARE SYSTEM


     This budget contributes funding to the creation and operation of the Health
Council. The Health Council will publicly report through
federal-provincial-territorial ministers of health and will include
representatives of both orders of government, experts and the public.

NATIONAL IMMUNIZATION STRATEGY

Immunization is one of the most effective preventive health measures. It
decreases the incidence of disease and reduces pressure on the health care
system. The nature of vaccines and vaccine delivery is changing. Newer vaccines
are more complex, calling for higher production and safety standards and
resulting in new combinations of vaccines and delivery methods.

     This budget provides $45 million over five years to assist in the pursuit
of a national immunization strategy. The objective of the strategy will be to
ensure equitable and timely access to recommended vaccines for all Canadians in
order to reduce the incidence of specific vaccine-preventable diseases. A
national strategy will result in:


o  improved safety and effectiveness of vaccines;

o  enhanced coordination and efficiency of immunization procurement; and

o  better information on immunization coverage rates within Canada.


SALES TAX MEASURE IN SUPPORT OF HEALTH CARE REFORM

Under the goods and services tax and the harmonized sales tax (GST/HST), public
sector bodies that provide services that are exempt from GST/HST--such as health
care services--are entitled to partial rebates of the tax they pay on their
purchases. Under this partial rebate system, hospitals may recover 83 per cent
of the GST (and the federal portion of the HST) that they pay on their
purchases, while charities and certain non-profit organizations may recover 50
per cent.

     In recent years the restructuring of health care delivery has resulted in
some services formerly provided in hospitals being performed in other non-profit
institutions, which are entitled to the lesser rebate of GST/HST. The Department
of Finance is undertaking discussions with the provinces and territories to
assess and improve the current application of the health care rebate with
respect to health care functions that are moved outside of hospitals.
Consultations will also be held with representatives of the health care sector.
The target date for the coming into force of changes to the application of the
rebate is October 1, 2003.


                                       75



                              THE BUDGET PLAN 2003

TABLE 3.2

2003 Health Accord--Research Hospitals and Direct Health Accord Initiatives



                                              2003-   2004-    2005-    2006-    2007-
                                              2004    2005     2006     2007     2008       TOTAL
                                             ------  ------   ------   ------   ------      -----
                                                            (millions of dollars)
                                                                              
RESEARCH HOSPITALS
    Canada Foundation
      for Innovation(1)                        100     100      200      100                  500

DIRECT HEALTH ACCORD INITIATIVES
    Employment insurance family
      care leave benefit                        86     221      221      221      221         970
    Canadian Coordinating Office
      for Health Technology
      Assessment                                 5      10       10       10       10          45
    Patient safety                              10      10       10       10       10          50
    Governance and accountability(2)            85      30       30       30       30         205
    National immunization strategy               5      10       10       10       10          45
    Sales tax measure in support
      of health care reform                     30      55       60       60       65         270
Subtotal                                       221     336      341      341      346       1,585
                                               ---     ---      ---      ---      ---       -----
TOTAL                                          321     436      541      441      346       2,085
                                               ===     ===      ===      ===      ===       =====


(1) $500 million accounted for by the federal government in 2002-03.
(2) $70 million for CIHI accounted for by the federal government in 2002-03.


OTHER HEALTH INITIATIVES IN SUPPORT OF REFORM

This budget also confirms funding of $1.4 billion over the next five years for a
series of other health initiatives that support reform in health care delivery.


RESEARCH AND INNOVATION

Health research is a vital component of Canada's health care system. It is the
source of new knowledge about human health and wellness that can be used to
better prevent, diagnose and treat disease, and to better manage the health care
system. Health research leads to the development of improved drug therapies, new
medical equipment and innovative ways to organize and deliver health services.

     The federal government provides significant funding for health research
through its support for students, researchers, universities, research hospitals
and other institutes, and also undertakes research in its own laboratories.
These activities help keep Canada at the forefront of discovery and translate
into better health care for Canadians.



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                       INVESTING IN CANADA'S HEALTH CARE SYSTEM

     This budget provides over $900 million in this and the next five years to
support health research in Canada. An additional $55 million annually will be
provided to the Canadian Institutes of Health Research to advance health
research in Canada through its network of 13 virtual institutes. In addition,
the Government is investing $75 million in Genome Canada for health genomics and
providing $15 million to be used over seven years by the Rick Hansen Man In
Motion Foundation to support its progress in finding a cure for spinal cord
injuries. Finally, about half of the $225 million per year provided to
universities, research hospitals and colleges to help fund the indirect costs of
federally sponsored research will support health-related disciplines. Additional
details are presented in Chapter 5.


CANADIAN HEALTH SERVICES RESEARCH FOUNDATION

In addition to making significant new investments in health research, it is
equally important to ensure that health professionals and health system managers
are equipped with the necessary skills to assess and apply the growing body of
health research in the decisions they make every day.

     This budget provides $25 million to be used over 10 years by the Canadian
Health Services Research Foundation to initiate the Executive Training for
Research Application (EXTRA) program. EXTRA will focus on training managers to
use relevant research and innovation, thus complementing recent federal
investments to train academics to produce more relevant research and innovation.


PHARMACEUTICALS MANAGEMENT

Access to safe, effective, new human drugs requires timely, efficient and
scientifically rigorous review in all phases of the product cycle, including
reviews and approvals by Health Canada and ongoing surveillance of safety and
therapeutic effectiveness once a drug is on the market. Federal, provincial and
territorial governments also require evidence on the cost-effectiveness of drugs
in order to make sound listing decisions for public drug plan formularies.

     This budget provides $190 million over five years to improve the timeliness
of Health Canada's regulatory processes with respect to human drugs, in order to
create a better climate for research in pharmaceuticals while preserving the
principle that safety is of paramount concern.



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                              THE BUDGET PLAN 2003

PLANNING, COORDINATION AND PARTNERSHIPS

Canada's health care system depends on skilled, dedicated health professionals
to provide quality care to citizens. Ensuring an appropriate supply and
distribution of nurses, doctors and other health care providers is a challenge
for all governments. In addition, ongoing changes in the delivery of health care
services, particularly the trend towards multidisciplinary, team-based
approaches in primary care, mean that the roles and responsibilities of various
health care providers are evolving. The collaborative efforts of governments and
health professional organizations are required to address such health human
resources issues.

     This budget provides $90 million over five years to improve national health
human resources planning and coordination, including better forecasting of
health human resources needs. It will also support the expansion of professional
development programs to ensure that health professionals have the necessary
knowledge and training to work effectively in multidisciplinary primary health
care teams.


HEALTH SERVICES IN OFFICIAL LANGUAGE MINORITY COMMUNITIES

There are many Canadians who live in linguistic minority communities where they
have limited access to health care services in their own language. It is
important to ensure that there are enough health care providers who can work in
minority language communities and that providers have access to the information
and training needed to serve patients in their own language.

     This budget provides $89 million over five years to implement a training
and retention initiative for health professionals and a community networking
initiative to improve access to services in both official languages in
linguistic minority communities.


WELLNESS--SPORT PARTICIPATION

Participation in sport and physical activity contributes to a healthy lifestyle
that enables Canadians to live healthier, longer and more productive lives.

     This budget provides $45 million over five years to increase participation
in sport and other fitness activities. The funding will be directed at the
broadest possible level of participation to increase the exposure of children
and youth to sport in the school setting and to encourage communities to
increase individual and family-based sport participation.



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                    INVESTING IN CANADA'S HEALTH CARE SYSTEM


TABLE 3.3

2003 Health Accord--Other Health Initiatives in Support of Reform




                                                     2003-   2004-   2005-    2006-     2007-
                                                     2004    2005    2006     2007      2008      TOTAL
                                                    ------  ------  ------   ------    ------     -----
                                                                 (millions of dollars)
                                                                                 
OTHER HEALTH INITIATIVES
   IN SUPPORT OF REFORM
      Research and Innovation(1)                      245     170     170      170       170        925
      Canadian Health Services
        Research Foundation(2)                         25                                            25
      Pharmaceuticals management                       40      40      40       35        35        190
      Planning, coordination
        and partnerships                               10      20      20       20        20         90
      Health services in official language
        minority communities                           12      13      18       23        23         89
      Wellness-Sport participation                      5      10      10       10        10         45
                                                      ---     ---     ---      ---       ---      -----
TOTAL                                                 337     253     258      258       258      1,364
                                                      ===     ===     ===      ===       ===      =====



(1)  Includes funding for CIHR, Genome Canada, Rick Hansen Man In Motion
     Foundation and indirect research costs. $75 million for Genome Canada
     accounted for by the federal government in 2002-03.
(2)  $25 million accounted for by the federal government in 2002-03.


FIRST NATIONS AND INUIT HEALTH

The Government is committed to improving health care delivery in health policy
areas under its direct responsibility, with a view to closing the health status
gap between Aboriginal and non-Aboriginal Canadians. To this end, $1.3 billion
over the next five years will be dedicated to First Nations and Inuit health
programs, including new investments for nursing and capital development on
reserve. This will include $32 million for a national on-reserve immunization
strategy.

     These measures complement funding identified in the December 2001 budget
for programs that support early childhood development, with a particular focus
on First Nations children on reserve. On October 31, 2002, total funding of $320
million over five years was announced to expand and enhance the Aboriginal Head
Start program and the First Nations and Inuit Child Care Initiative. This
funding will also intensify efforts to address Fetal Alcohol Syndrome/Fetal
Alcohol Effects on reserves and to support a national survey on Aboriginal
children, as well as research at the community level.



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                              THE BUDGET PLAN 2003

FEDERAL TRANSFERS TO PROVINCES AND TERRITORIES

PREDICTABLE, SUSTAINABLE AND GROWING SUPPORT

This budget provides a predictable, sustainable and growing long-term funding
and planning framework for transfers to provinces and territories in support of
health care and other social programs.

     Following the September 2000 agreements on health and early childhood
development, the federal government provided provinces and territories with a
predictable, and growing, five-year funding framework to 2005-06 through the
Canada Health and Social Transfer (CHST).

     As agreed by first ministers in the 2003 Accord, the existing transfer
funding track will be extended for an additional two years, to include 2006-07
and 2007-08, and increased by $1.8 billion. This is consistent with federal
commitments made at the time of the first ministers' meeting in 2000.

     Legislation will be introduced to establish levels for cash transfers up to
2007-08: $19.8 billion in 2003-04, $20.4 billion in 2004-05, $21 billion in
2005-06, $21.6 billion in 2006-07 and $22.2 billion in 2007-08.

     The budget also indicates planned levels for total cash transfers to
2010-11 to provide a 10-year predictable and growing funding framework for the
provinces and territories; subject to first ministers' review of progress on
reform, these levels will be confirmed in legislation prior to the end of
2007-08.

     Federal cash transfers to provinces and territories in support of health
and other social programs are thus planned to double over a 10-year period,
growing to $31.5 billion in 2010-11 from $15.5 billion in 2000-01. This means
that cash transfers grow at 7.3 per cent annually on average during that period.
This average annual growth in transfers will be greater than nominal growth in
the economy, estimated at 4.7 per cent, over the same period.

     In addition, tax transfers will continue to be an important element of the
growing and predictable funding provided to the provinces and territories. They
will bring the total transfers to $48.8 billion by 2007-08 and to $56.0 billion
by 2010-11.



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                    INVESTING IN CANADA'S HEALTH CARE SYSTEM


TABLE 3.4

10-Year Framework: Federal Transfers in Support of Health and Other Social
Programs




                                                              NEW LEGISLATIVE FRAMEWORK
                          -------------------------------------------------------------------------------------------------------
                           2000-    2001-    2002-    2003-    2004-    2005-      2006-     2007-      2008-     2009-     2010-
                           2001     2002     2003     2004     2005     2006       2007      2008       2009      2010      2011
                          ------   ------   ------   ------   ------   ------     ------    ------     ------    ------    ------
                                                                      (millions of dollars)

                                                                                          
Cash transfers            15,500   18,300   19,100   20,800   21,400   21,500    21,600     22,200     28,900    30,200    31,500

Health Reform Fund                                    1,000    1,500    3,500     4,500      5,500

                           ---------------------------  AVERAGE ANNUAL GROWTH RATE OF CASH SUPPORT: 7.3% -------------------------

Tax transfers             16,400   16,150   16,150   16,950   17,900   18,900    20,000     21,100     22,300    23,300    24,500
                          ------   ------   ------   ------   ------   ------    ------     ------     ------    ------    ------
TOTAL                     31,900   34,450   35,250   38,750   40,800   43,900    46,100     48,800     51,200    53,500    56,000
                          ======   ======   ======   ======   ======   ======    ======     ======     ======    ======    ======


Note: Cash and tax transfers for 2000-01 to 2003-04 are provided under the
Canada Health and Social Transfer (CHST). Beyond 2003-04 the transfers are
provided under the Canada Health Transfer (CHT) and the Canada Social Transfer
(CST). Cash amounts for 2008-09 ongoing include the roll-in of $5.5 billion from
the Health Reform Fund (subject to a review by first ministers by the end of
2007-08). CHST supplement is included under cash transfers for 2003-04 to
2005-06, based on notional drawdown.



                                       81



                              THE BUDGET PLAN 2003


INCREASED ACCOUNTABILITY

The CHST, originally created in 1996, combined the former Established Programs
Financing and Canada Assistance Plan. A block transfer of federal support for
health, post-secondary education, and social assistance and social services
provided provincial and territorial flexibility to allocate funding according to
their respective priorities.

     In recognition of the desire to improve the transparency and accountability
of federal support to provinces and territories, first ministers have agreed
that the CHST will be restructured. This will be done while maintaining the
important commitments to the five principles of medicare (comprehensiveness,
universality, portability, accessibility and public administration), the
prohibition against residency requirements for social assistance and the
flexibility provided to provinces and territories for program design and
delivery.


    CURRENT TRANSFER STRUCTURE

    CANADA HEALTH AND SOCIAL TRANSFER

    In 2002-03 the federal government is transferring over $35 billion to
    provinces and territories through the CHST in support of health,
    post-secondary education, social assistance and social services, including
    early childhood development.

    Since 1996 the CHST has been the federal government's largest transfer to
    provinces and territories. It is made up of a cash component worth $19.1
    billion and a tax transfer component worth $16.2 billion in 2002-03. CHST
    entitlements are provided on an equal per capita basis to all provinces and
    territories.

    While CHST cash has been set on a predictable growth path, the tax transfer
    component of the CHST, an important part of the federal government's ongoing
    support for health and social programs, continues to grow as well.

    The tax transfer was implemented in 1977 when the federal government, with
    the agreement of provincial and territorial governments, reduced its
    personal and corporate income tax rates, while the provinces simultaneously
    raised theirs by the same amount. As a result, the revenue that would have
    flowed to the federal government began to flow directly to the provincial
    and territorial governments. The value of this tax transfer generally grows
    in line with the growth in the Canadian economy.

    EQUALIZATION AND TERRITORIAL FORMULA FINANCING
    In addition, the federal government also provides support to provinces and
    territories through equalization and Territorial Formula Financing (TFF). In
    2002-03 eight provinces receive $10.3 billion under equalization and the
    three territories receive $1.3 billion under TFF. Cash support provided
    under these two programs is unconditional and can be used to support health
    and other social programs in recipient provinces and territories.



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                    INVESTING IN CANADA'S HEALTH CARE SYSTEM

     Effective April 1, 2004, the federal government will create two new
transfers:

o  A Canada Health Transfer in support of health.

o  A Canada Social Transfer in support of post-secondary education, social
assistance and social services, including early childhood development.

     The existing CHST (cash and tax transfer) will be apportioned between the
Canada Health Transfer and Canada Social Transfer. The percentage of cash and
tax points apportioned to the Canada Health Transfer will reflect the percentage
of health spending within overall provincial spending in the health and social
sectors supported by federal transfers. The remaining cash and tax points will
be allocated to the Canada Social Transfer in support of post-secondary
education, social assistance and social services, including early childhood
development.

     Current estimates are that health represents 62 per cent of programs
supported by federal transfers, while the proportion related to post-secondary
education and social assistance is 38 per cent. The precise apportionment will
be determined when legislation is tabled.

     The tax transfer component of the CHST will be maintained as part of the
Canada Health Transfer and Canada Social Transfer structure. Total allocation of
the new transfers to provinces and territories will continue on an equal per
capita basis. Federal support to provinces and territories for health care is
provided on an equal per capita basis to ensure equal support for all Canadians
regardless of their place of residence.

     Creating distinct transfers for health and other social spending will
provide Canadians with information on the federal government's long-term
contribution to health care consistent with the recommendations of the Auditor
General, and will continue to provide flexibility for provinces and territories.


CANADA HEALTH TRANSFER

On the basis of the above proportions, and subject to final confirmation, the
cash support under the new Canada Health Transfer would be as follows:

o  The Canada Health Transfer cash would be $12.65 billion in 2004-05, $13.0
billion in 2005-06, $13.4 billion in 2006-07 and $13.75 billion in 2007-08.

o  The Canada Health Transfer (cash and tax transfer) would thus be expected to
grow to $26.85 billion in 2007-08 from $23.75 billion in 2004-05.



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                              THE BUDGET PLAN 2003


o  Subject to a review of progress towards achieving the agreed-upon reforms
and following a First Ministers meeting, $5.5 billion from the Health Reform
Fund will be rolled into the Canada Health Transfer effective April 1, 2008.


CANADA SOCIAL TRANSFER

On the basis of the above proportions, and subject to final confirmation, the
cash levels for the new Canada Social Transfer would be set as follows:

o  The Canada Social Transfer cash levels would be $7.75 billion in 2004-05,
$8.0 billion in 2005-06, $8.2 billion in 2006-07 and $8.45 billion in 2007-08.
The Canada Social Transfer will include the $500 million per year notionally
allocated to early childhood development.

o  The Canada Social Transfer (tax and cash components) would thus be expected
to grow to $16.45 billion in 2007-08 from $14.55 billion in 2004-05.


     Cash contributions under the new Canada Health Transfer and the new Canada
Social Transfer will continue to be provided for the purpose of maintaining the
national criteria and conditions in the Canada Health Act, including those
respecting the five principles and the provisions relating to extra-billing and
user charges, and the prohibition against residency requirements for social
assistance.



                                       84



TABLE 3.5
New Canada Health Transfer and Canada Social Transfer (2000-01 to 2007-08)




                                                                       NEW LEGISLATIVE FRAMEWORK
                                         ------------------------------------------------------------------------------------
                                          2000-       2001-      2002-     2003-      2004-      2005-       2006-      2007-
                                          2001        2002       2003      2004       2005       2006        2007       2008
                                         ------      ------     ------    ------     ------     ------      ------     ------
                                                                   (millions of dollars)
                                                                                              
CANADA HEALTH AND
    SOCIAL TRANSFER (CHST)
       CHST cash                          15,500     18,300     19,100    19,800
       CHST tax transfers                 16,400     16,150     16,150    16,950
Total                                     31,900     34,450     35,250    36,750
       CHST supplement(1)                                                  1,000      1,000        500
    Health Reform Fund                                                     1,000      1,500      3,500       4,500      5,500
Total                                                                      2,000      2,500      4,000       4,500      5,500
CANADA HEALTH TRANSFER (CHT)
       CHT cash(2)                                                                   12,650     13,000      13,400     13,750
       CHT tax transfers(3)                                                          11,100     11,700      12,400     13,100
Total                                                                                23,750     24,700      25,800     26,850
CANADA SOCIAL TRANSFER (CST)
       CST cash(2)                                                                    7,750      8,000       8,200      8,450
       CST tax transfers(3)                                                           6,800      7,200       7,600      8,000
Total                                                                                14,550     15,200      15,800     16,450
TOTAL CASH TRANSFERS                      15,500     18,300     19,100    21,800     22,900     25,000      26,100     27,700
TOTAL TAX TRANSFERS                       16,400     16,150     16,150    16,950     17,900     18,900      20,000     21,100
                                          ------     ------     ------    ------     ------     ------      ------     ------
TOTAL                                     31,900     34,450     35,250    38,750     40,800     43,900      46,100     48,800
                                          ======     ======     ======    ======     ======     ======      ======     ======



Note: Totals may not add up due to rounding.
(1)  $2.5 billion cash supplement to be paid to a third-party trust and
     accounted for in 2002-03 by the federal government. Based on assumed
     drawdown of the funds as required, up to the end of 2005-06.
(2)  Current estimates. The precise apportionment will be determined when
     legislation is tabled.
(3)  Projections.



                                       85




                              THE BUDGET PLAN 2003


OTHER FEDERAL SUPPORT FOR HEALTH CARE

In addition to federal support to health care provided through transfers--CHST
(CHT starting in 2004-05), equalization and Territorial Formula Financing--the
federal government provides support through other direct or tax measures
currently amounting to $5 billion annually:

o  Spending for health care of about $4 billion a year for First Nations'
health, veterans' health, health protection, disease prevention, health
information and health-related research.

o  As well, through the tax system, the federal government provides support
worth about $1 billion a year, including credits for medical expenses,
disability, caregivers and infirm dependants.



OTHER SUPPORT FOR POST-SECONDARY EDUCATION AND SOCIAL PROGRAMS

In addition to federal support for other social sectors provided through
transfers--CHST (CST starting in 2004-05), equalization and Territorial Formula
Financing--the federal government provides support through other direct or tax
measures:

o  About $5 billion for post-secondary education, including student financial
assistance, support for research and support for Canadians upgrading their
skills or saving for their education.

o  Approximately $15 billion for social assistance and social services,
including the Canada Child Tax Benefit, employment insurance parental benefits,
First Nations' social programs and primary education, and programs and services
for disadvantaged Canadians (e.g., youth at risk, the homeless and persons with
disabilities).



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                    INVESTING IN CANADA'S HEALTH CARE SYSTEM




GROWING SUPPORT FOR HEALTH AND SOCIAL PROGRAMS

[BAR CHART SHOWING SUPPORT FOR HEALTH AND SOCIAL PROGRAMS]



Note: Cash increase includes CHST increases, CHST supplement and the Health
Reform Fund. Years 2008-09 to 2010-11 reflect the roll-in of $5.5 billion from
the Health Reform Fund (subject to a review by first ministers by the end of
2007-08).



                                       87







4

INVESTING IN CANADIAN
FAMILIES AND
THEIR COMMUNITIES







                              THE BUDGET PLAN 2003


     HIGHLIGHTS

     Budget 2003 makes major investments to help Canadian families and
     communities, to improve opportunities for Aboriginal Canadians and to
     promote Canadian culture and values.


     SUPPORTING CANADIAN FAMILIES

     This budget makes long-term investments in support of families with
     children and persons with disabilities, including:


o    a $965-million-per-year increase in the National Child Benefit supplement
     of the Canada Child Tax Benefit (CCTB) by 2007, to bring the maximum annual
     benefit for a first child provided through the CCTB to $3,243. This will
     bring the estimated annual support delivered through the CCTB to over $10
     billion in 2007, an increase of over 100 per cent since 1996;

o    $935 million over the next five years to assist provinces and territories
     and First Nations in increasing access to quality child care and early
     learning opportunities, especially for low-income and single-parent
     families;

o    $50 million per year for a new Child Disability Benefit for low- and
     modest-income families that will provide up to $1,600 annually for a child
     qualifying for the disability tax credit;

o    $20 million per year to expand the list of eligible expenses for the
     medical expense tax credit; and

o    $80 million per year to improve tax assistance for persons with
     disabilities, drawing on a forthcoming evaluation of the disability tax
     credit and the advice of a technical advisory committee.


     SUPPORTING COMMUNITIES

     To help communities, this budget makes significant investments to increase
     the supply of affordable housing, address homelessness and improve the
     state of Canada's infrastructure:

o    $320 million over the next five years to enhance existing affordable
     housing agreements with the provinces and territories, bringing the total
     federal investment to $1 billion by the end of 2007-08;



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              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES


o    $256 million over the next two years to extend the Government's housing
     renovation programs to help preserve the existing stock of affordable
     housing;

o    $270 million over the next two years to continue to fight homelessness; and

o    an additional $3 billion in infrastructure support over the next ten years,
     including $1 billion for municipal infrastructure.


     STRENGTHENING ABORIGINAL COMMUNITIES

     Along with the initiatives to address health and other concerns on reserve
     and to improve economic opportunities for Aboriginal Canadians described in
     Chapters 3 and 5, this budget makes strategic investments to strengthen
     Aboriginal communities, including:

o    $172.5 million over eleven years to support Aboriginal languages and
     culture, of which $18 million will be invested in the next two years;

o    $42 million over the next two years to renew and expand the First Nations
     Policing Program; and

o    $17 million over the next two years to work with partners to explore new
     ways to better meet the needs of Aboriginal people living in urban centres.


     PROMOTING CANADIAN CULTURE AND VALUES

     The Government will invest in measures to strengthen and promote Canadian
     culture and values, including:

o    $150 million over two years for the Canadian Television Fund to help the
     production of quality Canadian programming;

o    $114.5 million in the next two years to launch a five-year action plan on
     official languages; and

o    a contribution program of $10 million a year to provide a financial
     incentive to the private sector to preserve historic places.



                                       91



                              THE BUDGET PLAN 2003


INTRODUCTION

There is a fundamental relationship between economic success and quality of
life. Only a strong economy can provide the jobs and incomes required to sustain
families and their communities. Equally, the benefits to the economy of strong
families and safe communities are self-evident. Like universal health care,
providing for the needs of Canada's households and neighbourhoods enriches
Canadians' quality of life.

     Strong families and communities also serve a vital role in building
Canada's economy. By being the foundation on which successful lives are built,
they help ensure that all Canadians are prepared for and capable of contributing
to the economy. Just as investments in innovation and productivity strengthen
the economy, investments in key areas of social policy help ensure the
opportunities of that economy are available to all.

     Budget 2003 makes further investments to help build the society Canadians
value. It enhances support for Canadian families with children and persons with
disabilities. It helps communities create more affordable housing, fight
homelessness and improve infrastructure. It enhances the economic and social
opportunities for Aboriginal Canadians. And it strengthens and promotes Canadian
culture and values. These measures increase and enhance opportunities for all
Canadians--helping to build thestrongest possible foundation for a truly
successful economy.


SUPPORTING CANADIAN FAMILIES

FAMILIES WITH CHILDREN

The Government of Canada has a long-standing commitment to supporting families
and children. It has fostered economic growth and job creation, which are
essential to reducing poverty and ensuring that families have the resources they
need to care for their children. In addition, the Government has made
significant investments in income and service supports for families in need,
enhancing existing initiatives and introducing new measures in order to improve
the chance that a Canadian child will grow up to be a healthy, contributing
member of society. These investments include the Canada Child Tax Benefit
(CCTB), the Early Childhood Development initiative, and the extension and
improvement of the employment insurance parental benefit.



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              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES


     Budget 2003 builds on these initiatives. It proposes a long-term investment
plan that increases significantly the National Child Benefit (NCB) supplement
for low-income families. It introduces a new Child Disability Benefit for low-
and modest-income families with disabled children. It invests in quality child
care, a child-centred family law strategy, and new measures to protect children
and other vulnerable persons. As described in Chapter 3, the Government will
also introduce an employment insurance compassionate family care benefit to
provide income support and job protection for those who take time off work to
care for a gravely ill family member.

INCREASING THE NATIONAL CHILD BENEFIT SUPPLEMENT

The CCTB is the main federal instrument for the provision of financial
assistance to families with children. Currently the CCTB provides annually over
$8 billion in assistance to 3.2 million families, with annual benefits of up to
$2,444 for the first child, $2,238 for the second child, and $2,240 for each
additional child.

     The CCTB has two components: the CCTB base benefit and the NCB supplement.
The NCB supplement provides additional assistance beyond the CCTB base benefit
to low-income families with children. The NCB supplement is the federal
contribution to the NCB initiative, under which the federal, provincial and
territorial governments are acting together to reduce child poverty while
helping to overcome the "welfare wall" that discourages many parents on social
assistance from taking a job because of are resulting loss in child-related
benefits and services.

     This budget proposes to increase the NCB supplement component of the CCTB
for low-income families by an annual amount of $150 per child in July 2003, $185
in July 2005 and $185 in July 2006. With these increases, plus full indexation
restored under the Five-Year Tax Reduction Plan, the maximum CCTB benefit is
projected to reach $3,243 for the first child, $3,016 for the second child and
$3,020 for each additional child, in 2007. This will bring the maximum benefit
for the first child to $3,000 per year in today's dollars. The NCB supplement
increases in the budget will provide about $965 million annually in additional
benefits to low-income families in 2007.


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                              THE BUDGET PLAN 2003

TABLE 4.1
Benefits Under the Canada Child Tax Benefit




                                                                       PROJECTED(1)
                                                         ----------------------------------------
BENEFIT YEAR                        2002      2003        2004       2005       2006        2007
                                   ------    ------      ------     ------     ------      ------
                                                          (dollars)
                                                                          
MAXIMUM TOTAL
    CCTB BENEFIT
First child                        2,444      2,632       2,693      2,934      3,179       3,243
Second child                       2,238      2,423       2,479      2,716      2,956       3,016
Third child and
    subsequent children            2,240      2,427       2,482      2,719      2,959       3,020
Additional benefit for
children under 7 years
    of age                           228        232         237        242        247         252
                                                   (millions of dollars)
FISCAL COST
Budget 2003 NCB
    supplement increase                -        270         310        640        950         965
                                   -----      -----       -----      -----     ------      ------
Total CCTB cost                    8,095      8,430       9,100      9,560     10,000      10,145
                                   =====      =====       =====      =====     ======      ======


(1)  Projections based on an average indexation factor of about 2 per cent per
     year.



ENHANCEMENTS OF FEDERAL CHILD BENEFITS
SINCE THE CREATION OF THE NCB
(First child--age 7 and over--for the 2007 benefit year)(1)

[BAR CHART SHOWING ENHANCEMENTS OF FEDERAL CHILD BENEFITS SINCE THE
CREATION OF THE NCB]

(1)  Additional CCTB benefit for children under 7 years of age not included.
(2)  Projection.



                                       94



              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES



     With the changes announced in this budget, assistance to families with
children through the CCTB is projected to reach over $10 billion in 2007, an
increase of over 100 per cent since 1996. Over this period, the maximum annual
benefit for a first child under the CCTB will have more than doubled from $1,520
to $3,243.

     Concurrently, the enrichments to the NCB supplement will have succeeded in
enabling provinces to replace basic child benefits provided under social
assistance for the vast majority of children in Canada, thus helping poor
families to break out of the welfare trap and the cycle of poverty. The federal
government will continue to work with provincial and territorial governments
with the objective of ensuring that additional federal investments in the NCB
supplement announced in the budget result in net benefits for low-income
families with children.

     The long-term investment plan set out in this budget represents significant
additional income support for low-income families with children. Going forward,
the federal government and the provinces will need to ensure that, as the
welfare wall is overcome, low- and modest-income families with children who
realize greater earnings--for example, by taking up better paying jobs--keep
more of the extra money they earn. This will include examining the reduction or
"clawback" rates for the CCTB as well as other elements of the tax and benefit
structure that may affect incentives to work and earn income for low- and
modest-income families.



                                       95



                              THE BUDGET PLAN 2003



HOW THE NCB SUPPLEMENT REDUCES THE WELFARE WALL AND CHILD POVERTY

Traditionally, families that move from social assistance to work would lose a
range of child-related income support and services tied to the welfare system.
For many low-income families, the prospect of losing those benefits, compounded
with the need to incur work-related expenses and to find affordable child care,
would be a major barrier to seeking employment--taking a job could mean that the
family would be financially worse off. This barrier is often referred to as the
"welfare wall."


AFTER-TAX INCOME: WELFARE VS. WORKING FAMILY
WITH TWO CHILDREN(1)


[BAR CHART SHOWING AFTER-TAX INCOME OF WELFARE RECIPIENTS VS. WORKING FAMILIES]

(1)  Illustrative example. Levels of provincial benefits vary across provinces;
     representative levels are shown.
(2)  In-kind drug and dental benefits.
(3)  Employment insurance, Canada Quebec Pension Plan premiums, child care, etc.


Under the NCB initiative, the NCB supplement, paid to all low-income families
with children, has replaced an increasing proportion of child-related basic
income support provided under social assistance. Resulting
provincial/territorial social assistance savings have been redirected to new or
enhanced benefits and services for low-income families with children. Examples
of provincial reinvestments include earned income supplements, child care
subsidies and supplementary health coverage.

By protecting benefits and services for families with children when parents
leave social assistance to enter and stay in the workforce, the NCB initiative
has contributed significantly to reducing financial disincentives to leave
social assistance, thereby increasing the rewards from work and reducing child
poverty.



                                       96



              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES



  The most recent data available from Statistics Canada confirm the positive
  impact of a strong economy and enhanced child benefits and programs in
  helping to reduce child poverty in Canada:

  o  between 1996 and 2000, the proportion of children in families with
     incomes below Statistics Canada's after-tax low-income cut-offs decreased
     from 16.7 per cent to 12.5 per cent; and

  o  the employment rate among low-income families rose by 4 percentage points.

Continued strong economic growth and job creation, together with the investments
in children set out in this budget, will help achieve further significant
reductions in the incidence and depth of child poverty in Canada.


EARLY LEARNING AND CHILD CARE SERVICES

In September 2000, first ministers announced the Early Childhood Development
Agreement, under which the Government of Canada is transferring $2.2 billion
over five years to the provincial and territorial governments to improve and
expand early childhood development programs in four key areas: healthy
pregnancy, birth and infancy; parenting and family supports; early childhood
development, learning and care; and community supports. The federal contribution
will reach $500 million starting in 2003-04.

     In October 2002, the federal government announced an additional investment
of $320 million over five years to support and enhance the early childhood
development of Aboriginal children, with a particular focus on First Nations on
reserve. Total federal support will amount to $65 million in both 2003-04 and
2004-05.

     The Government of Canada recognizes that quality early learning and child
care programs and services play an important role in promoting the healthy
development of young children. These programs also support the participation of
parents in employment and training. That is why the federal government
committed, in the September 2002 Speech from the Throne, to work with its
partners to increase access to these important programs and services.

     In recent months, the Government of Canada has been working with its
provincial and territorial partners to develop a strategy to improve access to
affordable, quality regulated early learning and child care services for young
Canadian children and their parents. Pending the outcome of these



                                       97



                              THE BUDGET PLAN 2003


discussions, the Government of Canada will provide $900 million over the next
five years, including $100 million in the next two years, to provincial and
territorial governments to:

o  substantially increase the number of child care and preschool spaces;

o  reduce the cost of child care and preschool services for low- and
modest-income families; and

o  improve the quality of child care and preschool services.

     By improving access to affordable, quality early learning and child care
programs, the Government of Canada is helping to ensure the best possible start
in life for Canadian children. At the same time, the Government is making it
easier for their parents to work or pursue training.

     To complement this support for provincial and territorial governments, this
budget also provides an additional $35 million over five years to build on
federal early learning and child care programs for First Nations children,
primarily on reserves.


CANADIANS WITH DISABILITIES

The Government of Canada is committed to supporting full participation for
persons with disabilities in Canadian society. To that end, this budget makes
strategic investments both directly and in partnership with provinces,
territories, and the private and voluntary sectors.

THE CHILD DISABILITY BENEFIT

Caring for children with severe disabilities imposes a heavy burden on families,
especially low- and modest-income families. It is important that these children
realize their potential.

     In recognition of this, the budget introduces a new $1,600 Child
Disability Benefit, effective July 2003. Eligibility for this income-tested
benefit will be based on the same eligibility criterias used for the disability
tax credit (DTC). This will target the benefit to children with a severe and
prolonged mental or physical impairment. The full $1,600 per-child benefit will
be provided to all families currently receiving the NCB supplement, that is
families with incomes of less than $33,487 for 2003, who have a disabled child
who qualifies for the DTC. Beyond that income level, the Child Disability
Benefit will be reduced based on family income at the same rates as the NCB
supplement.



                                       98



              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES

     The Child Disability Benefit will be paid as a supplement to the CCTB.
Together with other investments in the CCTB proposed in this budget, this
measure will bring maximum total support under the CCTB to $4,232 in July 2003,
growing to $4,982 in July 2007 for a child age 7 or over with a disability.
Families will continue to be able to claim the DTC and the DTC supplement for
children.

     The Government will work with provinces and territories to ensure that
families receiving income support from the province or territory will realize
the full benefit of the new Child Disability Benefit.

    FEDERAL ASSISTANCE FOR CHILDREN WITH DISABILITIES

    In 1996 a one-earner family with one child with a severe disability and an
    income of $30,000 obtained a tax reduction of $720 under the DTC. In 2007,
    taking into account measures in this budget and indexation, this same family
    will receive $1,739 from the Child Disability Benefit, and obtain a tax
    reduction of $1,728 under the DTC and DTC supplement for children, for a
    total of $3,467. For this family, federal assistance for children with
    disabilities will have increased almost fivefold between 1996 and 2007. This
    family will also receive assistance of $2,152 in 2007 through the base CCTB
    and NCB supplement.



     FEDERAL ASSISTANCE FOR FAMILIES WITH CHILDREN WITH DISABILITES (ONE-EARNER
     FAMILY EARNING $30,000--ONE CHILD AGE 7 OR OVER WITH A DISABILITY)(1)


     [CHART SHOWING FEDERAL ASSISTANCE FOR FAMILIES WITH CHILDREN WITH
     DISABILITIES]

(1)  Additional CCTB benefit for children under 7 years of age not included.

(2)  Projection.



                                       99



                              THE BUDGET PLAN 2003


     The Canada Customs and Revenue Agency will start paying the Child
Disability Benefit in March 2004, with retroactive effect to July 2003.

     This new measure will increase financial assistance to families with
disabled children by $50 million annually.

TAX MEASURES FOR PERSONS WITH DISABILITIES

The Government in recent years has significantly enhanced the tax measures that
recognize that individuals with disabilities--and those who care for them--have
a reduced ability to pay tax and face greater barriers to labour force
participation.

     The Government took action to enhance tax measures for persons with
disabilities even before the budget was balanced. The table below summarizes
actions taken in recent budgets in this regard. Many of the recent changes have
been made in response to representations from Canadians, parliamentarians and
groups representing persons with disabilities.


TABLE 4.2
Some Recent Enhancements to Tax Measures for Persons With Disabilities




                                                                1995      2003
                                                               ------    ------
                                                                   (dollars)

                                                                   
Increased DTC (credit amount)                                  4,233      6,279
Increased child care expense deduction limit
   in respect of DTC eligible children                         5,000     10,000
Introduced and increased DTC supplement
   for DTC eligible children (credit amount)                       0(1)   3,663
Introduced and increased caregiver credit (credit amount)          0(2)   3,663
Increased infirm dependant credit (credit amount)              1,583      3,663



(1)  The credit amount for 2000, the year of introduction of the DTC supplement
     for children with disabilities, was $2,941.
(2)  The credit amount for 1998, the year of introduction of the caregiver
     credit, was $2,353.



                                      100



              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES


     The following table presents a summary of key federal tax measures for
persons with a disability.


TABLE 4.3
Tax Measures for Persons With Disabilities




                                                             ANNUAL AMOUNT
                                                            2002 (ESTIMATES)
                                                         ---------------------
                                                         (millions of dollars)
                                                            
RECOGNIZING REDUCED ABILITY TO PAY TAX
    Disability tax credit (DTC)                                   400(1)
    Medical expense tax credit                                    580
    Caregiver credit                                               48
    Infirm dependant credit                                        10

REDUCING BARRIERS TO LABOUR FORCE PARTICIPATION
    Medical expense supplement for earners                         52
    Other tax measures(2)                                       small

TOTAL                                                           1,090



(1)  Includes DTC supplement for children.
(2)  Includes attendant care expense deduction and the child care expense
     deduction for DTC eligible children.


     This budget adds to--and builds on--tax measures introduced in previous
budgets to provide support to persons with disabilities.

RRSP/RRIF Rollovers for an Infirm Child

One of the most important concerns for parents caring for an infirm child is to
ensure that the child will be properly provided for in the event of the parent's
death. A financially dependent infirm child is eligible to receive a tax-free
rollover of a deceased parent's registered retirement savings plan (RRSP) or
registered retirement income fund (RRIF) proceeds. In recognition of the special
need for the ongoing care of financially dependent infirm children and to
provide supporting parents with greater certainty in their estate planning, this
budget proposes to increase the level of income used to determine the financial
dependence of an infirm child for the purpose of these rules from $7,634 to
$13,814, effective in 2003. As a result, more infirm children or grandchildren
will be able to receive a tax-free rollover of a deceased parent's or
grandparent's RRSP or RRIF proceeds.

     This measure is estimated to cost $10 million annually.



                                      101



                              THE BUDGET PLAN 2003


Expanding the List of Eligible Expenses for the Medical Expense Tax Credit

The medical expense tax credit recognizes the effect of above-average specific
medical and disability-related expenses on an individual's ability to pay income
tax. The list of expenses eligible for this credit is regularly reviewed and
expanded in light of new technologies and other disability-specific or medically
related developments. In order to better recognize specific disability-related
costs, this budget proposes to expand the list of expenses eligible for the
medical expense tax credit to include:


o  the cost of real-time captioning and other similar services used by persons
with an impairment; and

o  the incremental cost of gluten-free food products for individuals with celiac
disease who require a gluten-free diet.

These changes will be effective with the 2003 taxation year and are estimated to
cost $20 million annually.

Ensuring the Effectiveness of the Disability Tax Credit

Through the DTC, the federal tax system gives recognition to the effect of a
severe and prolonged mental or physical impairment on an individual's ability to
pay tax. The DTC provides $400 million annually to about 450,000 Canadians with
a severe disability or to those who care for them. The Government has listened
to the community of persons with disabilities, medical professionals and
parliamentarians and determined that more needs to be done to ensure that the
DTC effectively meets its intended purpose.

    THE DISABILITY TAX CREDIT

    The DTC contributes to the Government's broad objective of achieving
    fairness in taxation. Fairness requires that individuals in similar
    situations with similar incomes pay similar amounts of tax. Because
    individuals with severe and prolonged mental or physical impairments incur
    disability-related expenses that are not incurred by others, their ability
    to pay tax is reduced.

    The DTC recognizes that these expenses may be non-discretionary. For
    example, individuals with severe mobility impairments may have special
    transportation needs that result in higher costs. The DTC does not require
    claimants to itemize the disability-related expenses they incur. Instead,
    eligible claimants are provided with the equivalent of a general expense
    claim of $6,279. This reduces their federal tax by up to $1,005, or 16 per
    cent of $6,279, in 2003. Additionally, the DTC supplement for children
    provides up to $586 in further tax relief for families caring for a severely
    disabled child. Provinces and territories provide similar credits.



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              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES


     As stated in the Government's August 2002 response to the seventh report of
the Standing Committee on Human Resources Development and the Status of Persons
with Disabilities, the Government will be conducting an evaluation of the DTC as
data from the 2001 Participation and Activity Limitation Survey become
available. The objective of the evaluation will be to determine whether the DTC
is achieving its policy purpose, which is to recognize that individuals with
severe and prolonged mental or physical impairments often face additional
non-discretionary expenses for basic daily living, which reduce their ability to
pay tax.

     In addition, the Government announces the establishment of a technical
advisory committee on tax measures for persons with disabilities. This committee
will advise the Ministers of Finance and National Revenue. It will comprise
members of organizations representing persons with disabilities, medical
practitioners, and private sector tax experts. Over a period of 18 months, the
committee will assist the Government in addressing issues identified by the
community of persons with disabilities, in a manner that is consistent with the
objective of the DTC and that takes into account available fiscal resources.
Issues that could be examined by the Committee include, for example:


o  eligibility for the DTC, particularly for persons who suffer from episodic
and mental conditions;

o  the list of activities of daily living used to determine eligibility for
the credit; and

o  the identification of professionals allowed to certify eligibility.

     This budget sets aside $25 million in 2003-04 and $80 million per year
starting in 2004-05 to improve assistance for persons with disabilities, drawing
on the evaluation of the DTC and the advice of the technical advisory committee.

     The budget also clarifies the eligibility criteria for the DTC to ensure
that the DTC continues to be provided to those most in need. Additional
information is provided in Annex 9.

     With the changes announced in this budget, tax relief for persons with
disabilities or medical expenses and those who care for them will have, since
1996, more than doubled, from $600 million to about $1.3 billion per year.



                                      103



                              THE BUDGET PLAN 2003


EMPLOYABILITY ASSISTANCE FOR PERSONS WITH DISABILITIES

The Employability Assistance for Persons with Disabilities (EAPD) program was
launched in 1998-99. Approximately 200,000 persons per year participate in EAPD
funded projects. The program is delivered through joint federal-provincial
funding agreements which expire this year. Because this program represents an
important part of the Government's commitment to the participation of disabled
persons in the workforce, Budget 2003 renews the federal government's existing
funding commitment of $193 million per year, starting in 2003-04. The Minister
of Human Resources Development will be negotiating renewed agreements to support
provincial programming and services for the disabled.


CHILD AND FAMILY LAW STRATEGY

On December 10, 2002, the Minister of Justice announced the Child-centred Family
Justice Strategy to create a family justice system that helps parents focus on
the needs of their children after separation and divorce. Budget 2003 commits
$53 million over the next two years to improve the family justice system, an
investment that will generate important benefits for children, their families
and Canadian society as a whole.

     The Government of Canada has also introduced amendments to the Criminal
Code to better protect children from abuse and exploitation. These amendments
will strengthen the child pornography provisions by broadening the definition of
child pornography; create a new category of sexually exploitative relationship;
increase maximum sentences for child-related offences; and facilitate the
provision of testimony by child victims and witnesses in court.



                                      104



              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES


TABLE 4.4
Supporting Canadian Families



                                                                  2003-          2004-
                                                                  2004           2005
                                                                 ------         ------
                                                                  (millions of dollars)
                                                                          
FAMILIES WITH CHILDREN
    National Child Benefit supplement                              200            300
    Early learning and child care                                   25             75
    First Nations child care                                                        6

CANADIANS WITH DISABILITIES
    Child Disability Benefit                                        40             50

    Enhanced tax assistance for persons with disabilities
       RRSP rollovers to an infirm child                            10             10
       Expanding the list of eligible expenses
           for the medical expense tax credit                       20             20
       Following through on evaluation of DTC
           and advice of the technical advisory committee           25             80

    Employability Assistance for Persons with Disabilities         193            193

CHILD AND FAMILY LAW STRATEGY                                       27             26
                                                                   ---            ---
TOTAL                                                              540            760
                                                                   ===            ===



SUPPORTING COMMUNITIES

The Speech from the Throne recognized that healthy communities and competitive
cities are vital to Canadians' individual and collective well-being. It is
therefore critical that all orders of government participate in building and
strengthening culturally diverse communities, with robust and vital local
economies that are well managed, with safe neighbourhoods, modern infrastructure
and dynamic labour forces.

     Budget 2003 builds on past actions with a number of strategic investments
to reduce homelessness and for affordable housing and infrastructure. These
investments will help to promote the social cohesion and economic sustainability
of Canada's communities. They are complemented by the initiatives proposed in
this budget related to health care, innovation and skills, and the environment
which, taken together, will help to ensure that Canada's cities and communities
continue to provide the strong, safe and rich environments in which Canadians
can feel proud to live, work and play.



                                      105



                              THE BUDGET PLAN 2003


AFFORDABLE HOUSING AND SUPPORT FOR THE HOMELESS

AFFORDABLE HOUSING INITIATIVE

Despite a strong economy, there remain problems of affordability and supply of
rental housing, particularly in major urban centres. As a result, many
Canadians, especially the working poor, face difficulty in finding affordable
rental housing. To help address this problem, the Government announced in 2001
the Affordable Housing Initiative, investing $680 million over five years. Under
this initiative, the Canada Mortgage and Housing Corporation (CMHC), in
partnership with provincial and territorial governments, provides funding to
private and non-profit developers to help stimulate the construction of
affordable rental housing. The funding structure is based on equal federal and
provincial contributions. Nearly all provinces and territories have now signed
bilateral cost-sharing agreements and progress is starting to be made on the
construction of new affordable rental housing.

     The Government recognizes, however, that the need remains great and that
more must be done. As a result, starting in 2003-04, the Government is prepared
to invest an additional $320 million over five years, including $80 million in
the next two years, through the existing affordable housing agreements with
provinces and territories, to help increase the supply of such rental housing
available to Canadians. This will bring the total federal investment in the
Affordable Housing Initiative to $1 billion by the end of 2007-08.

RESIDENTIAL REHABILITATION ASSISTANCE PROGRAM

Building new units of affordable housing is only one side of the story. It is
equally important to ensure that existing affordable housing units do not fall
into disrepair, effectively reducing the overall supply. CMHC's Residential
Rehabilitation Assistance Program and related programs support the renovation
and renewal of the existing stock of housing and help low-income persons with
critical housing repair needs. These programs have a significant impact on the
condition of the low-income housing stock, and contribute to neighbourhood
improvement. Beneficiaries of the renovation programs include homeowners,
renters, rooming-house occupants, disabled persons, households in rural and
remote communities, on-reserve households, elderly people and victims of family
violence.

     In order to help preserve the existing stock of affordable housing, this
budget extends for three years the Government's housing renovation programs,
which would otherwise expire on March 31, 2003. This extension will require an
investment of $128 million a year for a total of $384 million over three years.



                                      106



              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES


SUPPORTING COMMUNITIES PARTNERSHIP INITIATIVE

In response to the growing number of homeless, particularly in Canada's urban
centres, the Government of Canada launched, in 1999, the three-year National
Homelessness Initiative. A key element of this was the Supporting Communities
Partnership Initiative, which provides funding for local community groups to
offer supportive services and facilities for the homeless. Participating
communities have seen real benefits in terms of new and improved facilities and
services for homeless people. Budget 2003 provides for a three-year extension of
the Supporting Communities Partnership Initiative at $135 million a year in
order to help communities sustain their efforts to address homelessness.

     The Surplus Federal Real Property for Homelessness Initiative will also be
extended to help facilitate the transfer of surplus federal properties to
communities as a method of avoiding the often-prohibitive costs of purchasing
the land and buildings that are crucial to many projects for the homeless.


INFRASTRUCTURE

Modern infrastructure is important to the economic and social well-being of
Canadians, who depend on it for basic needs such as clean water and
transportation. At the same time, Canada's communities face growing
infrastructure investment challenges. Large urban centres are working to keep
pace with the demands resulting from population growth and increased economic
activity. At the same time, requirements are just as significant in smaller
communities and rural areas.

     Recent budgets announced $5.25 billion in federal support for
infrastructure, including $2.05 billion for the Infrastructure Canada Program
and $2 billion for the Canada Strategic Infrastructure Fund. Programs
specifically for highway and border infrastructure were also put in place at a
combined cost of $1.2 billion. These initiatives are now resulting in
improvements to Canada's competitiveness and the prosperity of our communities.

     This budget builds on these recent initiatives and provides an additional
$3 billion in infrastructure support over the next 10 years, including
$100 million in 2003-04 and $150 million in 2004-05. A total of $2 billion will
be used to double the funding available under the Canada Strategic
Infrastructure Fund. This will allow the Fund to provide additional assistance
to large-scale projects, including those located in Canada's major urban
centres.



                                      107



                              THE BUDGET PLAN 2003


     The remaining $1 billion will finance new municipal infrastructure
investments over the next 10 years that will focus on projects that are
typically smaller in scale. The long-term nature of this investment will allow
municipalities across Canada to better plan and implement their infrastructure
improvements.

     Climate-change-related projects will be eligible and given particular
consideration under these two initiatives (details on climate change measures
announced in this budget are included in Chapter 5).

     With contributions from other sources such as provincial, territorial and
local governments and the private sector, the $3 billion in new federal funding
for infrastructure should stimulate at least $7 billion in new infrastructure
investment across Canada.


INTEGRATED PROCEEDS OF CRIME

The federal government is committed to working with its many partners,
nationally and internationally, to ensure that Canadians feel safe in their
communities. Proceeds of crime investigations and prosecutions are key tools in
the federal government's overall response to combat organized crime and
terrorism-funding activities. By using its integrated, multi-agency approach,
the Integrated Proceeds of Crime initiative is an effective strategy for
combatting organized crime and terrorism.

     This budget provides $46.6 million over two years to continue the
Integrated Proceeds of Crime initiative.


TABLE 4.5
Supporting Communities



                                                              2003-             2004-
                                                              2004              2005
                                                             ------            ------
                                                               (millions of dollars)

                                                                         
AFFORDABLE HOUSING AND SUPPORT FOR THE HOMELESS
    Affordable Housing Initiative                               30                50
    Residential Rehabilitation Assistance Program              128               128
    Supporting Communities Partnership Initiative              135               135

INFRASTRUCTURE
    Strategic infrastructure                                                      50
    Municipal infrastructure                                   100               100

INTEGRATED PROCEEDS OF CRIME                                  23.3              23.3
                                                             -----             -----
TOTAL                                                        416.3             486.3
                                                             =====             =====




                                      108



              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES

STRENGTHENING ABORIGINAL COMMUNITIES

The federal government currently invests more than $7.5 billion each year to
support Aboriginal Canadians. This funding provides basic services for First
Nations on reserves such as education, health care and infrastructure. It also
helps to ensure that Aboriginal individuals and communities have the tools they
need to improve their quality of life and thus be in a position to take
advantage of economic opportunities.

     Aboriginal Canadians have used that support to achieve better health,
education and economic outcomes. But serious disparities in comparison to
non-Aboriginal Canadians remain. The Speech from the Throne reiterated the need
to close the gap in life chances between Aboriginal and non-Aboriginal people.
To address these challenges, the Government has been examining ways to improve
and better coordinate Aboriginal programming.

     Building on that work, this budget announces additional investments to
enhance the delivery of health services on reserve (see Chapter 3), to address
water safety concerns on reserve, and to ensure the place of Aboriginal
individuals in a highly productive, sustainable economy (see Chapter 5). At the
same time, this budget proposes to make several investments to strengthen
Aboriginal communities and to extend some existing Aboriginal programs that have
demonstrated their effectiveness.

     On reserves, the federal government will continue to work in partnership
with First Nations to invest in practical measures to improve their
socioeconomic status. The federal government will continue to work with
provincial and territorial governments to meet the unique needs of Aboriginal
Canadians in the North, and to improve program and service delivery to
Aboriginal individuals, families and children across the country.


FIRST NATIONS POLICING

The First Nations Policing Program has been successful and effective at
improving public safety in First Nations communities. This budget provides
additional funding of $42 million over the next two years to renew current
agreements and expand the number of communities that can participate in this
program.



                                      109



                              THE BUDGET PLAN 2003


LANGUAGES AND CULTURE

The Government of Canada is committed to assisting Aboriginal Canadians in the
preservation, revitalization and promotion of the languages and culture that
will play an important role in the future of their communities. To help foster
this unique element of Canadian culture, the Minister of Canadian Heritage
announced, in December 2002, funding of $172.5 million over 11 years, $18
million of which is to be invested over the next 2 years, to support the
creation and operation of a new Aboriginal Languages and Cultures Centre under
the stewardship of Aboriginal peoples. Budget 2003 confirms that investment.


FEDERAL INTERLOCUTOR FOR METIS AND NON-STATUS INDIANS

The Office of the Federal Interlocutor for Metis and Non-Status Indians has been
instrumental in building a practical relationship with Metis and non-status
Indian groups across Canada. To enable the Interlocutor to continue this
important work, this budget provides $6 million over the next two years.


URBAN ABORIGINAL STRATEGY

In 1998 the Government recognized the unique challenges faced by Aboriginal
Canadians living in urban centres, including the disproportionately high levels
of poverty they face. Since then it has made progress in working with other
governments and in coordinating programs to reach those in need. This budget
provides $17 million over two years for cost-shared pilot projects that will
explore new ways to better meet the needs of urban Aboriginal people in select
cities.

TABLE 4.6
Strengthening Aboriginal Communities




                                                              2003-            2004-
                                                              2004             2005
                                                             ------           ------
                                                               (millions of dollars)

                                                                          
First Nations policing                                          18               24
Language and culture                                             8               10
Federal Interlocutor for Metis and Non-Status Indians            3                3
Urban aboriginal strategy                                        9                8
                                                                --               --
TOTAL                                                           38               45
                                                                ==               ==





                                      110



              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES

PROMOTING CANADIAN CULTURE AND VALUES

To promote the strength of Canada's identity, the Government will continue to
provide Canadians with the means to know more about themselves and to share
their identity with each other and with the world.


CULTURAL AND HERITAGE PROGRAMS

HISTORIC PLACES

The Government is committed to the development of initiatives in support of the
restoration and preservation of Canada's built heritage. To this end, the
Department of Canadian Heritage has been developing a national register,
conservation standards and a certification process in respect of restoration
expenditures. In order to provide financial incentives to the private sector to
preserve heritage properties, the Government of Canada will create a three-year
contribution program of $10 million per year to compensate businesses for a
portion of the costs incurred in restoring heritage buildings.

CANADIAN TELEVISION FUND

The Canadian Television Fund was established in 1996 to spur the production of
quality, distinctly Canadian television programming. The Fund--supported by the
broadcasting distribution industry, Telefilm Canada and the Department of
Canadian Heritage--has met with considerable success in providing new quality
Canadian programming.

     The successful expansion of the broadcasting distribution industry over the
last few years has resulted in a significant increase in the funds available
from this source. This budget provides $75 million a year for two years to allow
the Department of Canadian Heritage to continue its support for the Fund.

KATIMAVIK

The Government of Canada is committed to fostering the personal, social and
professional development of Canada's youth, promoting community service, and
encouraging a better understanding of Canada. The Katimavik program offers young
Canadian men and women aged 17 to 21 an opportunity to acquire valuable personal
and professional skills through development programs in leadership, exposure to
a second language, cultural discovery, environmental protection and adoption of
a healthy lifestyle. This budget invests $17 million over the next two years to
enable many more young Canadians to share in the Katimavik experience.



                                      111



                              THE BUDGET PLAN 2003


OFFICIAL LANGUAGES

Linguistic duality is at the heart of Canada's collective identity. Knowledge of
another official language is a matter of both cultural and economic enrichment.
It helps to open the door to a different vision of the world and improve access
to global markets and the opportunities they offer. Over the last quarter
century, the advancements that Canada has made in the teaching, promotion and
use of the second language is nothing less than remarkable. Today 2.6 million
children--half of those attending primary or secondary schools in Canada--are
learning English or French as a second language. Some 324,000 are in French
immersion classes. Currently 24 per cent of young Canadian high school graduates
know both official languages. This represents the most bilingual generation in
Canada's history.

     With this budget, the Government will invest in a five-year action plan to
renew its support to official languages. As mentioned in the Speech from the
Throne, the plan will first focus on minority language and second language
education with the intent of doubling, within 10 years, the number of high
school graduates with a working knowledge of both official languages. The action
plan will also support the development of minority English- and French-speaking
communities, expand access to services in their language in areas such as
health, and enhance the use of Canada's two official languages in the public
service, both in the workplace and while providing services to Canadians.

     In addition to the $25 million over the next two years provided for
expanded access to health care services for minority language communities (see
Chapter 3), this budget provides $114.5 million over the next two years for the
action plan. This includes:


o  $60.5 million to improve the quality of minority and second language
education, and provide young Canadians with opportunities to develop their grasp
of official languages.

o  $54 million to improve the services available to official language
minorities, support their economic development and implement a government-wide
accountability framework. The action plan will:

     -   deliver on legal obligations for official languages and other
         activities promoting linguistic rights;

     -   help official language minority communities;

     -   attract and retain immigrants in minority communities;

     -   continue to better connect French-speaking individuals in minority
         communities through various initiatives; and

     -   help coordinate and promote the development of language industries.



                                      112



              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES

OTHER INITIATIVES

LEGAL AID

The right to a fair trial is a cornerstone of Canada's justice system. The
Government committed in the Speech from the Throne to ensure that individuals
facing serious criminal charges before the courts are provided with adequate
legal assistance. The provision of criminal legal aid is an area of
long-standing and successful federal, provincial and territorial collaboration.
The federal government contributes financially to criminal legal aid services
through contribution agreements with the provinces and territories.

     Over the last few years, provincial and territorial governments have
experienced significant cost increases for legal aid. Budget 2003 is therefore
increasing funding for criminal legal aid by $89 million over the next two
years, of which $83 million will further assist the provinces and territories.

A NEW CITIZENSHIP ACT

The Minister of Citizenship and Immigration tabled a new citizenship bill in the
House of Commons on October 31, 2002. The proposed changes to the Citizenship
Act will contribute to a more inclusive Canada, foster a sense of belonging and
attachment to the country, and reassert and celebrate the values, rights and
responsibilities of Canadian citizenship. The new legislation will streamline
the processing of high volumes of applications as well as establish fair and
objective criteria for the granting of Canadian citizenship. This budget commits
$20.6 million over the next two years to implement the proposed changes to the
Citizenship Act.

AMATEUR SPORT

Participation in sport not only contributes to the well-being of Canadian
citizens, but it also enhances national pride. Sport participation is for
everyone--from the elite athletes to Canadians from all walks of life.
Recognizing this, the federal government currently invests some $75 million
annually in a range of sport activities.

     In addition to the investment of $45 million over five years that is part
of the health package to promote sport participation by all generations of
Canadians, this budget will invest $10 million in the next two years for
additional support to Canada's elite athletes in the event that the
2010 Vancouver Winter Olympic bid is successful.

     These investments demonstrate the Government of Canada's continued
commitment to amateur sport and to Olympic success.



                                      113



                              THE BUDGET PLAN 2003


TABLE 4.7
Promoting Canadian Culture and Values



                                            2003-        2004-
                                            2004         2005
                                           ------       ------
                                          (millions of dollars)

                                                  
CULTURAL AND HERITAGE PROGRAMS
    Historic places                           10           10
    Canadian Television Fund                  75           75
    Katimavik                                  5           12

OFFICIAL LANGUAGES                          37.5           77

OTHER INITIATIVES
    Legal aid                               44.5         44.5
    New Citizenship Act                     10.6           10
    Amateur sport                              5            5
                                           -----        -----
TOTAL                                      187.6        233.5
                                           =====        =====





                                      114



              INVESTING IN CANADIAN FAMILIES AND THEIR COMMUNITIES



TABLE 4.8
Investing in Canadian Families and Their Communities



                                                                         2003-         2004-
                                                                         2004          2005
                                                                        ------        ------
                                                                        (millions of dollars)
                                                                                
SUPPORTING CANADIAN FAMILIES
    Families with children
       National Child Benefit supplement                                   200           300
       Early learning and child care                                        25            75
       First Nations child care                                                            6
    Canadians with disabilities
       Child Disability Benefit                                             40            50
       Enhanced tax assistance for persons with disabilities
          RRSP rollovers to an infirm child                                 10            10
          Expanding the list of eligible expenses for
              the medical expense tax credit                                20            20
          Following through on evaluation of DTC
              and advice of the technical advisory committee                25            80
       Employability Assistance for Persons with Disabilities              193           193
    Child and family law strategy                                           27            26
                                                                       -------       -------
    Total                                                                  540           760
SUPPORTING COMMUNITIES
    Affordable housing and support for the homeless
       Affordable Housing Initiative                                        30            50
       Residential Rehabilitation Assistance Program                       128           128
       Supporting Communities Partnership Initiative                       135           135
    Infrastructure
       Strategic infrastructure                                                           50
       Municipal infrastructure                                            100           100
    Integrated Proceeds of Crime                                          23.3          23.3
                                                                       -------       -------
    Total                                                                416.3         486.3

STRENGTHENING ABORIGINAL COMMUNITIES
    First Nations policing                                                  18            24
    Language and culture                                                     8            10
    Federal Interlocutor for Metis and Non-Status Indians                    3             3
    Urban Aboriginal strategy                                                9             8
                                                                       -------       -------
    Total                                                                   38            45
PROMOTING CANADIAN CULTURE AND VALUES
    Cultural and heritage programs
       Historic places                                                      10            10
       Canadian Television Fund                                             75            75
       Katimavik                                                             5            12
    Official languages                                                    37.5            77
    Other initiatives
       Legal aid                                                          44.5          44.5
       New Citizenship Act                                                10.6            10
       Amateur sport                                                         5             5
                                                                       -------       -------
    Total                                                                187.6         233.5
TOTAL                                                                  1,181.9       1,524.8
                                                                       =======       =======




                                      115








5

INVESTING IN A
MORE PRODUCTIVE,
SUSTAINABLE
ECONOMY








                              THE BUDGET PLAN 2003


     HIGHLIGHTS

     STRENGTHENING RESEARCH AND INNOVATION

     This budget will invest $1.7 billion in 2002-03 and over the next two years
     to support research and innovation, including:

o    a $125-million-per-year increase in funding for Canada's three federal
     granting councils beginning in 2003-04;

o    a new Canada Graduate Scholarships program supporting 4,000 new
     scholarships at program maturity;

o    $225 million per year to help fund the indirect costs associated with
     federally sponsored research through the granting councils beginning in
     2003-04;

o    $16 million over the next two years for northern science;

o    investments of $500 million in the Canada Foundation for Innovation for
     state-of-the-art health research facilities and $75 million in Genome
     Canada for health genomics;

o    $15 million to the Rick Hansen Man In Motion Foundation and $20 million to
     the Medical and Related Sciences project;

o    $30 million for SchoolNet and the Community Access Program;

o    an additional $70 million over two years for the National Research Council
     of Canada to strengthen the Industrial Research Assistance Program, support
     astronomy and establish new regional innovation centres; and

o    an additional $190 million in equity to expand venture capital by the
     Business Development Bank of Canada and $20 million for Aboriginal Business
     Canada in support of entrepreneurship and business development.


     SUPPORTING SKILLS AND LEARNING

     This budget provides $285 million in 2002-03 and over the next two years
     for skills and learning, including:

o    $41 million to better attract and facilitate the integration of skilled
     immigrants into the Canadian labour market and society;



                                      118




              INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY

o    $60 million over two years to improve the Canada Student Loans Program;

o    $100 million for the creation of the proposed Canadian Learning Institute;
     and

o    $72 million to improve educational outcomes for Aboriginal people and
     ensure they are provided with training and employment opportunities on
     major projects across Canada.


     IMPROVING THE TAX SYSTEM

     This budget builds on the Government's Five-Year Tax Reduction Plan to
     further improve the tax system and enhance incentives to work, save and
     invest. This budget:

o    supports Canadian families by increasing the National Child Benefit
     supplement and introducing a new Child Disability Benefit;

o    encourages savings by Canadians by increasing the registered retirement
     savings plan annual contribution limit to $18,000 by 2006 and making
     corresponding increases for employer-sponsored registered pension plans;

o    promotes entrepreneurship and small business through a number of tax
     changes, including an increase in the small business deduction limit to
     $300,000 over four years;

o    strengthens the Canadian advantage for investment by legislating the
     elimination of the federal capital tax over five years, eliminating it for
     medium-sized corporations as early as 2004;

o    improves the taxation of resource income in Canada by reducing the
     corporate tax rate of the sector to 21 per cent over the next five years
     while making changes to the tax structure of this key sector;

o    extends the temporary mineral exploration tax credit; and

o    enhances the Film or Video Production Services Tax Credit.



                                      119




                              THE BUDGET PLAN 2003

     ADVANCING SUSTAINABLE DEVELOPMENT

     Budget 2003 includes measures totalling $3 billion to promote sustainable
     development and a healthier environment, such as:

o    $2 billion over five years in measures to help implement the Climate Change
     Plan for Canada through: increased government support for Sustainable
     Development Technology Canada and the Canadian Foundation for Climate and
     Atmospheric Sciences; improved tax incentives in renewable energy; and
     funding for other climate change measures, including targeted initiatives
     and partnerships. Actions to promote energy efficiency, renewable energy,
     sustainable transportation and new alternative fuels, in such areas as
     building retrofits, wind power, fuel cells and ethanol, will be considered;

o    an investment of $340 million over two years to address federal
     contaminated sites, improve air quality, better assess and manage toxic
     substances, further protect Canada's species at risk, and support
     implementation of Canada's commitments at the World Summit on Sustainable
     Development;

o    $600 million over five years to upgrade, maintain and monitor water and
     waste water systems on reserves; and

o    $74 million over two years as an initial investment for the establishment
     of 10 new national parks and 5 new national marine conservation areas and
     to restore the ecological health of existing parks.



     RENEWING CANADIAN AGRICULTURE

     In June 2002 the Government delivered on its previous commitment to provide
     predictable, long-term funding for agriculture by allocating $5.2 billion
     over six years to the sector. Budget 2003 builds on the new direction for
     agricultural policy through new investments in several areas:

o    $220 million this fiscal year to provide an advance to the Crop Reinsurance
     Fund, ensuring that farmers will receive future payments;



                                      120




              INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY

o    $100 million over the next two fiscal years to the Canadian Food Inspection
     Agency to help it maintain the food safety system;

o    $30 million over the next two fiscal years to the Canadian Grain Commission
     to allow it to maintain its level of service to farmers;

o    $113 million this fiscal year for infrastructure improvements at Canada's
     four veterinary colleges; and

o    $20 million over the next two years to supplement Farm Credit Canada
     investments for further promotion of innovation in the agricultural sector.



                                      121



                              THE BUDGET PLAN 2003


INTRODUCTION

Enhancing the well-being of Canadians, through higher living standards and a
better quality of life, lies at the heart of the Government's economic and
social policies. Achieving high and sustainable living standards and a better
quality of life requires that economic and social progress advance together. By
undertaking the right investments and creating favourable conditions for growth,
the Government can help provide the foundation for such progress.

     Beyond a stable fiscal and monetary climate, the key drivers of a stronger
economy are those that allow Canada to improve its productivity performance.
These include such factors as a tax system that encourages economic growth and
job creation, and investments in new technologies and research. Equally
important is ensuring that Canadians have the skills and confidence needed to
participate fully in the new economy. And the country's growth must be
sustainable as well as strong. This means that the Government must deal
effectively with climate change and other environmental challenges.

     Canada has made great strides in recent years, eliminating the deficit and
accelerating the growth in its standard of living. From 1997 to 2002 Canada's
growth in gross domestic product (GDP) per capita, the best measure of living
standards, rose faster than in any of the other leading industrialized
countries, including the U.S.

     This remarkable progress comes with a clear message: continued long-term,
durable economic growth will require ongoing productivity improvements. Faster
productivity growth means more income and better jobs for employees, and more
opportunities for Canadians for personal growth and development. Canada's
economic and social policies come together through investments in people,
particularly in their health and their opportunities for learning.

     The measures announced in this and previous budgets are designed to help
ensure Canada's productivity growth will continue to rise, and with it,
Canadians' standard of living. A key element in raising productivity will be to
make Canada a magnet for talent and investment--a crucial part of how Canada
positions itself as a "Northern Tiger." As part of this effort, the Government
has made and will continue to make substantial investments to strengthen
research and innovation, support skills and learning and improve Canada's health
care system. It will introduce measures that build on the Government's Five-Year
Tax Reduction Plan to further improve the tax system, enhance incentives to
work, save and invest, promote entrepreneurship and small business, and
strengthen the Canadian tax advantage for investment.



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY


     A more productive economy is not just about higher incomes for Canadians.
It is also about ensuring that our economic choices integrate social and
environmental considerations to ensure Canada's development is sustainable. All
sectors of the economy must confront and act on this challenge to position
themselves for sustainable future growth and competitiveness.



STRENGTHENING RESEARCH AND INNOVATION

Research provides opportunities for Canadians to develop leading-edge skills and
ideas. It also generates discoveries that are transformed by entrepreneurs into
innovative products, services and technologies. The dividends of investments in
research are a growing economy and a higher quality of life for all Canadians.

     It was with this sense of opportunity that the Government made investments
in recent years that have raised annual federal spending on research and
innovation by over $2 billion (see Table 5.1). Indeed, over the 1998-99 to
2004-05 period, the Government will have invested a cumulative amount of over
$11 billion in research and innovation.

     Much of this investment has supported research conducted at universities,
colleges and research hospitals, energizing these institutions and surrounding
communities and leading to new economic opportunities. The Government's
investments have enabled universities to raise further support from the private
sector and other sources. Sponsored research at Canada's top 50 research
universities reached $3.4 billion in 2001, an increase of more than 20 per cent
from the previous year. Overall, income from sponsored research per full-time
faculty member now exceeds $100,000, a first in Canada.



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                              THE BUDGET PLAN 2003


TABLE 5.1
Increased Funding for Research and Innovation Provided in Previous Budgets




                                   1998-   1999-    2000-    2001-   2002-    2003-    2004-
                                   1999    2000     2001     2002    2003     2004     2005
                                  ------  ------   ------   ------  ------   ------   ------
                                                   (millions of dollars)
                                                                 
Canada Foundation
   for Innovation(1)                30      115      185      230     330      450       500
Genome Canada(1)                                               31     100       82        81
Canada Research Chairs                                60      120     180      240       300
Medical Research Council of
   Canada/Canadian Institutes
   of Health Research               40       72      145      255     330      330       330
Natural Sciences and
   Engineering Research
   Council of Canada                71      111      118      118     154      154       154
Social Sciences and
   Humanities Research
   Council of Canada                 9       26       38       58      67       67        67
Networks of Centres
   of Excellence                             30       30       30      30       30        30
National Research Council
   of Canada                        50       44       90      135     140      132       132
Atlantic Innovation Fund                                       23      68       88        78
Canadian Space Agency                        41      152      237     250      260       235
Biotechnology research
   and regulation                            15       45       50      55       55        55
Government On-Line                                    80      200     150      150       150
Technology Partnerships Canada     140      190      190      190     190      190       190
Connectedness(2)                    60       97      117      222      87       87        35
                                   ---    -----    -----    -----   -----    -----    ------
Total (annual)                     400      741    1,250    1,899   2,131    2,315     2,337

TOTAL (CUMULATIVE)                 400    1,141    2,391    4,290   6,421    8,736    11,073
                                   ===    =====    =====    =====   =====    =====    ======


(1)  Amounts shown represent actual or anticipated spending by not-for-profit
     entities in which the Government has invested in previous budgets.
(2)  Includes funding for SchoolNet, the Community Access Program, Smart
     Communities, GeoConnections, CA*net 4 and the Broadband for Rural and
     Nothern Development Pilot Program.


     The Government will invest an additional $1.7 billion in 2002-03 and over
the next two years to build on prior investments in research and innovation and
to promote the commercialization of these investments.




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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY

THE FEDERAL GRANTING COUNCILS

The three federal granting councils--the Canadian Institutes of Health Research
(CIHR), the Natural Sciences and Engineering Research Council of Canada (NSERC)
and the Social Sciences and Humanities Research Council of Canada (SSHRC)--fund
world-leading research in communities across Canada and provide opportunities
for talented graduate and post-graduate students to acquire valuable skills and
research experience. The Government has increased its support for the granting
councils each year since 1998, bringing their combined annual budgets to about
$1.3 billion in 2002-03, almost 70 per cent higher than funding provided in
1997-98.

     Budget 2003 continues these efforts to increase university research
activity across all disciplines. The budgets of the three granting councils will
be increased by a further $125 million per year, or about 10 per cent, beginning
in 2003-04. This means an increase of $55 million per year for the CIHR,
$55 million per year for NSERC and $15 million per year for SSHRC. This
additional funding will help support new researchers and translate discoveries
into commercial and social benefits for Canadians.


CANADA GRADUATE SCHOLARSHIPS

Individuals possessing the skills and talent necessary to generate innovative
ideas, adapt to changing environments and become proficient in new technologies
are critical to the knowledge economy. Canada must produce more graduate
students at all levels to ensure a reliable supply of these highly skilled and
qualified workers.

     The federal granting councils directly support graduate students through
their scholarship and fellowship programs, and indirectly through awards for
research performed at Canada's universities. In this budget the Government is
proposing to create a new Canada Graduate Scholarships program at an annual cost
of $105 million when fully phased in. Canada Graduate Scholars will help renew
faculty at Canada's universities and will be the research leaders of tomorrow.
The new program will complement the Government's initiative to create 2,000
Canada Research Chairs, supporting excellence at Canada's universities.

     The Canada Graduate Scholarships program, when fully phased in four years
from now, will support 2,000 master's and 2,000 doctoral students each year,
increasing the number of graduate scholarships supported by the federal
government by 70 per cent to almost 10,000. Scholarships at the doctoral level
will be for three years and provide students with an annual award of $35,000,
twice the amount of the one-year scholarships provided to students at the
master's level. Funding for the program will be allocated


                                      125




                              THE BUDGET PLAN 2003


among the three granting councils in proportion to the distribution of the
graduate student community: 60 per cent to SSHRC, 30 per cent to NSERC and 10
per cent to the CIHR.


INDIRECT COSTS OF RESEARCH

As university-based research has increased in Canada in recent years, the
indirect costs associated with these research activities has risen with them.
In 2002 the Government provided a payment of $200 million through the granting
councils to assist universities in meeting these indirect costs. That payment
recognized the unique needs of smaller institutions by providing them with
proportionately greater support.

     Budget 2003 will provide $225 million per year through the granting
councils beginning in 2003-04 to help fund the indirect costs associated with
federally supported research at universities, colleges and research hospitals.
The Government will develop new reporting and accountability mechanisms with
universities, and will review the program in its third year to ensure this
funding satisfies its objectives, including commercialization of university
research.


NORTHERN SCIENCE

Science and research in Canada's North contribute to our understanding of such
issues as Aboriginal health, sustainable development and the environment. It
also addresses concerns regarding Canadian sovereignty and security in the
North.

     Budget 2003 builds on the federal commitment to northern science, providing
$16 million over the next two years to expand federal programs. In particular,
an additional $6 million over the next two years will be provided for the Polar
Continental Shelf Project to provide air transport and land-based infrastructure
to Arctic researchers. A further $10 million over two years will be provided for
the Targeted Geoscience Initiative, allowing the program's mission to be
extended to the energy sector, including energy-oriented activities in Canada's
North. The granting councils will also be asked to enhance their support for
northern research as part of the increased funding they receive in this budget.



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY


CANADA FOUNDATION FOR INNOVATION

The Canada Foundation for Innovation (CFI) was established in 1997 to support
the modernization of research infrastructure at Canadian universities and
colleges, research hospitals and other non-profit research institutions across
Canada. Since then the Government has invested $3.15 billion in the CFI, which
has awarded research grants to more than 2,400 projects, almost half of them in
the health sciences.

     CFI investments are helping to transform the way research is done by
creating a vibrant research environment and attracting and retaining excellent
students and researchers. While the focus of these investments has been on
equipment and housing for equipment, changes in research methods and the
addition of more researchers and graduate students are making research space a
limiting factor to ongoing success. In the health field, in particular, a more
integrated and multi-disciplinary approach to research that spans biomedical,
clinical and health services research has given rise to proposals for new and
different facilities that will house sophisticated equipment and bring
researchers together in new and innovative ways. To ensure that they remain
leaders in health research and health care innovation, research hospitals are
seeking to establish integrated same-site facilities.

     This budget will provide an additional $500 million in 2002-03 to the CFI
to enhance the Foundation's support for state-of-the-art health research
facilities. This investment will help consolidate the platform for advanced
research in Canada and lever the skills and capabilities of Canadian researchers
into new and powerful combinations and discoveries.


GENOME CANADA

The study of genomics offers unique opportunities for exploration and discovery,
with the potential to unlock the origins of disease. The potential benefits are
improved treatment and prevention of serious illnesses such as cancer and
diabetes. Genomics also holds out great hope for reducing and reversing the
harmful effects of environmental degradation.

     The Government has invested $300 million in Genome Canada to develop and
implement a national genomics strategy. Genome Canada's investments have
energized genomics research in Canada and supported the establishment of five
leading regional genome centres (in Atlantic Canada, Quebec, Ontario, the
Prairies and British Columbia). Matching investments of $200 million have
provided further support beyond the Government's original investment.



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                              THE BUDGET PLAN 2003


     Budget 2003 provides an additional $75 million to Genome Canada in support
of large-scale projects for applied health genomics. These projects will build
on basic science discoveries supported in Genome Canada's first two competitions
and result in the development of instruments and techniques to improve the
prediction and prevention of disease.


RICK HANSEN LEADERSHIP FUND

The Rick Hansen Man In Motion Foundation is dedicated to finding a cure for
paralysis and improving the health and quality of life of people with spinal
cord injuries. The Foundation is establishing a Leadership Fund to help attract
and retain researchers and to support them in translating discoveries into
clinical therapies. This budget provides $15 million to the Foundation tohelp
establish the Leadership Fund and support its activities over the next seven
years.


THE MEDICAL AND RELATED SCIENCES PROJECT

The Medical and Related Sciences (MaRS) project is an initiative founded by
leaders from Canada's academic, business and scientific communities to fuel the
commercialization of medical research. MaRS will encompass the full spectrum of
discovery in the medical and related sciences, from a sophisticated discovery
centre to extensive incubator facilities for small and medium-sized companies.
It will also serve as the nucleus of a virtual network of discovery linking
other universities and research hospitals. Consistent with the Government's
focus on improving health research infrastructure and supporting
commercialization, this budget will contribute $20 million to the MaRS project.


SCHOOLNET AND COMMUNITY ACCESS PROGRAM

Canada is one of the most connected nations in the world. Infrastructure
connecting homes, businesses, schools, libraries and other public institutions
to the Internet is leading-edge. Moreover, Canadians are second to none in
developing and commercializing innovative Internet applications and content.
Funding was provided in previous budgets to help extend the highly successful
SchoolNet and Community Access Program. This budget provides an additional $30
million for the programs in 2003-04. Looking ahead, the Government will review
all of its programs connecting Canadians to information and knowledge to
determine how best to collaborate with Canadian industry, the provinces,
communities and others.



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY


NATIONAL RESEARCH COUNCIL OF CANADA

The National Research Council of Canada's (NRC's) Industrial Research Assistance
Program (IRAP) assists small and medium-sized businesses (SMEs) in developing
and using new, innovative technologies and processes. Based on a cross-Canada
network of firms, advisors, research institutes and other organizations, IRAP is
making a real difference to the growth potential of SMEs. This budget provides
$25 million per year to the NRC to expand IRAP's core programming including its
network of Industrial Technology Advisors. This amounts to a 20-per-cent
increase in IRAP funding.

     Budget 2003 also provides $10 million per year to the NRC to establish new
regional innovation centres in Regina and Charlottetown and to secure Canada's
participation in leading-edge astronomy projects, including the Extended Very
Large Array project in New Mexico and the Atacama Large Millimetre Array project
in Chile.


BUSINESS DEVELOPMENT BANK OF CANADA

The Business Development Bank of Canada (BDC) helps complement private sector
financing of innovative small and medium-sized Canadian businesses. The BDC
fulfills its mandate through lending, subordinated debt and venture capital
financing.

     The BDC's focus is on helping knowledge-based and export-oriented companies
grow and prosper. In some cases the Bank provides specialized financing services
to particular groups, such as women entrepreneurs. By March 2002 the BDC's
venture capital portfolio totalled $270 million, almost double its level in
March 2000. In support of further growth of its venture capital activities this
year and in 2003-04, the Government will purchase an additional $190 million of
BDC common shares. This capital will allow the BDC to provide additional equity
financing for knowledge-based and export-oriented businesses, and to increase
the financing available to women entrepreneurs.


ABORIGINAL BUSINESS CANADA

As part of its overall strategy to support Canadian SMEs, the Government will
encourage Aboriginal entrepreneurship and business development through increased
funding to Aboriginal Business Canada. Over the next two years $20 million will
be provided to Aboriginal Business Canada to expand its support for Aboriginal
entrepreneurs in starting up new businesses and expanding into new markets,
furthering measures to increase job skills and job creation. This represents an
increase of more than 25 per cent in the annual level of funding, bringing the
budget of Aboriginal Business Canada



                                      129



                              THE BUDGET PLAN 2003

to $48 million per year. Northern Aboriginal entrepreneurs seeking to take
advantage of new resource development opportunities would be eligible to apply
for this funding.


TABLE 5.2
Strengthening Research and Innovation




                                                    2002-       2003-       2004-
                                                    2003        2004        2005
                                                   ------      ------      ------
                                                        (millions of dollars)

                                                                 
Granting councils                                                125         125
Canada Graduate Scholarships                                      25          55
Indirect costs of research                                       225         225
Northern science                                                   8           8
Canada Foundation for Innovation                     500
Genome Canada                                         75
Rick Hansen Leadership Fund                                      2.2         2.2
Medical and Related Sciences project                              10          10
SchoolNet/Community Access Program                                30
National Research Council of Canada                               35          35
Business Development Bank of Canada
   (non-budgetary)                                   102          88
Aboriginal Business Canada                                        10          10
                                                     ---       -----       -----
Total                                                677       558.2       470.2
                                                     ===       =====       =====




SUPPORTING SKILLS AND LEARNING

To compete internationally and provide a better standard of living for its
citizens, Canada must continue to make investments to ensure an increasingly
well-educated, adaptable and skilled workforce. Advancements in skills and
learning will be vital to improved productivity and competitiveness and to a
better quality of life for Canadians. With this budget, investments will be made
in three key areas: increasing and enhancing the contributions of skilled
immigrants to the economy and society; helping to maintain access to
post-secondary education; and ensuring young Aboriginal Canadians have the
skills and learning needed to contribute fully to the economic life of their
communities and Canadian society. The budget proposes a number of strategic
investments, totalling $285million in 2002-03 and over the next two years, for
these priorities.

     Immigrants have historically made a fundamental contribution to the
Canadian labour market and society, and the importance of their contribution
will increase in the face of declining labour force growth and an aging
population. This will require improved efforts to attract and select skilled
immigrants and to facilitate their full integration into the labour market and
society.



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                 INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY


     For advancements in skills and learning to take place, it will be critical
that Canadians continue to have access to the quality post-secondary education
that they need. An important element of maintaining this access is the financial
assistance provided by the Canada Student Loans Program.

     Canada's Aboriginal population is much younger than the non-Aboriginal
population. As young Aboriginal Canadians move through the education system and
into the labour market, they will account for an increasing proportion of
Canada's working-age population. As a result, it will be important to ensure
they are well prepared to take advantage of opportunities.


SKILLED IMMIGRANTS

Canada needs to attract and recruit more skilled workers and students from
abroad to help mitigate skills and labour shortages. Employers have expressed
concerns about delays and complicated application processes, while partners in
student recruitment have requested the federal government do more to facilitate
the arrival of international students, ensuring a higher quality of service and
facilitating study permit processing procedures.

     To address these concerns and ensure that Canadian employers have timely
access to skilled workers, this budget will provide $6.6 million over the next
two years to launch a fast-track system for skilled workers with permanent job
offers from Canadian employers. This budget also provides $8 million over the
next two years to facilitate the processing of study permits for foreign
students.

     When immigrants arrive in Canada nearly 80 per cent settle in the
metropolitan areas of Toronto, Vancouver and Montreal. To encourage immigrants
to settle in smaller communities throughout Canada, the Government will invest
$3.8 million over the next two years to work with its partners on more effective
approaches to attract skilled workers to communities across the country.

     Many newcomers face barriers preventing them from reaching their full
potential in the Canadian labour market, including complex credential assessment
and recognition requirements and limited language skills relative to what is
needed to work in their field of expertise. To address these challenges, the
federal government will invest $13 million over the next two years to work in
partnership with provincial and territorial governments, regulatory bodies and
employers to facilitate foreign credential assessment and recognition. In
addition, it will invest $10 million over the next two years as seed money for
partners to deliver labour market language training on a pilot basis at more
advanced levels than currently provided.



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                              THE BUDGET PLAN 2003

CANADA STUDENT LOANS PROGRAM

The Canada Student Loans Program plays a key role in improving access to
post-secondary education by providing loans and other financial assistance to
more than 330,000 post-secondary students each year who have demonstrated
financial need. To ensure that the Canada Student Loans Program continues to
meet its objectives, this budget is taking steps to modernize and strengthen the
program.

o  More money will be put in students' hands through increased exemptions for
income earned while in school and from merit-based scholarships. Currently there
is a single exemption of $600 for both in-study income and scholarships. The
annual exemption will be increased to $1,700 for income earned while in school,
and a separate exemption of $1,800 will be established for merit-based
scholarships.

o  To enable graduates to better manage their student debt, Debt Reduction in
Repayment, which is intended to assist borrowers experiencing long-term
difficulty in repaying their loans, will be enhanced by:

     -   increasing the income eligibility thresholds;

     -   removing the current restriction limiting debt reduction to 50 per cent
         of outstanding debt--borrowers will now be eligible for an initial loan
         remission of up to $10,000; and

     -   creating an additional reduction of up to $5,000 one year after the
         initial debt reduction if the borrower is still in financial
         difficulty. A further reduction of up to $5,000 will be available two
         years after the first reduction for those borrowers who remain in
         financial difficulty.

     As a result of these measures, borrowers in difficult financial
circumstances could have their Canada Student Loan debt reduced by up to$20,000
over three years.

o  Individuals who are in default on their Canada Student Loans or who have
declared bankruptcy will now have access to interest relief.

o  The Canada Student Financial Assistance Act will be amended to make protected
persons, including convention refugees, eligible for Canada Student Loans, and
to make provisions with respect to the enforcement, management and
implementation of the Canada Student Loans Program.

These measures represent an investment of some $60 million over two years,
starting in 2003-04.



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY

EXAMPLES OF DEBT REDUCTION IN REPAYMENT

    GRADUATE, SINGLE

    David is a single graduate with Canada Student Loan debt of $15,000 and
    monthly payments of $174. His gross monthly income is $1,000. David has used
    up all the interest relief available to him and five years have passed since
    he graduated.

    Under the existing measure, David's Canada Student Loan debt is reduced by
    $7,500, leaving monthly payments of $87.

    Under the proposed measure, David's debt will be reduced by $10,000,
    resulting in monthly payments of $58.

    If David is still experiencing financial difficulty one year after the
    initial debt reduction, he could be eligible for a further reduction in his
    debt. If his income remained the same as the previous year, David's debt
    will be reduced by $2,847 to produce a monthly payment of $25.

    As a minimum monthly payment of $25 is required, David will not be eligible
    for further reductions in his debt. However, under the proposed measure, his
    Canada Student Loan debt will have been reduced by $12,847 over two years.



    GRADUATE, SINGLE PARENT

    Carole is a single parent with one child. She has Canada Student Loan debt
    of $15,000 with monthly payments of $174. Her gross income is $2,000 per
    month. It has been five years since Carole graduated and she is not eligible
    for further interest relief.

    Under the current measure, Carole is not entitled to have her Canada Student
    Loan debt reduced.

    Under the proposed measure, Carole's debt will be reduced by $10,000,
    leaving monthly payments of $58.

    If Carole is still experiencing financial difficulty one year after the
    initial debt reduction, her debt will be reduced by a further $694 to
    produce a monthly payment of $50.

    Carole will not be eligible for further reductions in her debt, but her
    Canada Student Loan debt will have been reduced by $10,694 over two years.



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                              THE BUDGET PLAN 2003


CANADIAN LEARNING INSTITUTE

At the National Summit on Innovation and Learning in November 2002, the federal
government announced its intention to work with its partners to develop a
Canadian Learning Institute. A key objective of the Institute will be to broaden
and deepen data and information on education and learning. This will address
gaps in the knowledge of education and learning, and result in payoffs for
Canadians in making future decisions about investments in learning.

     Consultations with provinces, territories and other stakeholders are
underway on the mandate, structure and governance of the Institute, and the
Government will proceed on the basis of the advice received. This budget sets
aside a one-time contribution of $100 million in 2003-04 for the establishment
of the Canadian Learning Institute.


FIRST NATIONS EDUCATION

The Government of Canada is committed to improving the education outcomes of
First Nations children. Currently the Government spends over $1 billion annually
on First Nations elementary and secondary education and $300 million a year on
post-secondary education for eligible Indian and Inuit students. As stated in
the recent Speech from the Throne, "the most enduring contribution Canada can
make to First Nations is to raise the standard of education on-reserve."

     In 2001 the Government provided additional funding of $30 million a year
for a special education program. This new program is intended to support
children living on reserves who face special learning challenges in school
because of physical, emotional or developmental barriers to learning. But more
needs to be done.

     The Government will review the report of the Minister of Indian Affairs and
Northern Development's National Working Group on Education and take additional
action to improve educational outcomes for Aboriginal people. This budget
provides $35 million over the next two years to respond to the Working Group's
recommendations. This funding will address critical issues such as the high
turnover among teachers in some First Nations schools, and the need to affirm
and support the active involvement of parents and other family members in their
children's education.



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY


NEW POST-SECONDARY SCHOLARSHIP FOR ABORIGINAL CANADIANS

Despite steady gains in educational achievement, the percentage of Aboriginal
Canadians with post-secondary degrees lags well behind the Canadian average. To
support and encourage the achievement of higher levels of education, the
Government will establish a new scholarship program with a one-time $12-million
endowment, to be administered by the National Aboriginal Achievement Foundation.


ABORIGINAL SKILLS AND EMPLOYMENT PARTNERSHIP

The Government will meet the Speech from the Throne commitment to tailor
training programs to help Aboriginal people participate in economic
opportunities (such as northern gas pipelines and similar projects) by providing
$25 million over the next two years. This funding will facilitate Aboriginal
access to training and employment opportunities in a limited number of major
projects across Canada. This will be a collaborative partnership with
significant contributions expected from the private sector, Aboriginal groups,
provinces and territories. It will further reinforce the Government's commitment
to support skills development and lifelong learning opportunities for all
Canadians.


AQUATIC RESOURCES MANAGEMENT

Coastal Aboriginal communities are becoming increasingly important partners in
the sustainable management of aquatic resources. This budget commits $12 million
over the next two years to a new program within the Department of Fisheries and
Oceans Canada that will enhance the ability of Aboriginal communities, working
together, to participate in the fisheries decision making and management
process. The program will enhance professional participation in resource
decision making in an area with strong social and cultural significance for many
Aboriginal groups, and will increase job opportunities in the commercial
fishery.



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                              THE BUDGET PLAN 2003

TABLE 5.3
Supporting Skills and Learning




                                                              2002-      2003-       2004-
                                                              2003       2004        2005
                                                             ------     ------      ------
                                                                  (millions of dollars)

                                                                          
Skilled immigrants                                                       19.5        21.9
Canada Student Loans Program                                             27.1        32.1
Canadian Learning Institute                                               100
First Nations education                                                    10          25
Post-secondary scholarship for Aboriginal Canadians            12
Aboriginal skills and employment partnership                               10          15
Aquatic resources management                                                4           8
                                                               --       -----         ---
Total                                                          12       170.6         102
                                                               ==       =====         ===


IMPROVING THE TAX SYSTEM

The tax system plays an important role in creating a stronger, more productive
economy. An efficient tax structure can enhance incentives to work, save and
invest. It can also support entrepreneurship and the emergence and growth of
small businesses. A competitive tax system is also critical in encouraging
investment in Canada, leading to greater economic growth and job creation.

     In 2000 the Government set out a five-year $100-billion tax reduction
plan that provided significant personal income tax reductions and strengthened
the foundation for economic growth and job creation. The plan:

o  reduced personal income taxes by lowering tax rates, eliminating the deficit
reduction surtax and restoring full indexation--by 2004-05 the plan will reduce
federal personal income taxes by 21 per cent on average and by27 per cent for
families with children;

o  reduced the capital gains inclusion rate from three-quarters to one-half and
introduced the small business capital gains rollover--enhancing incentives for
entrepreneurs and small businesses to invest; and

o  reduced the general corporate income tax rate from 28 per cent in 2000 to 21
per cent in 2004--contributing to creating a Canadian tax advantage for
investment.

     The Government's Five-Year Tax Reduction Plan has provided timely and
significant economic stimulus, playing a key role in sustaining Canadian
economic performance in the global downturn and the uneven global recovery. This
calendar year and next the Government's Five-Year Tax Reduction Plan is
providing significant tax relief--about $24 billion in 2003 and more than
$30 billion in 2004.



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY

TABLE 5.4
Five-Year Tax Reduction Plan: 2003 and 2004 Calendar-Year Tax Relief




                                             2003            2004
                                            ------          ------
                                            (billions of dollars)

                                                       
TOTAL TAX RELIEF                             24.2            30.6
Personal income tax                          18.1            22.5
Corporate income tax                          2.5             3.7
Employment insurance                          3.6             4.4



     Annex 2 provides more detailed information on the implementation of the
legislated Five-Year Tax Reduction Plan.

     This budget builds on the Five-Year Tax Reduction Plan. It takes steps to
further improve the tax system by introducing measures that support Canadian
families, encourage savings and investment by Canadians, promote
entrepreneurship and small business, and strengthen the Canadian tax advantage.


SUPPORTING CANADIAN FAMILIES:

INCREASING THE NATIONAL CHILD BENEFIT SUPPLEMENT
AND INTRODUCING THE CHILD DISABILITY BENEFIT

This budget provides tax relief for low-income families by increasing the
National Child Benefit supplement component of the Canada Child Tax Benefit
(CCTB) by an annual amount of $150 per child in July 2003, $185 in July 2005 and
$185 in July 2006 (see Chapter 4). With these increases, the maximum CCTB
benefit is projected to reach $3,243 for the first child in 2007. This will
bring the estimated annual support delivered through the CCTB to over $10
billion in 2007--an increase of over 100 percent since 1996. This budget also
introduces a new Child Disability Benefit, which provides up to $1,600 annually
to low- and modest-income families with a disabled child (see Chapter 4).

ENCOURAGING SAVINGS BY CANADIANS:
INCREASING THE RPP/RRSP LIMITS

Private domestic savings are a critical source of capital in the economy as well
as a fundamental instrument for individual Canadians to finance their retirement
and meet other needs such as buying a home or supporting the education of their
children. The tax treatment of savings is an important factor for the formation
of private savings because it affects the after-tax return on savings and
therefore the incentive to save.



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                              THE BUDGET PLAN 2003

     In Canada registered pension plans (RPPs) and registered retirement savings
plans (RRSPs) are the principal tax-assisted savings vehicles. The deferral of
tax on savings in these plans reduces the tax burden on savings and therefore
increases the incentive to save. Savings in RPPs and RRSPs total over $1
trillion and are a key source of funds for investment in the economy.

     RPPs and RRSPs together form the third pillar of Canada's retirement income
system, along with Old Age Security and the Guaranteed Income Supplement, and
the Canada and Quebec Pension Plans. RPPs and RRSPs play a major role in
assisting Canadians in planning and funding their retirement. They also reduce
the costs to employers of providing compensation packages, including retirement
plans, that are competitive; RPP and RRSP limits can thus be a factor in the
decision of mobile, skilled workers to accept employment in Canada, and in the
ability of employers to attract and retain such workers.

     The ability of taxpayers to save in RPPs and RRSPs is governed by limits on
the pension benefits that may be provided under "defined benefit" RPPs and on
the contributions that may be made to RRSPs and "money purchase" RPPs. Setting
appropriate limits on savings in RPPs and RRSPs is an important objective of
public policy. However, over the years there have been successive delays in
implementing planned increases in the RPP and RRSP contribution limits to
$15,500 that were first proposed in 1984. The result is that the existing RRSP
contribution limit is $13,500, and the real value of the limits in 2003 is well
below their levels in 1976.

     As part of the strategy to improve the tax system to encourage economic
growth and job creation, and building on success in securing the first two
pillars of Canada's retirement income system, this budget proposes to increase
the RPP and RRSP limits. First, the currently scheduled increases in the RPP and
RRSP annual contribution limits to $15,500 will be accelerated by one year. As a
result, the 2003 contribution limits for RRSPs and money purchase RPPs will
increase to $14,500 and $15,500, respectively. These RPP and RRSP limits will
then be increased in steps to $18,000 by 2005 and 2006, respectively.
Corresponding increases will be made to the maximum pension limit for defined
benefit RPPs, bringing it to $2,000 per year of service by 2005. The limits will
be indexed to average wage growth for subsequent years.



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY


    THE THREE PILLARS OF CANADA'S RETIREMENT INCOME SYSTEM

    Canada's retirement income system is based on three pillars:

    o  OAS/GIS: The Old Age Security (OAS) and Guaranteed Income Supplement
    (GIS) programs provide a basic, minimum income guarantee for seniors.

    o  CPP/QPP: The Canada and Quebec Pension Plans (CPP/QPP) ensure a basic
    level of earnings replacement in retirement for all working Canadians.

    o  Tax-Assisted Retirement Savings: The system of private tax-assisted
    savings in RPPs and RRSPs encourages and assists Canadians to save for
    retirement to supplement their public pensions.

    Through sound economic and fiscal management, the Government has succeeded
    in securing the strength and long-term stability of the first two pillars.

    o  By balancing the budget, putting the debt-to-GDP ratio on a firm downward
    track and exercising continued prudent fiscal management, the Government
    has ensured that the OAS/GIS programs can be financed on a sustainable
    basis.

    o  By implementing with the provinces the 1997 CPP reforms, it has put the
    CPP on a secure financial footing. According to the chief actuary of the CPP
    in his most recent actuarial report, the 9.9-per-cent contribution rate that
    took effect on January 1, 2003--the final step in fully implementing the
    1997 reforms--should be sufficient to sustain the plan for more than the
    next 50 years.

    Having secured the first two pillars of the retirement income system, the
    Government is now moving to strengthen the third pillar by increasing the
    RPP and RRSP limits. This budget increases the RRSP annual contribution
    limit to $18,000 by 2006 and indexes it to average wage growth in subsequent
    years. It makes corresponding increases to limits for both money purchase
    and defined benefit RPPs.



     The increases in RPP and RRSP limits will support savings and investment.
Higher limits will also better meet the retirement savings needs of Canadians,
including skilled workers and small business owners constrained by the current
limits. They will also improve the ability of employers in Canada to attract and
retain highly qualified personnel.



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                              THE BUDGET PLAN 2003


TABLE 5.5
Existing and Proposed RPP/RRSP Limits




                                          2003       2004      2005         2006         2007
                                         ------     ------    ------       ------       ------
                                                               (dollars)
                                                                
Money purchase RPPs: annual contribution limit

Existing                                  14,500    15,500    Indexed
PROPOSED                                  15,500    16,500     18,000      INDEXED

Defined benefit RPPs: maximum pension benefit (per year of service)

Existing                                   1,722     1,722    Indexed
PROPOSED                                   1,722     1,833      2,000      INDEXED

RRSPs: annual contribution limit

Existing                                  13,500    14,500     15,500      Indexed
PROPOSED                                  14,500    15,500     16,500       18,000      INDEXED



     Moving forward, it is important that the tax system continue to provide
effective mechanisms to support saving. The Government has received numerous
representations from individuals, researchers and businesses that Canada's tax
system should be more conducive to saving. The Government intends to carefully
review these representations and to conduct analysis in order to identify
possible approaches for future improvements. In particular, the Government will
examine whether tax pre-paid savings plans could be a useful and appropriate
mechanism to improve the tax treatment of savings and to provide additional
savings opportunities for Canadians.


PROMOTING ENTREPRENEURSHIP AND SMALL BUSINESS

Entrepreneurs and small businesses are a key source of economic growth and job
creation in Canada. The tax system can support the growth of small businesses by
allowing them to retain more of their earnings. It can also enhance
opportunities and incentives for individual Canadians and other investors such
as venture capital funds to invest in small enterprises. The Five-Year Tax
Reduction Plan strengthened support for entrepreneurs and small businesses
through measures such as the reduction in the inclusion rate for capital gains
and the introduction of the small business capital gains rollover. This budget
builds on the Five-Year Tax Reduction Plan to further support entrepreneurship
and small business.



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                 INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY


    EXAMPLES OF TAX MEASURES THAT SUPPORT SMALL BUSINESSES

    SMALL BUSINESS DEDUCTION: A lower tax rate of 12 per cent applies on the
    first $200,000 of qualifying income. With this budget, the limit for
    application of the lower 12 per cent rate will rise from $200,000 to
    $300,000 over four years.

    ROLLOVER OF INVESTMENTS IN SMALL BUSINESS: Investors may, subject to certain
    limits, defer the taxation of capital gains on investments in eligible small
    business shares if the proceeds of disposition of their shares are
    reinvested in other eligible small business shares. With this budget,
    entitlement to this deferral is expanded by eliminating the individual
    investor limits on the amount of the original investment and reinvestment
    that may be eligible for the deferral and by extending the allowable period
    for the reinvestment.

    CAPITAL TAX THRESHOLD: The federal capital tax does not apply to the first
    $10 million of capital of a corporation. With this budget, as part of the
    proposed elimination of the capital tax, this threshold will increase from
    $10 million to $50 million, effective 2004.

    RRSP LIMIT: RRSPs play a major role in assisting small business owners to
    meet their retirement savings needs. With this budget, the RRSP annual
    contribution limit will increase to $18,000 by 2006.

    $500,000 LIFETIME CAPITAL GAINS EXEMPTION ON THE SALE OF SMALL BUSINESS
    SHARES: Investors do not pay tax on their first $500,000 of capital gains on
    small business shares.

    DEDUCTION OF CAPITAL LOSSES ON SHARES AND DEBT OF SMALL BUSINESS
    CORPORATIONS AGAINST OTHER INCOME (ALLOWABLE BUSINESS INVESTMENT LOSSES):
    Taxpayers may deduct allowable business investment losses on shares or debt
    of small businesses from income from other sources.

    SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT (SR&ED) TAX CREDIT: For
    small businesses, SR&ED tax credits are earned at a higher rate (35 per cent
    compared with 20per cent for other businesses) on their first $2 million in
    qualifying expenditures. Unused SR&ED tax credits earned on current
    expenditures at the 35-per-cent rate are fully refundable. Unused credits on
    other SR&ED expenditures qualify for a refund at a reduced rate of 40 per
    cent.


SMALL BUSINESS DEDUCTION

A key tax measure that supports small business corporations is a reduced
12-per-cent income tax rate on the first $200,000 of qualifying income. This
lower tax rate helps small businesses to retain more of their earnings for
reinvestment and expansion.

     In order to provide additional support to small business, this budget
proposes that the amount of annual qualifying income eligible for the reduced
12-per-cent federal tax rate be increased from $200,000 to



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                              THE BUDGET PLAN 2003


$300,000. This increase will be phased in over the next four years starting with
a $25,000 increase in the limit for 2003. The limit will be further increased in
$25,000 increments in each of 2004, 2005 and 2006. By 2006 all qualifying income
up to $300,000 will be taxed at the 12-per-cent rate.

     This measure will provide small businesses with up to $9,000 per year in
additional after-tax earnings to help them grow.


CAPITAL GAINS ROLLOVER FOR SMALL BUSINESS INVESTORS

The small business capital gains rollover, introduced in the 2000 budget, allows
investors, subject to certain limits, to defer the taxation of capital gains on
investments in eligible small business shares if the proceeds of disposition are
reinvested in other eligible small business shares. This measure plays an
important role in promoting innovation and growth by making it easier for small
businesses, especially start-up companies, to access the risk capital needed to
expand and grow.

     The current $2-million threshold on the original investment as well as the
reinvestment that is eligible for the deferral limits the scope of the measure
and its effectiveness. This budget removes both limits.

     In addition, the measure will be enhanced to allow a reinvestment to be
eligible when made at any time in the year of disposition or within 120 days
after the end of the year.


VENTURE CAPITAL AND QUALIFIED LIMITED PARTNERSHIPS

Canadian pension funds are a potentially significant source of venture
capital--capital that is critical to the emergence and growth of small
businesses, particularly in higher-risk, innovative sectors of the economy.
However, an interest in a limited partnership--the preferred investment vehicle
of the venture capital industry--is generally treated as foreign property under
the Income Tax Act 30-per-cent limit on the foreign property holdings of
deferred income plans. This can offset the attractiveness of limited
partnerships for pension funds.

     Units in a qualified limited partnership (QLP) are generally not treated as
foreign property. Because of this, they provide a vehicle for pension funds
wishing to make venture capital investments through a partnership.

     The income tax rules set out several conditions that must be met for
qualification as a QLP. As a result of consultations with the venture capital
industry, Budget 2001 removed the condition that no limited partner (or group of
non-arm's-length limited partners) in a QLP could hold more than



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY


30 per cent of the partnership. This removed an investment impediment for
pension funds to participate in venture capital investments. Since then other
technical aspects of the QLP rules have been identified as restricting the
ability of a typical Canadian venture capital fund to structure itself as a QLP.
This budget proposes additional technical changes to the QLP rules to respond to
these concerns by removing impediments in the eligibility criteria for a QLP.


AUTOMOBILE BENEFIT AND EXPENSE PROVISIONS

Small businesses and their employees often express concerns about the cost and
complexity associated with the income tax treatment of automobile benefits for
employees and automobile expenses for employers.

     This budget proposes changes to improve these automobile benefit and
expense provisions. It recommends the reduction of the standby charge for
individuals who use employer-provided vehicles primarily for business, and the
exclusion of certain pickup trucks used at remote or semi-remote work sites from
the standby charge, operating expense benefit and automobile expense provisions.



STRENGTHENING THE CANADIAN TAX ADVANTAGE

A competitive tax system is necessary to attract investment to Canada. The
Government's five-year $100-billion tax reduction plan established a tax
advantage for investment in Canada as a fundamental component of a strategy to
foster a strong and productive economy.

     The plan is lowering the general rate of corporate income tax from
28percent in 2000 to 21 per cent in 2004. With the cuts implemented to date, the
average (federal and provincial) corporate tax rate in Canada is now below the
average U.S. rate. Moreover, with the reduction in the capital gains inclusion
rate to one-half under the tax reduction plan, the average top capital gains tax
rate is now lower in Canada than the typical top tax rate in the U.S.

     This budget builds on the Canadian tax advantage for investment. It
proposes the elimination of the federal capital tax over a period of five years,
completely eliminating the tax for medium-sized corporations as early as 2004.
It proposes to extend to the resource sector, over a period of five years, the
reduction in the corporate income tax rate from 28 to 21 percent, while
improving the tax structure. It extends the temporary mineral exploration tax
credit for investment in flow-through shares. It also enhances the Film or Video
Production Services Tax Credit.



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                              THE BUDGET PLAN 2003

     Going forward, the Government will review other aspects of the tax
structure in order to improve the efficiency of the tax system and to strengthen
the Canadian tax advantage. In this regard, it will continue to assess, in
particular, the appropriateness of capital cost allowance rates that, as a
general principle, should reflect the useful life of assets and thus provide
adequate recognition of capital costs.


FEDERAL CAPITAL TAX

Both the federal and provincial governments in Canada levy taxes on the capital
of corporations. Unlike income taxes, which are paid when a corporation has
taxable income, capital taxes must be paid regardless of whether a corporation
is profitable. In this manner, capital taxes add directly to the cost of doing
business.

     Capital taxes influence the decisions of both foreign and domestic
investors to invest in Canada. Capital used outside of Canada is not subject to
federal and provincial capital taxes. Because capital taxes are not
profit-sensitive, they increase risk for investors. Because they also have to be
paid in the early years of an investment before a project generates profits,
they add to up-front financing costs. In short, by reducing the rates of return
on investment, capital taxes are a significant impediment to investment and
therefore to the creation of jobs in Canada.

     The federal government levies two taxes on the capital of corporations: the
federal capital tax, and the special capital tax on large financial
institutions. The federal capital tax is levied on all corporations with more
than $10 million of capital used in Canada; it is reduced by the income surtax
paid by the corporation. The special capital tax on large financial institutions
is levied on banks, trust companies and life insurance companies.

     This budget proposes to eliminate the federal capital tax, as follows:

     -  First, the capital threshold at which the tax applies will be raised,
        from $10 million to $50 million effective 2004. As of 2004 medium-sized
        businesses under the $50-million threshold will no longer have to pay
        the tax.
     -  Second, the rate of the tax will be reduced in stages over a period of
        five years so that by 2008, the tax will be completely eliminated.

     No changes are proposed to the special capital tax on large financial
institutions. This tax ensures that all large financial institutions pay a
minimum amount of tax to the federal government each year.



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY


     The elimination of the capital tax over five years will be fully legislated
in order to provide businesses and investors with the certainty needed to factor
the tax reduction into their business decisions. In this manner, the phase-out
of the tax will begin immediately to stimulate investment in new plants, new
technology and the renewal of Canada's capital stock, thus making a significant
contribution to a productive, sustainable and growing economy.

     The elimination of the federal capital tax will strengthen the Canadian tax
advantage. When the federal capital tax is eliminated in 2008, the average
federal/provincial corporate tax rate in Canada will be 6.6 percentage points
lower than in the U.S. This comparison is unaffected by the recent tax changes
proposed by the U.S. administration.


    CORPORATE TAX RATES IN CANADA AND THE U.S.

[CHART SHOWING CORPORATE TAX RATES IN CANADA AND THE U.S.]


Note: Rates are based on changes announced to February 2003. Rates are average
federal plus provincial/state corporate tax rates and include the income tax
rate equivalent of capital taxes.



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                              THE BUDGET PLAN 2003

IMPROVING THE INCOME TAXATION OF THE RESOURCE SECTOR

The reduction in the general corporate income tax rate from 28 to 21 per cent
that was legislated in the Five-Year Tax Reduction Plan applied to the most
highly taxed sectors, including services. The reduction did not apply to
manufacturing and processing income, which was already taxed at the
21-per-centrate, or to resource income as the resource sector benefits from a
number of sector-specific tax measures.

     In the October 2000 Economic Statement and Budget Update, the Government
indicated its interest in consulting on options to extend the lower corporate
income tax rate of 21per cent to resource income, while at the same time
improving the tax structure. The Department of Finance consulted a large
cross-section of the industry.

     On this basis, the Government proposes to improve the taxation of resource
income by phasing in, over a period of five years:

o  a reduction of the federal statutory corporate income tax rate on income from
resource activities from 28 to 21 per cent;

o  a deduction for actual provincial and other Crown royalties and mining taxes
paid and the elimination of the existing 25-per-cent resource allowance; and

o a new tax credit for qualifying mineral exploration expenditures.

Transitional arrangements will be proposed, in particular relating to the
Alberta Royalty Tax Credit.

     The proposed changes to the tax structure for the resource sector will
improve the international competitiveness of the Canadian resource sector, in
particular relative to the United States. By establishing a common statutory
rate of corporate income tax for all sectors and by treating costs more
consistently, both across resource projects and between the resource sector and
other sectors of the economy, the changes will promote the efficient development
of Canada's resource base. The proposed framework will be simpler, streamlining
tax compliance and administration and sending clearer signals to investors.
Overall, the proposed changes will support productivity, economic growth, and
jobs for Canadians.

     The Department will review these changes to the tax structure for the
resource sector with industry, provinces and interested parties prior to the
finalization and tabling of the implementing legislation. A technical paper to
be released by the Department of Finance shortly following the budget will set
out the proposed changes in greater detail.



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY


     This budget also extends the existing temporary mineral exploration tax
credit provided to individuals who purchase eligible flow-through shares until
December 31, 2004, and provides an additional year, to the end of 2005, for
issuing corporations to make expenditures related to these flow-through share
arrangements.


FILM OR VIDEO PRODUCTION SERVICES TAX CREDIT

The Film or Video Production Services Tax Credit (FVPSTC) was introduced in1997
following consultations with all sectors of the film industry to encourage the
production in Canada of foreign films and videos. The FVPSTC is a refundable tax
credit of 11 per cent of the cost of Canadian labour engaged in foreign films
and videos produced in Canada. The FVPSTC, together with tax measures introduced
by some provinces, has supported the development of Canadian talent and
infrastructure that have made Canada a world-class location for film and video
productions. Following extensive discussions with the industry, this budget
proposes to build on this support by increasing the rate of the FVPSTC from 11
to 16 percent.

     Canadian film or video productions benefit from a refundable investment tax
credit of 25 per cent of labour costs under the Canadian Film or Video
Production Tax Credit (CFVPTC). In keeping with the plans announced in Budget
2000, the Government has been consulting with the Canadian film industry to
develop criteria for a streamlined mechanism for delivering the CFVPTC. These
consultations will continue with a view to ensuring that the structure and
operation of the CFVPTC are appropriate to achieve intended support for Canadian
film and video productions.



                                      147



                              THE BUDGET PLAN 2003



TABLE 5.6
Improving the Tax System




                                                             2002-       2003-       2004-
                                                             2003        2004        2005
                                                            ------      ------      ------
                                                                 (millions of dollars)
                                                                             
ENCOURAGING SAVINGS BY CANADIANS
    Increase RPP/RRSP limits                                   25         105          165

PROMOTING ENTERPRENEURSHIP AND SMALL BUSINESS
    Small business deduction increase to $300,000                          60          110
    Capital gains rollover for small business investors                    10           10
    Venture capital and qualified limited partnerships
    Automobile benefit and expense provisions                              20           20

STRENGTHENING THE CANADIAN TAX ADVANTAGE
    Federal capital tax                                                    60          395
    Improving the income taxation of
    the resource sector                                        10          55          100
    Extension of mineral exploration tax credit                                         25
    Film or Video Production Services Tax Credit                           25           25
                                                               --         ---          ---
Total                                                          35         335          850
                                                               ==         ===          ===


ADVANCING SUSTAINABLE DEVELOPMENT

By encouraging responsible management of the environment and natural resources,
Budget 2003 supports sustainable economic growth. It builds on the Government's
step-by-step approach to addressing climate change by investing in new measures
that will be implemented in collaboration with other partners. It takes
important steps to improve the quality of Canada's air and water; makes targeted
investments to deal with contaminated sites on federal land, toxic substances
management and species at risk; and supports action to meet Canada's commitments
made at the World Summit on Sustainable Development. This budget also greatly
increases Canada's wilderness and natural areas through the creation of new
parks and marine conservation areas.

     Overall, Budget 2003 invests $3 billion in support of climate change and
the environment. This is on top of $2.3 billion the Government has invested in
these areas since 1997.



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY


CLIMATE CHANGE

Taking action to reduce greenhouse gas emissions will help to address climate
change globally while bringing a number of benefits to Canadians where they live
and work--benefits such as cleaner air, better health and more liveable cities.

     Following consultations with provinces, territories, municipal governments,
industries, non-governmental organizations and Canadians, the federal government
released the Climate Change Plan for Canada, which outlines key areas of action
to address climate change. This plan will continue to evolve based on
discussions with all partners and will be implemented in a fiscally prudent,
step-by-step manner.

     Since 1997 the Government has announced almost $1.7 billion in climate
change investments. Building on these measures, this budget provides additional
funding of $2 billion over five years to support climate science, environmental
technology and cost-effective climate change measures and partnerships in areas
such as renewable energy, energy efficiency, sustainable transportation and new
alternative fuels.



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                              THE BUDGET PLAN 2003



    RECENT FEDERAL INITIATIVES IN SUPPORT OF CLIMATE CHANGE

    Since 1997 the Government has announced $1.7 billion in spending for
    measures to address climate change. These measures include:

    o  An initial $100 million for Sustainable Development Technology Canada to
    stimulate the development and demonstration of promising new environmental
    technologies.

    o  A $60-million contribution to the Canadian Foundation for Climate and
    Atmospheric Sciences to support academic research on climate change and air
    quality.

    o  $300 million to the Climate Change Action Fund and $120 million for
    energy efficiency and renewable energy programs to lay the foundation for
    future greenhouse gas emission reductions, by encouraging technology
    innovation, energy efficiency and renewable energy projects.

    o  $500 million for the Government of Canada Action Plan 2000 on Climate
    Change, which includes a range of measures to reduce greenhouse gas
    emissions in most sectors of the economy such as transportation, oil and
    gas, electricity, agriculture, forestry and buildings.

    o  A contribution of $250 million to the Federation of Canadian
    Municipalities to administer the Green Municipal Enabling Fund and Green
    Municipal Investment Fund to support feasibility projects and investments in
    communities--both urban and rural--that actively contribute to a healthier
    environment.

    o  A Wind Power Production Incentive, worth $260 million, to encourage
    renewable energy production in Canada.

    o  The provision of $100 million for the Canada Climate Change Development
    Fund to promote activities to address the causes and effects of climate
    change in developing countries through technology transfer and capacity
    building.

    o  A $15-million investment in the World Bank's Prototype Carbon Fund, which
    contributes to new approaches to address climate change through the
    participation in project-based greenhouse gas emission reductions in both
    developing countries and economies in transition.

    Other federal initiatives already in place include special tax provisions
    for renewable energy projects and the federal government's green power
    procurement commitment, which currently provides a premium payment for
    renewable energy purchased to meet federal government requirements.


     These measures will help Canada seize the economic opportunities offered by
our environmental challenges and support a more productive and innovative
Canadian economy. New funding for strategic and municipal infrastructure will
also support the Government's objective to reduce greenhouse gas emissions in
Canada (initiatives providing $3 billion in new federal funding for
infrastructure are detailed in Chapter 4).



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY


SUSTAINABLE DEVELOPMENT TECHNOLOGY CANADA

Environmental technologies are essential ingredients in a sustainable and
productive economy. Canadian environmental technologies offer the potential to
reduce greenhouse gases and other harmful air emissions while generating
significant economic benefits.

     Sustainable Development Technology Canada received an initial endowment of
$100 million in 2001 and has been effective in generating partnerships, through
alliances and consortia, to develop and demonstrate technologies with the
potential to reduce emissions. This budget strengthens the Government's support
for the development and demonstration of technology related to climate change
and clean air by investing an additional $250 million in 2003-04 in the
Foundation.


CANADIAN FOUNDATION FOR CLIMATE AND ATMOSPHERIC SCIENCES

Improving further our understanding of climate systems and the occurrence of
extreme weather is an important foundation for developing an appropriate
response to environmental challenges such as climate change.

     The Canadian Foundation for Climate and Atmospheric Sciences received an
initial endowment of $60 million in 2001 to further enhance Canada's research
expertise in the area of climate sciences. Given the Foundation's success in
building partnerships among researchers and universities, this budget provides
an additional $50 million in 2003-04 to increase climate and atmospheric
research activities, including research related to northern Canada.


OTHER CLIMATE CHANGE MEASURES

To support the implementation of the Climate Change Plan for Canada, Budget 2003
will allocate $1.7 billion over five years to support innovation and
cost-effective measures leading to greenhouse gas emission reductions in Canada.
Actions to promote energy efficiency, renewable energy, sustainable
transportation and new alternative fuels, in such areas as building retrofits,
wind power, fuel cells and ethanol, will be considered. At least $200 million of
the $1.7 billion set aside for other measures will be dedicated to further
investments in longer-term climate change technologies. The funding allocation
will also be used, in part, to build partnerships to achieve cost-effective
greenhouse gas emission reductions through project-based collaboration and
cost-sharing with provinces and other partners. To the extent possible, measures
should incorporate funding from other partners



                                      151



                              THE BUDGET PLAN 2003


and bring additional environmental benefits. Further, all measures will need to
demonstrate the extent to which they each contribute to Canada's emission
reduction objectives.

     To meet Canada's emission reduction objectives in the most cost-effective
manner, the Government will draw on external expert advice regarding climate
change initiatives. The Government will continuously monitor and measure the
effectiveness of all actions against its objectives.

     To reflect the increased strategic importance of climate change to the
country, government programs, particularly those in the Industry Portfolio, such
as Technology Partnerships Canada, the granting councils and the regional
development agencies, will be asked to report on how their contribution to
Canada's climate change objectives can be improved within existing resource
levels.


EXCISE TAX EXEMPTION FOR BIO-DIESEL FUEL

Currently the federal excise tax is not applied to the ethanol or methanol
component of blended gasoline when it has been produced from biomass or
renewable feedstocks. This budget proposes that the ethanol or methanol portion
of blended diesel fuel also be exempted from the federal excise tax on diesel
fuel.

     In addition, it proposes that bio-diesel, which is produced from biomass or
renewable feedstocks, be exempted from the federal excise tax on diesel fuel
when used as a motive fuel or blended with regular diesel fuel.


EXTENDING TAX INCENTIVES FOR RENEWABLE AND ALTERNATIVE ENERGY

In 2001 the Government announced consultations with industry to identify
additional improvements to capital cost allowance Class 43.1, which provides
accelerated tax depreciation for certain renewable and alternative energy
investments. Based on these consultations, this budget broadens eligibility for
Class 43.1 to include certain stationary fuel cell systems, equipment acquired
for electricity generation using bio-oil (created from biomass found in forestry
and plant residues), and certain types of equipment used in greenhouse
operations, such as ground source heat pumps.

     The Government will continue to review the list of eligible investments
under Class 43.1 to ensure appropriate tax treatment for renewable energy and
energy conservation investments.



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY

THE ENVIRONMENT

To further improve our stewardship of the environment and contribute to the
sustainable development of our economy, this budget will invest an additional $1
billion to address federal contaminated sites, improve air and water quality,
support the assessment and management of toxic substances, further protect
Canada's species at risk and their critical habitat, support the World Summit on
Sustainable Development Plan of Implementation, and establish and maintain parks
and conservation areas.


CONTAMINATED SITES

Federal contaminated sites are an unfortunate legacy of past practices, with
unanticipated environmental consequences and contamination inherited from
others, such as abandoned mines in northern Canada. Current legislation and
policies strive to prevent the creation of new contamination from federal
sources and obtain financial security for mining projects to cover the costs of
any eventual clean-up.

     In order to address existing contamination, the Government will commit
funding of $175 million over two years. This will establish a centrally managed
fund making ongoing resources available to address the highest-risk federal
sites.

     The Government is committed to further supporting the clean-up of the
Sydney tar ponds. The Joint Action Group, created by the federal, provincial and
municipal governments to make recommendations following public consultation on
Sydney tar ponds remediation options, is expected to complete its final report
this spring. The Government will then work with provincial and municipal
partners on ways to provide support for remediation activities that are
consistent with federal responsibilities and policies on shared-liability
contaminated sites.


AIR QUALITY

As part of the Government's commitment to improving air quality in Canada, the
budget provides $40 million over two years to promote best practices and develop
regulations to address air pollution in a number of sectors across Canada, and
to work with the United States to further improve transborder air quality. This
will include pilot projects in key affected areas, such as the British Columbia
Georgia Basin/Washington Puget Sound Basin and Canada/United States Great Lakes
Basin airsheds.



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                              THE BUDGET PLAN 2003


SAFE WATER SYSTEMS

In the Speech from the Throne the Government committed to ensuring the
implementation of water quality guidelines in areas of federal jurisdiction. A
comprehensive review of water and wastewater systems on First Nations reserves
has identified the areas most in need of action to protect the health of these
communities. This budget provides $600 million over the next five years,
including an initial investment of $200 million in the next two years, to
upgrade, maintain and monitor water and wastewater systems on reserves, and the
Government will make ongoing efforts to ensure that all reserve communities have
dependable water systems.


CANADIAN ENVIRONMENTAL PROTECTION ACT

An appropriate regime for pollution prevention and addressing the legacy of
unassessed chemicals in the Canadian marketplace is necessary to ensure the
health of Canada's environment and its citizens. The Government will continue
its support of programs under the Canadian Environmental Protection Act intended
to deal with toxic substances. This budget will allocate $75 million over the
next two years to address the legacy of these substances.


SPECIES AT RISK

The Species at Risk Act fulfills a government commitment to protect Canada's
species at risk and their critical habitat. The budget provides $33 million over
two years for the implementation of the Act. This is in addition to the
$45 million allocated annually in 2000 for a national strategy on species at
risk.


WORLD SUMMIT ON SUSTAINABLE DEVELOPMENT

Following Canada's participation at the World Summit on Sustainable Development
(WSSD), which was held in Johannesburg, South Africa, in September 2002, the
Government will provide $4 million in funding this year and $13 million over the
next two years for the WSSD Plan of Implementation, for activities in areas such
as international health and environmental initiatives, and international
partnerships addressing forestry and sustainable cities.



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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY

INVESTING IN NATIONAL PARKS

Canada owes it to Canadians and to the world to be a wise steward of its natural
beauty. Canada's system of national park and national marine conservation areas
protects these valuable natural assets for the enjoyment of current and future
generations. But this system is incomplete. As announced in the Speech from the
Throne, the Government will establish 10 new parks and 5 new marine conservation
areas, and implement a plan to restore the ecological health of existing parks.
In the first two years this will require an investment of $74 million.


TABLE 5.7
Advancing Sustainable Development




                                                            2002-      2003-       2004-
                                                            2003       2004        2005
                                                           ------     ------      ------
                                                                (millions of dollars)
                                                                         
CLIMATE CHANGE
     Sustainable Development Technology Canada                          250
     Canadian Foundation for Climate                                     50
       and Atmospheric Sciences
     Other climate change measures                                      200          200
     Excise tax exemption for bio-diesel fuels
     Extending tax incentives for renewable
       and alternative energy                                             5            5

THE ENVIRONMENT
     Federal contaminated sites                                          75          100
     Air quality                                                         15           25
     Safe water systems                                                 100          100
     Canadian Environmental Protection Act                               32           43
     Species at risk                                                     13           20
     World Summit on Sustainable Development                4.2         6.8          6.3
     National parks                                                    32.2         42.2
                                                            ---         ---        -----
Total                                                       4.2         779        541.5
                                                            ===         ===        =====




RENEWING CANADIAN AGRICULTURE

A NEW DIRECTION

The challenges faced by Canadian farmers have become greater and more varied in
recent years. In addition to difficult growing conditions, Canadian farmers must
now deal with increased international competition, rising demands for food
safety and quality, and lower prices in part due to international subsidies.



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                              THE BUDGET PLAN 2003

     To address these challenges, Canada's agriculture ministers launched a
joint federal/provincial/territorial initiative on reforming agricultural
policy. In June 2002 the federal government announced a $5.2-billion, six-year
commitment to a new Agricultural Policy Framework (APF) and a bridge funding
arrangement.

     The APF sets a new direction for federal agricultural policy, with the
objective of increasing the long-term profitability of farming and giving
farmers the skills and tools they need to face future challenges. It is a
comprehensive strategy aimed at branding Canadian food products, improving food
safety, promoting environmentally safe farming practices and fostering
scientific innovation in the sector. In addition, it renews and improves
stabilization programming and provides, for the first time, ongoing support for
disaster mitigation.

     Beyond the funds committed to the APF, Budget 2003 provides additional
funding for crop insurance, food safety and innovation.


DEALING WITH HARSH GROWING CONDITIONS

On the Prairies in particular, last year's growing season was one of the
harshest in memory. Farmers suffered through drought; at harvest they had to
contend with rain and untimely snow. As a result, the Crop Reinsurance Fund,
funded by the federal government, as well as governments and farmers in
participating provinces, faced significant shortfalls. To ensure that farmers
can rely on future payments, this budget will advance the $220 million necessary
this fiscal year to cover a deficit in the Fund.


ENHANCING FOOD SAFETY AND QUALITY

In the past few years there has been increasing public concern over the issue of
food safety. Canadians want to be sure that the food they eat is safe. Consumers
of food imported from Canada want the same assurances. Recognizing this, the
Speech from the Throne committed the Government to further improve the safety of
Canada's food supply. Budget 2003 acts on this commitment by allocating $100
million to the Canadian Food Inspection Agency over the next two years to help
the agency perform its central role in ensuring food safety.

     The Canadian Grain Commission (CGC) plays a key role in establishing grain
standards and ensuring Canadian grain quality and safety. To allow the CGC to
maintain its level of service to farmers, the federal government will extend
additional funding of $15 million per year over the next two years.


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               INVESTING IN A MORE PRODUCTIVE, SUSTAINABLE ECONOMY

     Understanding the important role that veterinarians play in ensuring a safe
food supply, the Government will also make a one-time investment of $113 million
for infrastructure improvements at Canada's four veterinary colleges,
representing 60 per cent of the total cost of these improvements.


INVESTING IN INNOVATION

As the sector becomes more diversified, farmers and businesses will require new
ways of raising funds to bring new products, processes and services to market.
To support the industry's growth and diversification, as outlined in its
corporate plan, Farm Credit Canada (FCC) will launch new venture capital
initiatives in March 2003 to promote agriculture and agri-food innovation. With
its national mandate, the FCC is well positioned to respond to changing
investment demands across Canada. The federal government will provide funding of
$20 million over the next two years to supplement the FCC's planned agriculture
and agri-food venture capital investments.


TABLE 5.8
Renewing Canadian Agriculture




                                                   2002-       2003-       2004-
                                                   2003        2004        2005
                                                  ------      ------      ------
                                                        (millions of dollars)

                                                                  
   Crop Reinsurance Fund                            220
   Enhancing food safety                                         50          50
   Farm Credit Canada (non-budgetary)                            10          10
   Canadian Grain Commission                                     15          15
   Veterinary colleges                              113
                                                    ---          --          --
   Total                                            333          75          75
                                                    ===          ==          ==




TABLE 5.9
Summary



                                                     2002-       2003-        2004-
                                                     2003        2004         2005
                                                   --------    --------     --------
                                                           (millions of dollars)

                                                                  
Strengthening research and innovation                   677       558.2        470.2
Supporting skills and learning                           12       170.6          102
Improving the tax system                                 35         335          850
Advancing sustainable development                       4.2         779        541.5
Renewing Canadian agriculture                           333          75           75
                                                    -------     -------      -------
Grand total                                         1,061.2     1,917.8      2,038.7
                                                    =======     =======      =======





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6

CANADA IN THE WORLD








                              THE BUDGET PLAN 2003

    HIGHLIGHTS


    STRENGTHENING CANADA'S MILITARY

o   This budget makes a significant, long-term investment in Canada's
    Defence capabilities, including:

     -   an immediate allocation of $270 million this fiscal year for Operation
         Apollo in Afghanistan and to address urgent capital and other
         requirements; and

     -   an ongoing increase of $800 million per year of new funding beginning
         in 2003-04.

o   It also sets aside a $125-million reserve for contingencies in 2002-03 and
    $200 million for 2003-04.

    ENSURING SECURITY AT HOME

o   Budget 2003 builds on the large investment by the Government in 2001 to
    respond to Canada's changed domestic security Needs. New measures include:

     -   a reduction in the level of the Air Travellers Security Charge for
         travel within Canada from $12 to $7 for one-way travel and from $24 to
         $14 for round-trip travel;

     -   an additional $50 million next fiscal year and $25 million in 2004-05
         for the Security Contingency Reserve to help the Government to respond
         to unforeseen future security needs, including border security; and

     -   to ensure the Canadian Coast Guard can provide necessary safety
         services, $94.6 million over the next two years for major repairs to
         its fleet for shore-based infrastructure and capital replacement
         purchases.



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                              CANADA IN THE WORLD



     ENHANCING CANADA-U.S. TRADE

o    Recognizing that cross-border trade is critical to Canada's economy, Budget
     2003:

     -   supports the implementation of the Canada-U.S. 30-point Smart Border
         Action Plan to enhance the security of the border and facilitate the
         legitimate flow of people and goods; and

     -   commits $11 million over the next two years to bolster Canada's
         representation and trade promotion activities in the U.S.


     INCREASING CANADA'S INTERNATIONAL ASSISTANCE

o    Budget 2003 confirms Canada's commitment to meeting its International
     obligations:

     -   the budget increases Canada's International Assistance Envelope by 8
         per cent annually through 2004-05 toward the objective of doubling the
         assistance budget by 2010. This translates into an increase of $1.4
         billion this fiscal year and the next two fiscal years; and

     -   effective January 1, 2003, Canada is providing duty-free and quota-free
         access to all imports from 48 of the world's least developed countries,
         with the exception of certain agricultural products.



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                              THE BUDGET PLAN 2003


INTRODUCTION

Canada has a long history of successfully embracing global markets, and
Canadians recognize that international stability, security and prosperity are
key to their well-being.

     Developments over the last 18 months have reminded Canadians that security
and prosperity cannot be taken for granted. The global environment requires a
military that is funded and equipped to help shoulder its international
responsibilities, as our efforts in the war against terrorism, and particularly
in Afghanistan, have demonstrated. This budget provides further support to
Canada's military this year and beyond.

     New security concerns have demanded action to keep our borders secure,
while facilitating the legitimate flow of goods, services and people. In the
aftermath of September 11, 2001, the Government introduced a $7.7-billion
package of measures to ensure the security of Canadians--the largest in Canadian
history. Much has been achieved since then. The Government has moved ahead with
important new initiatives in the areas of air, marine and border security and is
committed to do more.

     The Government has partnered with Canadian businesses to help them make the
most of the opportunities available in Canada's major foreign markets and enter
and thrive in new ones. As the pace of global competition quickens, it becomes
ever more important that the Government continue to advance the interests of
Canadians in active, innovative and responsive ways. This budget boosts Canada's
presence in its most important foreign market, the United States.

     The unrest in many parts of the world and the poverty that afflicts so many
in the developing world offend Canadians' values and threaten Canada's security
and economic prosperity. That is why, from its peacekeeping activities to land
mine treaties to the G8 Africa Action Plan, to its leadership on debt relief and
providing free access to the Canadian market for virtually all goods from the
least developed countries, Canada has a rich history of effective, compassionate
responses to international challenges. Such actions to combat global instability
and poverty are the responsible actions of a country dedicated to helping build
strong societies beyond its own borders.



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                               CANADA IN THE WORLD

STRENGTHENING CANADA'S MILITARY

SUSTAINING CANADA'S MILITARY

Last fall National Defence completed a Defence Update, whose objective was to
identify what was needed to sustain Canada's military in the coming years, and
how best to achieve it. In the process, National Defence identified several
areas to realize savings through reallocation and other efficiency measures. The
Defence Update also indicated that Canada's military required an increase in its
base funding to ensure sustainability.

     Budget 2003 provides the military with an additional $170 million this
fiscal year for urgent capital requirements, the maintenance of existing capital
equipment, spare parts, the purchase of new capital and other expenses.

     Budget 2003 also provides $800 million per year of new funding beginning in
2003-04. Taken together with the more than $200 million per year in internal
savings that National Defence will identify through reallocation and other
efficiency measures, these funding increases should address the sustainability
gap identified in the Defence Update.

     In addition to the funding increases outlined above, National Defence is
one of the few departments that receives an automatic annual adjustment in its
base funding level of 1.5 per cent. This increase will amount to a further $150
million a year over the next two fiscal years.


MEETING CANADA'S INTERNATIONAL SECURITY RESPONSIBILITIES

Canada has an honourable tradition of working with the international community
and its allies abroad to keep the peace and respond to threats to global
security. In 2001 the Government provided $210 million to support the Canadian
Forces in the coalition against terrorism during Operation Apollo. In early 2002
the operation in Afghanistan expanded from a naval and air mission to include
ground troops, and the Government provided a further $85 million.

     This budget provides an additional $100 million in 2002-03 to cover the
remaining costs of Canada's contribution in Afghanistan to date. Altogether,
this $395 million in funding covers the incremental costs thus far of Canada's
participation in the war on terrorism.



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                              THE BUDGET PLAN 2003

     On February 12, 2003, the Minister of National Defence indicated to
Parliament that Canada was willing to once again send troops to Afghanistan,
this time as part of the United Nations mandated mission to maintain peace and
security in that country. Given this commitment, and the current climate of
increasing global uncertainty, this budget establishes a$125-million reserve for
contingencies in 2002-03 and $200 million in 2003-04.

Defence and International Security Funding
- --------------------------------------------------------------------------------


                                           2002-        2003-         2004-
                                           2003         2004          2005
                                          ------       ------        ------
                                                 (millions of dollars)

                                                            
New Defence funding                         270           800          800
Contingency                                 125           200
                                            ---         -----          ---
Total                                       395         1,000          800
                                            ===         =====          ===


ENSURING SECURITY AT HOME

STRENGTHENING DOMESTIC SECURITY CAPABILITY

In the aftermath of September 11, 2001, the Government took action to protect
Canadians by strengthening Canada's domestic security capabilities and
contributing to the international coalition against terrorism. It provided
substantial ongoing funding for these measures, enabling Canada's military and
associated agencies to respond more effectively to the ongoing challenges of
military interoperability, intelligence and the protection of Canadian citizens
and the country's infrastructure.

SECURING CANADA'S BORDERS

In 2001 the Government provided $7.7 billion over five years to enhance the
personal and economic security of Canadians. Of this amount, $4.3 billion was
targeted for increased intelligence and policing, better screening of entrants
to Canada, enhanced emergency preparedness and support for the military; $2.2
billion was targeted for greater air security; and $1.2 billion was allocated
for initiatives aimed at strengthening border security, facilitating
the flow of goods and people and improving border infrastructure. Among
other things, this funding has enabled the Government to:

o  introduce the permanent resident card system and increase capacity for
front-end security screening of refugee claimants;

o  operate Integrated National Security Enforcement Teams to gather information
to prevent, detect and prosecute criminal offences against national security;


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                              CANADA IN THE WORLD


o  expand the Canada-U.S. NEXUS system for pre-approved, low-risk
travellers at major land border crossings;

o  acquire additional x-ray machines, x-ray vans and ion scanners at Canada's
airports and seaports and container examination equipment for high-risk marine
containers; and

o  implement the Advanced Passenger Information System at Canadian airports to
collect advance passenger information.


SECURITY CONTINGENCY RESERVE

In 2001 the Government also set aside a Security Contingency Reserve of $345
million over five years to allow the Government to respond to future security
needs that could not be anticipated at the time of the budget. This allowed the
Government subsequently to provide funding for the procurement of smallpox
vaccine and related medical supplies, address gaps in Canada's marine security
in light of the events of September 11, and administer visa requirements.

    Budget 2003 provides an additional $50 million for 2003-04 and $25 million
for 2004-05 to the Security Contingency Reserve to help the Government to
respond to unforeseen future security needs. The Government of Canada will
continue to work closely with the U.S. to enhance border security in the
interests of protecting Canadians and maintaining and strengthening key economic
links.

AIR SECURITY

Recognizing the security needs of air travellers in Canada after the events of
September 11, 2001, the Government provided $2.2 billion through 2006-07 to make
the air transportation system even safer and more secure in accordance with
rigorous new Transport Canada national standards. As part of the new approach to
air travel security, the Canadian Air Transport Security Authority (CATSA) was
created to consolidate the delivery of a number of key aviation security
services under a single federal authority at 89 airports across Canada.

     In April 2002 CATSA assumed responsibility for the delivery of certain
aviation security services, including pre-boarding screening of passengers and
baggage; the acquisition, deployment and operation of explosives detection
systems; financial support for enhanced policing at Canadian airports; and
working with the Royal Canadian Mounted Police to provide on-board



                                      165



                              THE BUDGET PLAN 2003

officers for domestic and international flights. In November 2002 the Government
announced new aviation security enhancements. CATSA was given responsibility for
the implementation of an enhanced restricted area pass system for Canadian
airports and for the screening of non-passengers entering restricted areas at
airports.

AIR TRAVELLERS SECURITY CHARGE

To fund these initiatives, the Air Travellers Security Charge was introduced, to
be paid by air travellers effective April 1, 2002. The charge was established at
a level sufficient to fund the expected $2.2 billion of expenditures for the
enhanced air travel security system through 2006-07. The Government also
committed to review the charge this year and, over time, to ensure revenue
remains in line with planned expenditures.

     On the basis of this year's review, in particular taking into account an
updated forecast for air passenger traffic and the Government's change to full
accrual accounting, the level of the charge for air travel in Canada will be
reduced from $12 to $7 for one-way travel and from $24 to $14 for round-trip
travel, effective March 1, 2003. This reduction is consistent with the objective
of funding the enhanced air travel security system on a sustainable basis. Annex
3 provides further details about the review and how the new rate was determined.


MARINE SECURITY

The Government has implemented a number of new initiatives to enhance Canada's
marine security. It has increased the requirement for advance notice by vessels
entering Canadian waters; developed new procedures for boarding ships that
present a threat before they arrive at Canadian ports; and, in cooperation with
the United States, enhanced security-screening procedures for ships entering the
Great Lakes/St. Lawrence Seaway System.

     In January 2003 the Government of Canada announced funding of up to $172.5
million for projects that will further increase Canada's marine security. These
projects, funded from the Security Contingency Reserve, include measures to
protect our marine infrastructure, increase the surveillance of maritime traffic
in Canadian waters, and improve our capability to respond to emergency
situations.

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                               CANADA IN THE WORLD

CANADIAN COAST GUARD

Canada has the longest coastline in the world and the Canadian Coast Guard has a
vital role in ensuring marine safety. For more than 500 years the oceans have
made an important contribution to Canada's economy. Even today a significant
percentage of Canada's international trade is carried by ship. The country's
rivers, lakes and coastlines further benefit the nation's economy by offering
recreational opportunities for millions of Canadians.

     To ensure the ability of the Canadian Coast Guard to provide necessary
marine safety services, Budget 2003 allocates $94.6 million over the next two
years for major repairs for its fleet and shore-based infrastructure and for
capital replacement purchases for that infrastructure.


ENHANCING CANADA-U.S. TRADE

International trade is critical to Canada's economic performance and standard of
living. A key element in achieving success in global markets lies in an
innovative, responsive and productive domestic economy, capable of exporting
products second to none in the world. Just as important is a strategy of
energetically engaging in key export markets to promote international
recognition of Canadian products and to foster wider understanding of Canada's
global advantage.


SMART BORDER ACTION PLAN

In December 2001 Canada and the U.S. began implementing a 30-point plan, known
as the Smart Border Action Plan, to enhance the security of the shared border
while facilitating the legitimate flow of people and goods. Among the more
important measures that Canada has adopted in the context of the Plan are
pre-approved programs for low-risk commercial traffic and travellers,
commitments to streamline driver participation in smart card programs, the
creation of joint-targeting teams at five marine ports to examine in-transit
containers, the deployment of border enforcement teams, and commitments to
manage the flow of refugee claimants. While more work remains, substantial
progress has been made in a number of areas, and border agencies from both
countries are continuing to work toward full implementation and expansion of the
Plan.



                                      167



                              THE BUDGET PLAN 2003


BORDER INFRASTRUCTURE

To ensure the smooth flow of goods and people between Canada and the U.S., a
number of important steps were taken last year to implement the $600-million
Border Infrastructure Fund. In August the Government outlined the main features
of the Fund. In September $150 million from the Fund was committed to address
immediate border infrastructure needs in Windsor, the single most important
trade crossing between Canada and the United States. In partnership with the
Province of Ontario, this investment will result in $300 million towards
improved border infrastructure at Windsor. Efforts to carry through on the
Government's border infrastructure commitment will continue in future years.


ENHANCING OUR PRESENCE IN THE UNITED STATES

With the U.S. accounting for 87 per cent of Canada's total exports of goods, and
nearly $2 billion in trade crossing the Canada-U.S. border daily, further
ongoing efforts are required to promote and advance Canada's trade and economic
interests in the U.S., especially in new areas of opportunity.

     Budget 2003 commits $11 million in new funding over the next two years to
bolster Canada's ability to actively engage at local and regional levels across
the U.S. through the establishment of additional regional offices and an
increased consular presence in strategic locations such as the U.S. southwest.
This includes the creation of new satellite offices that will focus on specific
sectors or issues, and stronger, targeted trade and economic advocacy
initiatives. The Department of Foreign Affairs and International Trade,
Agriculture and Agri-Food Canada and Industry Canada are working in partnership
on this initiative and providing additional resources.


INCREASING CANADA'S INTERNATIONAL ASSISTANCE

Canada's responsibility to help the world's poor is deeply rooted in Canadian
values. At the International Conference on Financing for Development, held in
Monterrey, Mexico, in March 2002, the Prime Minister pledged to increase
international assistance by 8 per cent a year. The Speech from the Throne
committed to double assistance by 2010. At least half of that increase will be
earmarked for Africa as part of Canada's support for the New Partnership for
Africa's Development and the G8 Africa Action Plan adopted at the June 2002
Kananaskis G8 Summit.



                                      168




                               CANADA IN THE WORLD

     The Government will implement these commitments immediately. The
International Assistance Envelope will be increased by 8 per cent, or
$353 million, in the current fiscal year, and by 8 per cent annually in each of
the next two fiscal years consistent with the Government's commitment to double
the assistance budget by 2010. These Canadian international assistance
initiatives build upon substantial increases announced in recent years. This
budget will provide an additional $1.4 billion for the International Assistance
Envelope this year and the next two fiscal years.

     These additional resources will complete the financing of the $500-million
Canada Fund for Africa, which the Government announced in 2001, and will
substantially increase funds to support Canada's long-term commitment to promote
sustainable development in Africa and around the world. The increases to
international assistance will also allow Canada to:

o  continue its leadership in the international effort to reduce the debt
burdens of the world's poorest countries through a further $75 million in
support of the Heavily Indebted Poor Countries Initiative;

o  participate in the G8 Global Partnership Against the Spread of Weapons and
Materials of Mass Destruction, launched at the Kananaskis Summit. At Kananaskis
Canada pledged to provide up to $100 million per year over the next 10 years to
support this cooperative G8 initiative;

o  contribute $72 million over the next five years to international efforts to
halt the terrible scourge of land mines; and

o  increase funding for the International Development Research Centre by 8 per
cent annually over the next two fiscal years in recognition of its world-class
reputation for supporting research aimed at finding innovative solutions to
challenges facing developing countries.

IMPROVING MARKET ACCESS FOR LEAST DEVELOPED COUNTRIES

At last year's G8 Summit the Prime Minister announced that Canada would take an
important step to reduce poverty in the world's poorest countries by eliminating
tariffs and quotas on most of their exports to Canada, with the exception of
certain agricultural products. This initiative came into effect on January 1,
2003.



                                      169



                              THE BUDGET PLAN 2003


RECENT INITIATIVES TO ENHANCE INTERNATIONAL COOPERATION

Canadians understand that doing their share to foster a secure, prosperous and
more equitable global society is both morally responsible and central to
Canada's interests. This commitment has led the Government to increase the
International Assistance Envelope by nearly 24 per cent since 1998.

These increases in international assistance recognize the need for developed and
developing countries to work together to ensure adequate assistance is provided
to countries able to use it most effectively.

The United Nations' International Conference on Financing for Development in
March 2002 was a milestone in the evolution of this partnership. Countries
agreed on a "development compact" linking additional aid to commitments by
developing countries to transparency, good governance, respect for human rights
and the rule of law. The need for a development compact was also a key theme of
the Kananaskis G8 Summit, where G8 leaders unanimously endorsed the New
Partnership for Africa's Development.

SUPPORT FOR DEBT REDUCTION

Through the Canadian Debt Initiative announced in December 2000, Canada has
instituted a moratorium on debt service payments from 11 reforming heavily
indebted poor countries (HIPCs) able to use debt relief savings productively.
In 2001 this moratorium freed up about $75 million per year in debt payments for
other uses. Participating HIPC nations owe Canada a combined $700 million.

Once eligible countries complete the HIPC process, their remaining Canadian
debts are forgiven. In 2002, for example, Canada cancelled all debts owed by
Bolivia ($10.2 million) and Tanzania ($83.6 million).

This year's $75-million contribution to the World Bank-administered HIPC Trust
Fund brings Canada's total contribution to multilateral HIPC efforts, involving
both the International Monetary Fund and World Bank, to over $315 million.



                                      170













7



IMPROVING EXPENDITURE
MANAGEMENT AND
ACCOUNTABILITY

                              THE BUDGET PLAN 2003


HIGHLIGHTS

- -    REALLOCATION: The Government is implementing its commitment in the October
     2002 Economic and Fiscal Update to reallocate funding from lower to higher
     priorities.

     -    The Government will launch an ongoing examination of all non-
          statutory programs on a five-year cycle under the leadership of the
          Treasury Board, drawing on the experience of the 1994 Program Review.
          The goals will be to ensure that government programs continue to be
          relevant, effective and affordable.

     -    The Government will reallocate $1 billion per year from existing
          spending programs, beginning in 2003-04. This will fund close to
          15 per cent of the costs of the new initiatives announced in this
          budget over the next two years.

- -    ACCRUAL ACCOUNTING: Beginning with this budget, the Government will
     implement its commitment to present its financial statements on a full
     accrual accounting basis.

     -    Under full accrual accounting, the Government will provide a more
          comprehensive accounting of its assets and liabilities, presenting a
          more transparent picture of the Government's financial position and
          enhancing accountability, the management of liabilities and the
          stewardship of assets.

     -    Implementing full accrual accounting responds to a long-standing
          recommendation of the Auditors General of Canada.

- -    ACCOUNTABILITY OF FOUNDATIONS: The Government will make a number of changes
     to improve the accountability and governance arrangements of arm's-length
     foundations. This, in combination with clarifying the policy principles
     underlying the use of foundations, will ensure their continued effective
     use.

- -    ACCOUNTABILITY TO PARLIAMENT: To reinforce accountability and transparency
     in public reporting, the Government will continue to improve the relevance,
     timeliness and clarity of the information it provides to Parliament.


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              IMPROVING EXPENDITURE MANAGEMENT AND ACCOUNTABILITY


- -    CANADA HEALTH TRANSFER: As part of the 2003 First Ministers' Accord on
     Health Care Renewal, the Government will implement a new Canada Health
     Transfer and a new Canada Social Transfer effective April 1, 2004, to
     improve the transparency and accountability of monies transferred for
     healthcare.

- -    EMPLOYMENT INSURANCE (EI) CONTRIBUTION RATE SETTING: With this budget:

     -    The Government will reduce the EI employee contribution rate for 2004
          to $1.98 per $100 of insurable earnings. This is the 10th reduction in
          the rate since 1994.

     -    As well, the Government will consult on a new EI rate-setting regime
          for 2005 and beyond, based on the principles of transparency and of
          balancing premium revenues with expected program costs.

- -    STRENGTHENING INVESTOR CONFIDENCE: This budget advances the Speech from the
     Throne commitment to improve regulations and to help foster a healthy
     marketplace and inspire confidence among investors by strengthening
     enforcement against securities and corporate fraud offences.

- -    AIR TRAVELLERS SECURITY CHARGE: This budget follows up on the Government's
     commitment to review the Air Travellers Security Charge to ensure that
     revenue from the charge remains in line with planned expenditures for the
     enhanced air travel security system through 2006-07.

     -    As a result of that review, and reflecting the impact of the move to
          full accrual accounting in this budget, the Government will reduce the
          charge on flights within Canada by over 40 per cent, from $12 to $7
          for one-way travel and from $24to $14 for round-trip travel.

- -    DEBT SERVICING AND REDUCTION ACCOUNT: Legislation to terminate the Debt
     Servicing and Reduction Account, as recommended by the Auditor General,
     will be introduced.

- -    USER CHARGING AND COST RECOVERY: The President of the Treasury Board will
     set out the principles for improved management practices relating to user
     charging and cost recovery. The new policy will include annual reporting of
     revenues and performance information to stakeholders and Parliament.


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                              THE BUDGET PLAN 2003


INTRODUCTION

     The Government has been successful in keeping the country on a sound
financial footing by maintaining balanced budgets for six consecutive years
since 1997-98. It has achieved this through a balanced approach to spending
growth and debt and tax reduction. However, as the Minister of Finance said in
the October 2002 Economic and Fiscal Update, "...sound fiscal management means
more than simply avoiding deficits and reducing debt. It also means managing tax
dollars well and responsibly, and delivering cost-effective and efficient
government services."

     Sound fiscal management requires continually reassessing the value of
existing programs so that the Government can reallocate resources from low
priorities to high priorities. It also requires continually looking for new,
more cost-effective ways to deliver government programs. And it means being
transparent about how Canadians' tax dollars are being spent so that the
Government can be fully accountable to Canadians.

     Controlling total expenditure growth contributed significantly to bringing
the budget into balance in 1997-98 after almost three decades of uninterrupted
deficits, and has helped to keep it in balance since then. This has allowed the
Government to reduce debt and invest in key social and economic priorities,
while at the same time implementing the largest tax cuts in Canadian history.
The Program Review process, during which the Government reassessed its programs
to identify those that no longer served a national purpose or could be delivered
more efficiently through other means, was an important contributor to
controlling expenditure growth.

     With this budget, the Government is undertaking new measures to better
manage taxpayers' dollars, building on the experience of Program Review. These
initiatives include launching an ongoing review of the relevance and efficiency
of government programs, and reallocating resources from across government to
highest priority areas.

     Greater accountability will further support the Government's effort to
improve the management of taxpayers' dollars. It will support better decision
making and greater efficiency. This chapter describes the Government's plans to
enhance accountability to Canadians. These include: more comprehensive and
up-to-date financial reporting; clearer transparency and accountability for
transfer payments to the provinces and territories in support of health care;
enhanced accountability for non-governmental foundations; clear rate-setting
processes for non-tax revenues including employment insurance (EI)
contributions, the Air Travellers Security Charge and user charges; and measures
to improve investor confidence by strengthening enforcement against securities
and corporate fraud offences.


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                 IMPROVING EXPENDITURE MANAGEMENT AND ACCOUNTABILITY


COMMITMENT TO EXPENDITURE REALLOCATION
AND SOUND PROGRAM MANAGEMENT

Sound fiscal management means more than simply avoiding deficits and reducing
debt. It also means managing tax dollars well and responsibly, and delivering
cost-effective and efficient government services. With this budget, the
Government is increasing its efforts to reassess government programs on an
ongoing basis, reallocate its spending and deliver cost-effective and efficient
government services.


REALLOCATION AND EFFICIENCY IMPROVEMENT:
EXPERIENCE TO DATE

In the 1994 budget the Government announced the Program Review initiative. The
purpose of that review was to identify those programs that no longer served a
national purpose or could be delivered more efficiently through other means. The
initial results of the review were detailed in the 1995 budget. Program Review
was recognized not only as a tool to achieve short-term spending reductions, but
also as an opportunity to "get government right." The Government now wants to
build on the principles that underpinned Program Review and incorporate them
into an ongoing review process.

     Since balancing the budget the Government has introduced new program
spending in a number of key priority areas. Incremental operating and capital
funding has also been provided to departments and agencies in a limited number
of areas that were regarded as essential to the health and safety of Canadians
or critical to the sustainability of high quality public services. For the most
part, however, departments and agencies have been required to absorb workload
and price increases from within their existing budgets and have had to review
their existing spending and to reallocate and prioritize on a continual basis.

     The capacity of the Government to deliver high quality services for the
21st century depends on a public service that is innovative, dynamic and
reflective of the country's diversity--one that is able to attract and develop
the talent required. For this reason, the President of the Treasury Board
recently tabled legislation to modernize the Public Service of Canada, for what
resources have been provided.


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                              THE BUDGET PLAN 2003

REALLOCATIONS AND EFFICIENCY IMPROVEMENTS:
RENEWING GOVERNMENT EFFORTS

The 2002 Speech from the Throne announced that the Government would renew its
efforts to "...reallocate resources to the highest priorities and transform old
spending to new purposes." This budget follows through on that commitment.

     The Government will make reallocation from lower to higher priorities an
integral part of the way it manages. To that end, the Treasury Board will lead a
systematic and ongoing examination of all non-statutory government programs,
drawing on the experience of the 1994 Program Review exercise. The goals will be
to ensure that government programs continue to be relevant, effective and
affordable. Over a five-year cycle the Treasury Board will challenge all
departments and agencies about their programs using the following tests:

- - Does the program area or activity continue to produce results that reflect
government priorities and the current needs of Canadians--is it still relevant?

- - Value for money: Are the resources that have been allocated being used in the
most efficient and effective way to deliver appropriate results?

- - Is it necessary for the federal government to operate this program or
activity--could it be transferred in whole or in part to other levels of
government or to the private or voluntary sector?

- - What are the interrelationships with other organizations and what is the scope
for considering more effective program structures and service delivery
arrangements--within the federal government, with other levels of government, as
well as with the private and voluntary sectors?

- - Are department and agency management practices appropriate and of sufficient
quality?

     In addition to these departmentally focused reviews, the Treasury Board
will also identify a number of "horizontal" reviews, where the issues to be
addressed cut across a number of departments. The Treasury Board will ensure
that departmental Reports on Plans and Priorities or Performance Reports
adequately inform Parliament of the outcomes of these expenditure reviews.

     Ongoing reviews of expenditures will give the Government the capacity
to reallocate resources from lower to higher priority areas reflecting the
changing needs of Canadians, and will ensure that departments continually look
for ways to deliver their programs in the most cost-effective manner.


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              IMPROVING EXPENDITURE MANAGEMENT AND ACCOUNTABILITY

     To demonstrate its commitment to reallocating spending and improving
efficiency, the Government will reallocate $1 billion from existing spending
beginning in 2003-04 to fund higher government priorities. This reallocation
will be permanent and represent about 15 per cent of the cost of the new
initiatives announced in this budget over the next two years.

     The Treasury Board will work with departments and agencies to identify
lower priority programs that can be eliminated or reduced. Details of the
reallocation will be announced by the President of the Treasury Board in early
May. In the event that these measures do not generate the amount of savings
needed, the Treasury Board will require departments and agencies to contribute
from their operating and transfer budgets to make up for the shortfall.

     Significant new resources are being allocated in this budget to address
the priority needs of Canadians. The Treasury Board will have the authority to
reduce the funding released to departments and agencies for these measures if it
determines that the actual program financing needed to meet the program's
objectives as set out in the budget turns out to be less than currently
estimated.

     As part of its ongoing review of programs, the Treasury Board will continue
to examine the scope for reallocating from lower to higher priorities and may
adjust departmental and agency budgets accordingly.


IMPLEMENTING FULL ACCRUAL ACCOUNTING

     As recommended by the Auditor General, and beginning with this budget, the
Government will adopt full accrual accounting as its accounting standard,
replacing the modified accrual standard it had been using since the mid-1980s.
Under full accrual accounting, the Government's financial statements will
provide a more comprehensive and up-to-date picture of the Government's
financial situation.

     The auditing standards body and the Auditor General strongly support the
implementation of full accrual accounting by the Government of Canada.

- - The Public Sector Accounting Board of the Canadian Institute of Chartered
Accountants, which recommends accounting standards for senior levels of
government, urges all governments in Canada to adopt full accrual accounting.

- - The Auditor General has strongly recommended full accrual accounting as
"...superior to the Government's current accounting policies."


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                              THE BUDGET PLAN 2003

     The Government announced its commitment to full accrual accounting in the
1995 budget. The Auditor General encouraged the Government to resolve any issues
impeding the introduction of full accrual accounting, and to implement it for
the 2002-03 financial statements. After extensive consultations with the Office
of the Auditor General, the Government is confident that it has sufficient
assurance as to the reliability of the accrual accounting amounts that it can
now proceed in this budget.

     Implementing full accrual accounting will improve transparency and
accountability because:

- - The Government's balance sheet will provide a more comprehensive picture of
the Government's assets and liabilities. For example, the value of the buildings
that the Government owns will appear on its balance sheet for the first time, as
will its liabilities for cleaning up contamination on its properties.

- - The annual budgetary balance will better reflect the impact of economic events
and government decisions during the fiscal year. For example, year-to-year
changes in recorded tax revenues will more accurately reflect the year-to-year
changes in the tax base and tax rates, as these changes will be much less
affected by collection and remittance lags.

- - The annual budgetary balance will better reflect the impact of government
decisions during the fiscal year. In particular, government decisions that cause
an increase (or decrease) in the Government's liabilities for environmental
clean-ups in areas of federal jurisdiction, potential liabilities related to
Aboriginal claims, and post-employment and retirement benefits for federal
employees will be recorded as expenditures in the year in which the decision was
made. Under modified accrual accounting, the full costs of some of these
decisions would not be shown in the Government's financial statements until the
resulting cash payments were made many years later.

     Implementing full accrual accounting will provide new information that can
be used to improve government decision making in the following ways:

- - As full accrual accounting recognizes the value of the Government's physical
assets in its financial statements, it will encourage the development of better
policies for maintaining those assets and better decisions about whether to buy,
lease or sell buildings and equipment.

- - Full accrual accounting will show more accurately the cost of owning and
operating capital equipment, providing a better picture of the cost of providing
some programs and services.

- - More complete recording of the Government's liabilities will encourage
departments to develop better plans for managing those liabilities.


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              IMPROVING EXPENDITURE MANAGEMENT AND ACCOUNTABILITY

     The shift to full accrual accounting affects tax revenues and the valuation
of liabilities and non-financial assets, thereby leading to some changes in
the budgetary balance in all years.

- - For example, under full accrual accounting, tax revenues are accounted for in
the period to which they relate, not when they are received, as was the case
under modified accrual. Largely due to the accrual of tax revenues, the
budgetary surplus for 2001-02 has been reduced by $0.7 billion to $8.2 billion.

- - Full accrual accounting changes the figure for debt because additional
liabilities are fully recognized, and non-financial assets, such as government
buildings, are now included.

     A complete description of the impact of the change to full accrual
on the budgetary balance and the federal debt is presented in Annex 6,
"Implementation of Full Accrual Accounting in the Federal Government's Financial
Statements." This annex presents financial data for the period 1993-94 to
2001-02 on the new basis and includes a comparison to the previous financial
data, which were prepared on a modified accrual basis.

THE ACCOUNTABILITY OF FOUNDATIONS

In 1997 the Government introduced a new approach to meeting the needs of
Canadians--foundations. Foundations use up-front endowment funding and
independent arm's-length boards of directors made up of experienced and
knowledgeable individuals. Their arm's-length nature, financial stability and
focused expertise allow them to address specific challenges in a highly
effective, non-partisan manner. As a result, foundations have become important
tools for implementing policy, in particular in areas such as research and
development and education, where expert knowledge, third-party partnerships and
stable long-term funding are especially important.

     To clarify the circumstances under which foundations are used by the
Government, this budget sets out principles which the Government would consider
in using a foundation to deliver public policy:

- - Foundations should focus on a specific area of opportunity, in which policy
direction is provided generally through legislation and/or a funding agreement.

- - Foundations should harness the insight and decision-making ability of
independent boards of directors with direct experience in and knowledge about
the issues at stake.

- - Decisions by foundations should be made using expert peer review.


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                              THE BUDGET PLAN 2003

- - Foundations should be provided with guaranteed funding that goes beyond the
annual parliamentary appropriations to give the foundations the financial
stability needed for the comprehensive medium- and long-term planning that is
essential in their specific area of opportunity.

- - Foundations should have the opportunity and hence the ability to lever
additional funds from other levels of government and the private sector.

     These policy principles are consistent with the Treasury Board's new Policy
on Alternative Service Delivery, which came into effect on April 1, 2002.

     A key ingredient of the success of foundations is their independence.
However, this has led to some concern as to their transparency and
accountability. Current funding agreements with foundations specify their
mandates and the conditions under which they operate. Further, directors are
fully responsible for the actions of foundations, and all foundations are
subject to annual independent audits of their financial statements.

     As part of its ongoing effort to improve transparency and accountability,
the Government will make a number of changes to improve the accountability of
foundations to Canadians and parliamentarians.

     PARLIAMENTARY APPROVAL: The Government is taking steps to ensure that the
establishment and funding of foundations is adequately reviewed by Parliament.

- - The Government is committed to parliamentary approval of purpose and funding
through direct legislation for those foundations that are significant either
from a policy or financial perspective. In all cases Parliament will need to
approve funding for foundations. As noted above, the Government's use of
foundations will respect the requirements of the Treasury Board's Policy on
Alternative Service Delivery.

     PUBLIC REPORTING: To improve the transparency and therefore the
accountability of foundations to the public, the Government will take the
following steps:

- - Foundations will be required to provide corporate plans annually to
the Minister responsible for administering the funding agreement over the
duration of the agreement. Such corporate plans will include planned
expenditures, objectives and performance expectations relating to the federal
funding. Summaries of these plans will be made public by the responsible
Minister and provided to Parliament.

- - In addition, the departmental Reports on Plans and Priorities, which are
tabled in Parliament, will incorporate the significant expected results to be
achieved by the relevant foundations and situate these within the


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              IMPROVING EXPENDITURE MANAGEMENT AND ACCOUNTABILITY

Department's overall plans and priorities. As well, the Department responsible
for administering the funding agreement will report on the significant results
achieved by the foundation(s) in its Departmental Performance Report for the
duration of the funding agreement and situate these within the Department's
overall results achieved.

- - The Annual Report for each foundation, including relevant performance
reporting, audited financial statements and evaluation results, will be
presented to the Minister responsible for the funding agreement and made public.
The Annual Reports of foundations created explicitly through legislation will be
tabled in Parliament by the responsible Minister.

- - All foundations' Annual Reports will contain performance information as well
as audited financial statements prepared in accordance with Generally Accepted
Accounting Principles. As foundations are independent, not-for-profit
organizations that have their own governance structures and members, it is the
members, as "shareholders" of the foundation, who appoint their external auditor
and to whom the external auditor reports.

    COMPLIANCE WITH FUNDING AGREEMENTS: The accountability of foundations will
be further enhanced through the following measures:

- - Foundations will be required to conduct independent evaluations, present these
to the Minister responsible and make them public. Departments will incorporate
any significant findings in their annual Departmental Performance Reports, which
are tabled annually in Parliament.

- - Funding agreements reached with foundations arising from the 2001 budget
contain provisions for independent audits of compliance with funding agreements
and for program evaluations. There will also be provisions for intervention in
the event the responsible Minister feels there have been significant deviations
from the terms of the funding agreement. The provisions will provide for dispute
resolution mechanisms.

- - Further, in all new funding agreements provisions will be put in place so that
the responsible Minister may, at his/her discretion, recover unspent funds in
the event of winding up.

     The above is on a going-forward basis. The Government will also consult
with existing foundations to explore making changes to their agreements with the
Government to incorporate these new requirements.

     The adoption of these requirements addresses many of the issues about
accountability of foundations that were raised in the April 2002 Report of the
Auditor General of Canada. For further information, see Annex 8,
"The Government's Response to the Auditor General's Observations on the 2002
Financial Statements."


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                              THE BUDGET PLAN 2003

IMPROVING REPORTING AND ACCOUNTABILITY TO PARLIAMENT

Canadians have a right to know what is achieved through the use of their
tax dollars. To reinforce accountability and transparency in public reporting,
the Government will continue to improve the relevance, timeliness and clarity of
the information it provides to Parliament. More specifically, the Treasury Board
will:

- - Make greater use of electronic reporting on expenditures and the results
achieved by government programs and activities.

- - Ensure that departmental Reports on Plans and Priorities or Performance
Reports adequately inform Parliament of the outcomes of the expenditure reviews
that the Treasury Board is launching.

- - Review the use of the Treasury Board Contingency Vote (Vote 5) and how it is
reported in Parliament.

    In addition, in consultation with parliamentarians, parliamentary committees
and the Auditor General, the Government will identify opportunities to improve
parliamentary reporting in order to better meet the needs of parliamentarians
and the public. These actions will ensure high standards in the management and
delivery of public programs and services.

THE ACCOUNTABILITY OF HEALTH TRANSFERS

The 2003 First Ministers' Accord on Health Care Renewal set out an action plan
to ensure that all Canadians have timely access to quality health care on the
basis of need and not ability to pay. The Accord established a new
accountability framework, manifested through the creation of a Health Council to
report regularly to Canadians on the quality of their health care system.

    Enhanced accountability and improved performance reporting are essential to
reassuring Canadians that reforms are occurring and that the quality health care
system Canadians demand is being provided in a cost-effective, affordable and
sustainable manner. First ministers agreed to report to their residents on
health programs and services, health system performance, health outcomes and
health status, as well as their use of all health care dollars.

    The new Health Council will publicly report through federal, provincial and
territorial health ministers, providing comprehensive information on the access,
quality, efficiency and effectiveness of the reform priorities and objectives of
the 2003 Accord.


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              IMPROVING EXPENDITURE MANAGEMENT AND ACCOUNTABILITY


     To improve the transparency and accountability of federal support to
provinces and territories, first ministers have agreed that the Canada Health
and Social Transfer will be restructured, while maintaining the important
commitments to the five principles of medicare, the prohibition against minimum
periods of residency requirements, and the flexibility provided to provinces and
territories for program design and delivery (see Chapter 3, "Investing in
Canada's Health Care System," for details).

     Effective April 1, 2004, the federal government will create two new
transfers: the Canada Health Transfer (CHT) in support of Canada's health care
system, and a Canada Social Transfer in support of post-secondary education,
social assistance and social services, including early childhood development.

     The CHT will make transparent the federal government's long-term
contribution to health care, consistent with the Auditor General's
recommendation that the federal government "provide sufficient information to
Parliament to allow for informed debate on future health care funding."


EMPLOYMENT INSURANCE PREMIUM RATES

During pre-budget consultations a number of stakeholders asked the Government to
develop a more transparent and sustainable process for setting EI contribution
rates. In response, the Government will consult on a new permanent rate-setting
regime for 2005 and beyond.

     The following rate-setting principles, which are largely based on the
pre-budget recommendations of the 1999 report of the Standing Committee on
Finance, will form the basis for the consultations:

- - premium rates should be set transparently;

- - premium rates should be set on the basis of independent expert advice;

- - expected premium revenues should correspond to expected program costs;

- - premium rate setting should mitigate the impact on the business cycle; and

- - premium rates should be relatively stable over time.

     Interested parties can provide submissions to the Government of Canada
until June 30, 2003. Legislation to implement the results of the consultations
will be introduced in time to have the new rate-setting regime in place for
2005.


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                              THE BUDGET PLAN 2003

     To provide employers and employees with certainty about contribution rates
until that time, the Government proposes to set the employee premium rate for
2004 at $1.98 by legislation. Based on the private sector economic forecasts
used in the budget, it is estimated that this rate would generate premium
revenues equal to projected program costs for 2004. This takes into account the
proposed compassionate family care leave benefit described in Chapter 3.

     The EI premium rate has declined each year from $3.07 in 1994 to $2.10 in
2003. The proposed rate of $1.98 for 2004 would be the 10th consecutive
reduction in EI premiums since 1994 (see Table 7.1). Thus, over the 10-year
period from 1994 to 2004, the EI premium rate will have been reduced by over a
third. These reductions in the EI premium rate will result in ongoing annual
savings to employers and employees of $9.7 billion in 2004, compared to the 1994
rate.


TABLE 7.1
Evolution of Employment Insurance Premiums Since 1994


                                 PREMIUM RATE PER $100 OF INSURABLE EARNINGS
                                 -------------------------------------------
YEAR                             EMPLOYEE                           EMPLOYER
- ----                             --------                           --------
                                                                
1994                               3.07                               4.30
1995                               3.00                               4.20
1996                               2.95                               4.13
1997                               2.90                               4.06
1998                               2.70                               3.78
1999                               2.55                               3.57
2000                               2.40                               3.36
2001                               2.25                               3.15
2002                               2.20                               3.08
2003                               2.10                               2.94
2004                               1.98                               2.77


REGULATION AND INVESTOR CONFIDENCE

A well-functioning economy and society require regulatory policies that
both safeguard the public interest and provide an environment within which
individual and corporate entrepreneurship can flourish. Accountability demands
that governments update regulatory frameworks to ensure that these objectives
are continually met in a world of increased globalization and competition and
changing investor expectations.


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               IMPROVING EXPENDITURE MANAGEMENT AND ACCOUNTABILITY

INVESTOR CONFIDENCE

Investor confidence in the integrity of capital markets is critical to a
well-functioning economy. The Government has been working closely with
provincial governments, regulators and the private sector to bolster investor
confidence and improve the efficiency and integrity of Canadian capital markets.

     A number of actions have been taken, including the establishment of the
Canadian Public Accountability Board, to provide greater oversight of public
company auditors. A comprehensive record of actions taken to date in Canada is
available on the Department of Finance Web site at http://www.fin.gc.ca/activty/
pubs/fcccm_e.html.


STRENGTHENING CORPORATE GOVERNANCE

One of the key elements of instilling investor confidence is good corporate
governance within Canadian public companies. Canada must aim for the highest
standards. We must ensure that our stock exchange guidelines and requirements,
our securities laws and our corporate laws provide a sound framework. Our
companies and executives must strive to implement best practices.

     This means, for example, that a board of directors must be sufficiently
independent from management to fulfill its oversight function, that the audit
committee of the board must be independent to ensure a proper audit and
disclosure of the company's financial position, and that management must be held
accountable for its actions.

     The federal government has a direct role in this area. In the coming months
it will propose actions to strengthen the corporate governance standards in the
Canada Business Corporations Act and financial institutions statutes. These
proposals will take into account what is being done elsewhere, particularly by
the provincial governments, securities commissions and stock exchanges, as well
as the ongoing work of the Senate Committee on Banking, Trade and Commerce.

STRENGTHENING ENFORCEMENT

Investor confidence also depends on strong enforcement. Effective laws,
and effective enforcement of the laws governing capital markets and the
behaviour of players in those markets, are essential to providing a deterrent to
actions that undermine investor trust. In Canada enforcement of laws governing
corporate and securities activities is a shared responsibility, involving the
federal government, provincial governments and securities regulators.


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                              THE BUDGET PLAN 2003

     This budget announces a coordinated national enforcement approach
to strengthen the investigation and prosecution of the most serious
corporate frauds and market illegalities. These kinds of offences are often
interprovincial and international in nature, thus requiring specialized
resources in order to investigate and prosecute them effectively. This budget
provides up to $30 million a year for this new national enforcement effort.

     To strengthen investigations, integrated teams of investigators, forensic
accountants and lawyers will be established in the key financial centres across
Canada. These teams will focus on the most serious cases of corporate fraud and
market illegality, and will work closely with securities regulators and
provincial and local police. The teams will be jointly managed by the Royal
Canadian Mounted Police and partner agencies.

     To enhance the ability of governments in prosecutions, the Government plans
to introduce new legislation to modernize offences, permit targeted
evidence-gathering, and signal the seriousness of corporate fraud offences
through tailored sentencing structures. The legislation could, after further
consultations have been conducted with the provinces and other key stakeholders,
provide the federal government with concurrent jurisdiction with the provinces
to prosecute serious criminal securities and corporate fraud offences. Resources
are provided in this budget to support related prosecutions.

SECURITIES REGULATION

As announced in the Speech from the Throne, the Government is committed to
working with provincial governments and market participants to ensure that
Canada has the modern and efficient securities regulatory system needed to
remain competitive in today's global marketplace. In October 2002 the Minister
of Finance appointed Harold MacKay as his Special Representative on Canadian
securities regulation, and asked him to recommend a process for improving the
current system of securities regulation.

     In his report Mr. MacKay noted there was consensus among stakeholders for
significant and immediate improvements, and recommended that the federal
government and interested provinces establish a Wise Persons' Committee. The
Committee would undertake a review of securities regulation in Canada and
recommend a regulatory model that best meets Canada's needs. The Government is
committed to establishing such a Wise Persons' Committee shortly to provide such
expert advice to federal and provincial governments.


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               IMPROVING EXPENDITURE MANAGEMENT AND ACCOUNTABILITY

SMART REGULATION STRATEGY FOR GOVERNMENT

In the 2002 Speech from the Throne, the Government announced a smart regulation
strategy that would promote health and sustainability, contribute to innovation
and economic growth and reduce the administrative burden on business. This
budget provides $4 million over two years to create an External Advisory
Committee to recommend areas where the Government needs to redesign its
regulatory approach to create and maintain a Canadian advantage.

STREAMLINING FOR A POTENTIAL NATURAL GAS PIPELINE

The Government is committed to removing unnecessary barriers that limit
sustainable and efficient long-term development of northern natural resources.
It will provide $32 million this year and over the next two years to increase
federal capacity for the conduct of environmental and regulatory assessment
processes prior to the construction of a potential natural gas pipeline from the
Arctic region to southern markets, and to further streamline the regulatory and
environmental assessment processes upon receipt of an application to construct
such a northern natural gas pipeline.

AIR TRAVELLERS SECURITY CHARGE

This budget follows up on the Government's commitment to conduct a review of the
Air Travellers Security Charge to ensure that revenues are in line with the
costs of the enhanced air security system through 2006-07, as set out in the
2001 budget. The review encompassed an assessment of revenue and expenditures,
including actual amounts to date and projections for future years. The review
also considered technical issues pertaining to the application of the charge,
including its structure, provided that revenue would continue to cover costs and
that no one would pay more than under the current structure. Toward this end,
the Government invited industry stakeholders and interested parties to submit
written representations, and it engaged independent consultants to undertake
specialized studies to assist in considering the structure and assessing the
application of the charge. There view process is summarized in Annex 3, "Review
of the Air Travellers Security Charge: Supplementary Information and Notice of
Ways and Means Motion."


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                              THE BUDGET PLAN 2003

     As a result of this review, and consistent with cost recovery for its
enhanced air security system and the move to full accrual accounting in this
budget, the Government is reducing the amount of the charge for domestic air
travel from $12 to $7 for one-way travel and from $24 to $14 for round-trip
travel--a reduction of more than 40 per cent that will benefit all travellers
within Canada. The adoption of full accrual accounting, which provides a more
accurate measure of the cost over time of owning and operating the equipment
used to screen passengers and their baggage, was a key factor in reducing the
charge.

DEBT SERVICING AND REDUCTION ACCOUNT

The Debt Servicing and Reduction Account (DSRA) was established by statute in
June 1992. Under that legislation, all goods and services tax revenues, net of
applicable input tax credits, rebates and the low-income credit, along with the
net proceeds from the sale of Crown corporations and gifts to the Crown
explicitly identified for debt reduction, must be deposited into this account.
The funds in this account are earmarked to pay interest on the public debt and,
ultimately, to reduce the debt.

     All revenues received by the Government must be deposited in the
Consolidated Revenue Fund (CRF) and any disbursements from it must be authorized
by Parliament. Therefore, the specific revenues of the DSRA must be deposited in
the CRF and the public debt expenditures chargeable to the account must be
appropriated from it by Parliament.

     Auditors General have repeatedly questioned the need for this account. They
noted that "given the fundamental concept of the CRF underlying the Government's
accounting system, the Account is an internal mechanism that may not be
necessary." The House ofCommons Standing Committee on Finance recommendations
for the 2000 budget included elimination of the DSRA. All of the information
relating to the DSRA is already reported in other parts of the Government's
financial statements.

     The Government has reviewed these recommendations and agrees that there is
limited usefulness in having a separate financial statement for the information
contained in the DSRA. Therefore, it will introduce legislation to terminate the
DSRA. The Government will ensure that all of the information contained in the
DSRA continues to be reported in other parts of the Government's financial
statements.


                                      188

               IMPROVING EXPENDITURE MANAGEMENT AND ACCOUNTABILITY


USER CHARGING AND COST RECOVERY

The Standing Committee on Finance, as well as many business sector stakeholders,
have called for a more open, transparent and accountable approach to user
charging and cost recovery. The President of the Treasury Board will be issuing
a revised policy on external charging that sets out the principles for improved
management practices relating to user charging and cost recovery.

     This new Treasury Board policy will highlight the importance of
consultation, service delivery and results in all user charging activities
ranging from optional to regulated services. Enhanced implementation
requirements, including the annual reporting of revenue and performance
information directly to stakeholders and Parliament, underscore the significance
of parliamentary oversight and ministerial accountability. Departments will be
required to assess the performance and related cost implications associated with
the revised policy and to engage their stakeholders on how best to achieve its
objectives.


                                       189

8

SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD



                              THE BUDGET PLAN 2003

HIGHLIGHTS

o    After accounting for the fiscal impact of the proposed new spending
     initiatives and tax cuts, this budget projects balanced budgets or better
     in 2002-03--the sixth consecutive balanced budget--and in each of the next
     two fiscal years.

o    These balanced budgets are backed by the normal annual Contingency Reserve
     of $3 billion, and economic prudence of $1 billion in 2003-04 and
     $2 billion in 2004-05. The Contingency Reserve, if not needed, will reduce
     debt.

o    On an accrual basis, the federal debt (accumulated deficit) as a percentage
     of the economy is projected to fall to 44.5 per cent in 2002-03, down from
     its peak of 67.5 per cent in 1995-96. With the commitment to balanced
     budgets in each of the next two fiscal years, it is forecast to decline to
     about 40 per cent in 2004-05.

o    Program spending is expected to increase by 11.5 per cent, or $14.3
     billion, in 2002-03 and average about 4 per cent growth over the next two
     fiscal years. In 2002-03 health-related spending, increased transfers to
     the elderly and the unemployed and higher defence and security-related
     spending account for nearly three-quarters of the increase. As a percentage
     of gross domestic product (GDP), program spending averages about 12 per
     cent over the 2002-03 to 2004-05 period.

o    Budgetary revenues are estimated at 15.7 per cent of GDP in 2002-03--the
     lowest share of the economy since the late 1970s. This reflects the impact
     of the Government's Five-Year Tax Reduction Plan. This ratio is expected to
     continue to decline over the next two years, reflecting the Five-Year Tax
     Reduction Plan and further tax reductions proposed in this budget.


FEDERAL DEBT (ACCUMULATED DEFICIT)

In response to the Auditor General of Canada, this budget is presented on a full
accrual basis of accounting. Under the previous accounting standard--modified
accrual accounting--net debt and the accumulated deficit were identical. Under
the new standard, net debt now includes a more comprehensive costing for
financial liabilities but excludes non-financial assets. The accumulated deficit
includes both. It is the sum of all surpluses and deficits in the past. The
accumulated deficit will also be referred to in the Annual Financial Report of
the Government of Canada and budget documents as the "federal debt."






                                      192


                SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD

INTRODUCTION

Sound financial management has resulted in the Government recording five
consecutive annual surpluses through 2001-02 and reducing the federal debt by
$47.6 billion. At the same time, it has allowed the Government to implement the
largest tax cut in Canadian history and to invest in key priorities of
Canadians, such as health care, support for lower-income families with children,
education, and research and development.

     This sound financial management played an important role in helping Canada
avoid a recession in 2001 despite the global economic downturn. It enabled
fiscal and monetary policy to provide timely support to the Canadian economy
through lower taxes and interest rates. The continual commitment to fiscal
discipline allowed Canada to post a budgetary surplus in 2002, while all other
G7 countries posted deficits. It also helped Canada record the best economic
performance among the G7 countries in 2002, notwithstanding an uneven global
recovery.

     The Government is committed to maintaining this prudent approach to fiscal
planning--an approach that has paid off and remains essential given the
uncertain times. It includes a prudent approach to budget planning, with most
budget decisions made over a rolling two-year horizon. To ensure the federal
budget remains in balance or better, this budget restores the full $3-billion
annual Contingency Reserve and economic prudence in the fiscal projections.

     This chapter provides projections of the federal government's finances
for 2002-03 and the next two years of the Government's budget plan. It updates
the fiscal projections contained in the October 2002 Economic and Fiscal Update
for:

o    the impact of the revised economic outlook, reflecting the most recent
     survey of Canadian private sector economists, and recent financial
     developments;

o    the impact of the implementation of full accrual accounting; and

o    the impact of the spending and revenue measures proposed in this budget.

     Canada's fiscal performance stands out among the major industrialized
countries. According to the Organisation for Economic Co-operation and
Development (OECD), Canada is the only G7 country in surplus in 2002. It is also
the only G7 country the OECD expects to be in surplus in 2003.



                                      193


                              THE BUDGET PLAN 2003


APPROACH TO BUDGET PLANNING

o The Government's approach to budget planning involves a number of important
elements. The first element involves using private sector economic forecasts for
budget-planning purposes.

     -    The Department of Finance conducts surveys of private sector economic
          forecasters. In total, about 20 forecasters are surveyed on a regular
          basis.

     -    Each fall the Department of Finance conducts extensive consultations
          with an economic advisory group, which includes the chief economists
          of Canada's major chartered banks and major private sector economic
          forecasting firms.

o The second element involves using these economic assumptions to develop status
quo fiscal projections for the regular fall update.

     -    Since 1999, for the fall Economic and Fiscal Update, major private
          sector economic forecasting firms have developed detailed fiscal
          projections, on a National Accounts basis, based on tax and spending
          policies in place at the time and using the average of the private
          sector economic forecasts. These forecasts are then translated into
          Public Accounts projections, in consultation with the private sector
          economic forecasting firms, and presented in the fall Economic and
          Fiscal Update for budget-planning purposes.

o The third element involves updating the projections for the budget:

     -    Based on the most current survey of the private sector economic
          forecasts and the most recent financial results, the fiscal
          projections are updated by the Department of Finance for the current
          fiscal year and each of the next two years.

     -    Although the private sector economic advisory group recommends that
          for the purposes of public debate on policy options, a five-year time
          horizon is appropriate, it recommends that caution is warranted in the
          use of long-term projections as a basis for budget decisions.

          As a result, most budget decisions are made over a rolling two-year
          horizon and, hence, the budget fiscal plan is presented for the
          current and next two fiscal years.

     -    As recommended by the Auditor General, the Government will adopt full
          accrual accounting as its accounting standard this year. The fiscal
          projections in this budget, as well as the fiscal results back to
          1993-94, are being presented on a full accrual basis of accounting.






                                      194


                SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD


     -    The resulting fiscal projections are adjusted for prudence to derive
          the fiscal surpluses for budget-planning purposes. An annual
          Contingency Reserve is set aside to guard against unforeseen
          circumstances. If it is not needed, it reduces the federal debt
          (accumulated deficit). An extra degree of economic prudence, which
          rises over time, is built in to provide further assurance against
          falling back into deficit.

o Finally the proposed budget measures are substracted from the full accrual
budgetary surplus for planning purposes to arrive at the budget balance.


IMPLICATIONS OF THE REVISED ECONOMIC OUTLOOK AND CURRENT FINANCIAL DEVELOPMENTS

o Table 8.1 shows the impact of the revised economic outlook and the financial
results to date on the fiscal projections presented in the October 2002 Economic
and Fiscal Update. These updated projections are on a status quo basis, that is,
before including the impact of moving to full accrual accounting and any of the
measures proposed in this budget.

o In the October 2002 Economic and Fiscal Update, the budgetary planning
surplus, net of the annual $3-billion Contingency Reserve and economic prudence,
was forecast at $1.0 billion for 2002-03, $3.1 billion for 2003-04 and $3.5
billion for 2004-05. This was based on the average of the private sector
forecasts. The budgetary surplus before allowances for the Contingency Reserve
and economic prudence was estimated at $4.0 billion for 2002-03, $7.1 billion
for 2003-04 and $8.5 billion for 2004-05.

o As noted in Chapter 2, the current average of private sector forecasts for
2002 and each of the next two years indicates relatively small changes from the
October 2002 Economic and Fiscal Update. However, financial results for the
period April to December 2002 show strong growth in goods and services tax (GST)
revenues. GST revenues are now expected to be $1.6 billion higher for the year
as a whole than forecast in the October 2002 Economic and Fiscal Update. In
addition, employment insurance benefits are expected to be somewhat lower and
other income tax revenues higher, given the stronger than expected employment
performance in the second half of 2002. As a result, the budgetary surplus for
2002-03 is expected to be $6.4 billion, or $2.4 billion higher than estimated in
the October 2002 Economic and Fiscal Update.






                                      195


                              THE BUDGET PLAN 2003

o For 2003-04 the surplus is projected at $8.2 billion, or $1.1 billion higher
than forecast in the October 2002 Economic and Fiscal Update, again primarily
reflecting higher GST revenues, as expected changes in the other components are
largely offsetting.

o A surplus of $10.7 billion is forecast for 2004-05, up $2.2 billion from the
October 2002 Economic and Fiscal Update. Most of the improvement also comes from
higher GST revenues. Other contributing factors include higher corporate income
tax revenues, reflecting the winding down of loss carry-forwards from the
decline in profits in 2001, and higher other income tax revenues.

TABLE 8.1

Fiscal Outlook Before Accrual Accounting and Measures Proposed in 2003 Budget



                                                             2002-    2003-    2004-
                                                             2003     2004     2005
                                                             ----     ----     ----
                                                             (billions of dollars)
                                                                      
OCTOBER 2002 PRIVATE SECTOR AVERAGE
PLANNING SURPLUS                                              1.0     3.1      3.5
  Prudence
    Contingency Reserve                                       3.0     3.0      3.0
    Economic prudence                                                 1.0      2.0
                                                              ---     ---      ---
    Total                                                     3.0     4.0      5.0
  BUDGETARY SURPLUS                                           4.0     7.1      8.5
IMPACT OF ECONOMIC CHANGES(1)
  Budgetary revenues
    Personal income tax                                      -0.2    -0.4
    Corporate income tax                                             -0.2      0.5
    Other income tax                                          0.3     0.4      0.6
    Employment insurance premiums                             0.1    -0.4     -0.6
    Goods and services tax                                    1.6     1.2      1.5
    Other excise taxes and duties                             0.2     0.3      0.1
    Non-tax revenues                                          0.0     0.0      0.0
                                                              ---     ---      ---
    Net                                                       2.0     0.9      2.1
  Program spending
    Major transfers to persons
      Elderly benefits                                        0.1     0.2      0.1
      Employment insurance benefits                           0.3    -0.2      0.2
    Major transfers to other levels of government                              0.1
    Direct program spending                                   0.0
                                                              ---     ---      ---
    Net                                                       0.4    -0.1      0.4
  Public debt charges                                         0.0     0.2     -0.2
  Net change                                                  2.4     1.1      2.2
REVISED BUDGETARY SURPLUS                                     6.4     8.2     10.7
                                                              ---     ---     ----


Note: Numbers may not add due to rounding.

(1)  A negative number implies a deterioration in the budgetary balance while a
     positive number implies an improvement.






                                      196


                SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD


IMPACT OF FULL ACCRUAL ACCOUNTING ON THE FISCAL PROJECTIONS

Table 8.2 presents the impact of implementing full accrual accounting on the
revised fiscal projections. The Auditor General of Canada has strongly
recommended full accrual accounting as superior to the Government's previous
accounting policies. Details on why the Government is adopting full accrual
accounting, what it means and the impact on previously published financial
results are presented in Annex 6, "Implementation of Full Accrual Accounting in
the Federal Government's Financial Statements."

TABLE 8.2

Fiscal Outlook: Incorporating Impact of Full Accrual Accounting




                                                  2001-     2002-    2003-    2004-
                                                  2002      2003     2004     2005
                                                  ----      ----     ----     ----
                                                       (billions of dollars)

                                                                  
REVISED BUDGETARY SURPLUS                          8.9      6.4      8.2      10.7

IMPACT OF FULL ACCRUAL ACCOUNTING(1)
  Budgetary revenues
    Personal income tax                           -3.3      2.1     -0.6      -0.6
    Corporate income tax                           0.6     -0.5
    Other income tax                              -1.2     -1.2     -1.2      -1.3
    Employment insurance premiums                 -0.3
    Goods and services tax                         0.5      0.4      0.4       0.4
    Excise taxes and duties                        0.1
    Non-tax revenues                               2.0      2.0      2.1       2.2
                                                   ---      ---      ---       ---
    Net                                           -1.6      2.9      0.6       0.6

  Program spending
    Elderly benefits                               0.7      0.6      0.7       0.7
    Direct program spending                        1.7      1.1      1.2       1.3
                                                   ---      ---      ---       ---
    Net                                            2.4      1.7      1.8       2.0

  Public debt charges                             -1.5     -1.6     -1.6      -1.5

NET IMPACT                                        -0.7      3.1      0.7       0.9

FULL ACCRUAL BUDGETARY SURPLUS                     8.2      9.4      8.8      11.5
                                                   ---      ---      ---      ----



Note: Numbers may not add due to rounding.

(1)  A negative number implies a deterioration in the budgetary balance while a
     positive number implies an improvement.



                                      197


                              THE BUDGET PLAN 2003






FULL ACCRUAL ACCOUNTING: IMPACT ON REVENUES

o Under the previous modified accrual method of accounting, tax revenues were
accounted for on a cash basis in the year in which they were received. Refunds
were recorded in the year in which they were paid. As a result, there were
significant collection lags between the economic activity and the receipt of
revenues or payment of refunds relating to that activity. For example, personal
income tax revenues were extraordinarily high in 2001-02, reflecting taxes paid
in April and May 2001 on large capital gains realized in 2000. Conversely, the
decline in the stock market in 2001 resulted in higher refunds and lower
settlement payments in April and May 2002.

o However, under full accrual accounting, personal income tax received and
refunds paid are more appropriately allocated to the fiscal year to which they
relate. As a result, personal income tax revenues in 2001-02 have been lowered
and those in 2002-03 increased to more closely match economic activity in those
years. Thereafter personal income taxes are slightly lower due to the
reclassification of repayments of the Old Age Security benefit, which are now
netted against elderly benefits.

o Corporate income tax revenues under full accrual are slightly higher in
2001-02 but lower in 2002-03 due to the reversal of the impact of the deferral
of the small business tax instalment initiative announced in the 2001 budget.
Under full accrual accounting, such deferrals have no fiscal impact in the years
in which they are in effect.

o Classification changes between personal and other income tax explain the
lowering of other income taxes. The increase in non-tax revenues is attributable
to the reclassification of interest and penalties on personal and corporate
income taxes, which previously were included in the respective tax components.


FULL ACCRUAL ACCOUNTING: IMPACT ON SPENDING

o The recognition of post-employment and retirement benefits (primarily
veterans' disability costs) as liabilities results in a reduction in direct
program spending with a roughly corresponding increase in public debt charges.
As these liabilities have been recognized in previous years, current benefit
payments no longer affect direct program spending. However, public debt charges
are now higher, reflecting the increased interest costs associated with
adjusting these liabilities to the current period. Direct program spending is
also affected by the capitalization of assets (as the amortization adjustment is
somewhat lower than capital acquisitions) and the inclusion of a provision for
uncollectable taxes associated with the inclusion of tax receivables in the
statement of assets and liabilities. These impacts are largely offsetting.






                                      198


SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD

o The net impact of implementing full accrual accounting is to lower the
budgetary surplus (before prudence and the measures proposed in the 2003 budget)
by $0.7 billion in 2001-02 to $8.2 billion, and to raise it by $3.1 billion in
2002-03 to $9.4 billion. Thereafter it increases the projected budgetary surplus
by $0.7 billion in 2003-04 to $8.8 billion and by $0.9 billion in 2004-05 to
$11.5 billion.


FISCAL SURPLUS FOR PLANNING PURPOSES

o Table 8.3 summarizes the impact of the revised economic outlook, financial
developments to date and accounting changes on the October 2002 Economic and
Fiscal Update projections of the budgetary surplus, and it subtracts the
Contingency Reserve and economic prudence to arrive at the 2003 budget budgetary
surplus available for planning purposes.

TABLE 8.3
Fiscal Outlook Before Measures Proposed in 2003 Budget: Summary



                                                            2002-    2003-     2004-
                                                            2003     2004      2005
                                                            ----     ----      ----
                                                             (billions of dollars)
                                                                      
October 2002 private sector average
  BUDGETARY SURPLUS (BEFORE PRUDENCE)                       4.0      7.1       8.5

Changes:

  Impact of economic developments                           2.4      1.1       2.2

  Impact of accrual accounting                              3.1      0.7       0.9
                                                            ---      ---       ---
  Net fiscal impact                                         5.4      1.9       3.0

BUDGET 2003: FULL ACCRUAL BUDGETARY SURPLUS                 9.4      8.8      11.5


Less prudence
  Contingency Reserve                                       3.0      3.0       3.0
  Economic prudence                                                  1.0       2.0
                                                            ---      ---       ---
  Total                                                     3.0      4.0       5.0

FULL ACCRUAL BUDGETARY SURPLUS FOR PLANNING PURPOSES        6.4      4.8       6.5
                                                            ---      ---       ---


Note: Numbers may not add due to rounding.

(1)  A negative number implies a deterioration in the fiscal balance while a
     positive number implies an improvement.

o As recommended by the private sector economic advisory group, most budget
decisions are made over a rolling two-year horizon. The Government's annual
fiscal target over its two-year budget plan is a balanced budget or better each
year. To ensure that this target is met, the Government has followed the prudent
approach to budget planning set out above.


                                      199



                              THE BUDGET PLAN 2003

o In the October 2002 Economic and Fiscal Update, the Minister of Finance
announced that the Government would restore the full $3-billion annual
Contingency Reserve. This provides a buffer against unforeseen circumstances. If
not needed, it will reduce the federal debt. The Minister also announced the
restoration of the economic prudence in budget planning to help ensure that the
Government will not return to deficit. The economic prudence is set as $1
billion for 2003-04 and $2.0 billion for 2004-05.

o As a result, the full accrual surplus for planning purposes is $6.4 billion
for 2002-03, $4.8 billion for 2003-04 and $6.5 billion for 2004-05.


IMPACT OF MEASURES IN BUDGET 2003
ON THE BUDGETARY BALANCE

Table 8.4 summarizes the impact of the measures proposed in Budget 2003 on the
fiscal surplus for planning purposes.

TABLE 8.4
Budget 2003: Fiscal Outlook With Measures




                                                          2002-      2003-     2004-
                                                          2003       2004      2005
                                                          ----       ----      ----
                                                            (billions of dollars)
                                                                      
FULL ACCRUAL BUDGETARY SURPLUS
  FOR PLANNING PURPOSES                                    6.4       4.8       6.5

Budget 2003 measures
  Investing in Canada's Health Care System(1)              4.7       1.4       2.2
  Investing in Canadian Families and
    Their Communities                                                1.2       1.5
  Investing in a More Productive, Sustainable
    Economy(1)                                             1.0       1.7       1.9
  Canada in the World                                      0.7       1.3       1.7
  Employment insurance premium rate reduction                        0.1       0.2
  Expenditure reallocation                                          -1.0      -1.0
                                                           ---      ----      ----

  Net impact                                               6.4       4.7       6.5
BUDGETARY BALANCE                                          0.0       0.0       0.0
                                                           ---       ---       ---



Note: Numbers may not add due to rounding.

(1) The $1.5 billion Diagnostic/Medical Equipment Fund and the $2.5-billion
Canada Health and Social Transfer supplement will be paid to a third-party trust
and accounted for by the federal government in 2002-03. The $600 million to the
Canada Health Info way and the $500 million to the Canada Foundation for
Innovation are accounted for in 2002-03. All these transfers are subject to
passage of applicable legislation.



                                      200


                SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD

o The specific measures and their fiscal costs are described in Chapters 3, 4,
5, 6, and 7. The net impact of the measures proposed in the 2003 budget amounts
to $6.4 billion in 2002-03, $4.7 billion in 2003-04 and $6.6 billion in 2004-05,
for a total of $17.8 billion.

o After incorporating the measures proposed in this budget and maintaining the
$3-billion annual Contingency Reserve and economic prudence, a balanced budget
is projected this year and in each of the next two years.

o As agreed under the 2003 First Ministers' Health Accord, the federal
government is prepared to put up to an additional $2 billion into health for the
provinces at the end of fiscal year 2003-04 if the Minister of Finance
determines during the month of January that there will be a sufficient surplus
above the normal Contingency Reserve to permit such an investment.



FEDERAL DEBT (ACCUMULATED DEFICIT)

In response to the Auditor General of Canada, this budget is presented on a full
accrual basis of accounting. Under the previous accounting standard--modified
accrual accounting--net debt and the accumulated deficit were identical. Under
the new standard, net debt now includes a more comprehensive costing for
financial liabilities but excludes non-financial assets. The accumulated deficit
includes both. It is the sum of all surpluses and deficits in the past. The
accumulated deficit will be referred to in the Annual Financial Report of the
Government of Canada and budget documents as the "federal debt."


                                      201


                              THE BUDGET PLAN 2003

SUMMARY STATEMENT OF TRANSACTIONS

Table 8.5 provides the summary statement of transactions on a full accrual
basis, including all the measures proposed in this budget.

TABLE 8.5

Summary Statement of Transactions: Budget 2003: Full Accrual With Measures



                                               2001-      2002-      2003-      2004-
                                               2002       2003       2004       2005
                                               -----      -----      -----      -----
                                                         (billions of dollars)
                                                                    
BUDGETARY TRANSACTIONS
  Budgetary revenues                           171.7      178.7      184.7      192.9
  Total expenditures
    Program spending                           124.3      138.6      143.0      149.6
    Public debt charges                         39.3       37.2       37.6       38.4
                                               -----      -----      -----      -----
    Total expenditures                         163.5      175.8      180.7      188.0

  UNDERLYING BUDGETARY SURPLUS                   8.2        3.0        4.0        5.0

  Less prudence
    Contingency Reserve                                     3.0        3.0        3.0
    Economic prudence                                                  1.0        2.0
                                               -----      -----      -----      -----
    Total                                                   3.0        4.0        5.0

  Budgetary balance                              8.2        0.0        0.0        0.0

FEDERAL DEBT (ACCUMULATED DEFICIT)
  Balanced budget (no debt reduction)          507.7      507.7      507.7      507.7

NON-BUDGETARY TRANSACTIONS
  Loans, investments and advances               -0.1       -1.3       -1.4       -1.5
  Pensions and other accounts                   -0.1        0.4       -0.6       -1.4
  Other                                         -3.2        4.3       -3.7        0.7
                                               -----      -----      -----      -----
  Total                                         -3.5        3.4       -5.8       -2.1

FINANCIAL REQUIREMENTS/SOURCE                    4.7        3.4       -5.8       -2.1

PER CENT OF GDP
  Budgetary revenues                            15.7       15.7       15.4       15.2
  Program spending                              11.4       12.2       11.9       11.8
  Public debt charges                            3.6        3.3        3.1        3.0
  Budgetary balance                              0.7        0.0        0.0        0.0
  Federal debt (accumulated deficit)
    Balanced budget (no debt reduction)         46.5       44.5       42.2       40.1
    Debt reduced by $3 billion per year         46.5       44.3       41.7       39.6
                                               -----      -----      -----      -----



Note: Numbers may not add due to rounding.


                                      202


                  SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD


THE GOVERNMENT'S FISCAL PROGRESS


FEDERAL BUDGETARY BALANCE

                 [BAR CHART SHOWING CHANGES IN FEDERAL BUDGETARY BALANCE]


Sources: Public Accounts of Canada and Statistics Canada.

o With the surplus of $8.2 billion in 2001-02, the federal government recorded
its fifth consecutive annual surplus, including surpluses of $2.8 billion in
1997-98, $3.1 billion in 1998-99, $13.1 billion in 1999-2000 and $20.2 billion
in 2000-01. These surpluses incorporate the effect of moving to full accrual
accounting.

o As a result of these surpluses, the federal debt (accumulated deficit) has
been reduced by $47.6 billion since 1997-98.

o Balanced budgets or better are expected for 2002-03 and each of the next two
fiscal years. To ensure that these targets are met, they are backed by the
annual $3-billion Contingency Reserve and economic prudence.


                                      203


                                  THE BUDGET PLAN 2003

CANADA ONLY G7 COUNTRY TO RECORD SURPLUS IN 2002

TOTAL GOVERNMENT FINANCIAL BALANCE

        [BAR CHART SHOWING GOVERNMENT FINANCIAL BALANCES OF G7 COUNTRIES]

Source: OECD Economic Outlook, No.72 (December 2002).


o On a National Accounts basis, Canada's total government sector financial
balance has improved substantially over the last decade. The total government
sector deficit peaked at 9.1 per cent of GDP in 1992, which was almost double
the G7 average deficit-to-GDP ratio that year.

o By 1997, however, fiscal improvements at all levels of government enabled
Canada's total government sector to post a surplus. Canada has recorded six
consecutive total government surpluses since that time.

o In 2002 Canada recorded a surplus estimated at 0.6 per cent of GDP, compared
to an average deficit of 3.7 per cent in the G7 countries. Canada was the only
G7 country to record a surplus in 2002, according to OECD estimates.



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                  SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD

FEDERAL DEBT-TO-GDP RATIO ON DOWNWARD TRACK

FEDERAL DEBT-TO-GDP RATIO

            [LINE GRAPH SHOWING CHANGE IN FEDERAL DEBT-TO-GDP RATIO]

SOURCES: Public Accounts of Canada and Statistics Canada.


o The federal debt-to-GDP ratio is the most appropriate measure of the debt
burden, as it measures the federal debt (the accumulated deficit) relative to
the ability of the Government and the nation's taxpayers to finance it.

o On an accrual basis, the federal debt-to-GDP ratio fell to 46.5 per cent in
2001-02. It has come down nearly 20 percentage points from its peak of 66.4 per
cent in 1995-96.

o With balanced budgets or better and sustained economic growth, it is expected
to decline to about 40 per cent by 2004-05.

o The Government is committed to keeping the federal debt-to-GDP ratio on a
downward track.


                                      205


                                 THE BUDGET PLAN 2003

CANADA HAS ACHIEVED THE LARGEST DECLINE IN THE DEBT BURDEN AMONG THE G7
COUNTRIES

TOTAL GOVERNMENT NET FINANCIAL LIABILITIES

    [BAR CHART SHOWING GOVERNMENT NET FINANCIAL LIABILITIES OF G7 COUNTRIES]


Sources: OECD Economic Outlook, No.72 (December 2002); Federal Reserve, Flow of
Funds Accounts of the United States (December 2002); Department of Finance
calculations.

(1) Adjusted to exclude certain government employee pension liabilities, in
order to be more comparable with other countries' debt measures.



o Since the mid-1990s Canada's total government sector has achieved the largest
decline in its debt burden of all the G7 countries. Between 1995 and 2002
Canada's debt-to-GDP ratio was reduced by 26.8 percentage points.

o As a result, Canada's total government debt burden is now below the G7 average
and only the UK and the U.S. are expected to have lower debt burdens than Canada
in 2003.

o Based on OECD projections of continuing fiscal surpluses in Canada and large
deficits in the U.S., Canadian and U.S. total government debt burdens are
expected to converge by 2004. See Annex 4 for more details.



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                SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD

DETAILS OF THE 2003 BUDGET PLAN: OUTLOOK FOR REVENUES

o Table 8.6 presents the major components of budgetary revenues for the period
2001-02 to 2004-05. It includes the impact of the move to full accrual
accounting as well as the cost of the measures proposed in this budget.

o Budgetary revenues declined by 5.8 per cent in 2001-02, largely due to the
Five-Year Tax Reduction Plan, the global economic slowdown in 2001 and the
decline in the stock market.

o Economic growth rebounded in 2002, with the result that budgetary revenues are
expected to increase by $7.0 billion, or 4.1 per cent, in 2002-03. Thereafter
the projected growth in budgetary revenues is somewhat slower than the growth in
nominal income--the applicable tax base for budgetary revenues--due to the
impact of the tax reduction measures proposed in this budget as well as those
implemented in the Five-Year Tax Reduction Plan.

o Personal income tax revenues are the largest component of budgetary revenues
and the component most affected by the switch to full accrual accounting. They
are estimated to have declined by 6.2 per cent in 2001-02 due to the Five-Year
Tax Reduction Plan, the global economic slowdown and the decline in the stock
market. Thereafter personal income tax revenues are projected to increase
broadly in line with the growth in personal income.

o The decline in corporate income tax revenues in 2002-03 is attributable to
losses incurred in 2001, resulting in higher refunds pertaining to previous
years' taxes paid. In the period April to December 2002, corporate income tax
revenues were down 18.1 per cent from the same period the previous year. The
data to convert corporate income tax revenues to accruals are not available in
order to present the financial statements in a timely manner. As such, cash is
used as a proxy for the accrual numbers.

o Excise taxes and duties are up in 2002-03 by 11.5 per cent primarily due to
higher GST revenues, the impact of the tobacco excise tax increases announced in
late 2001 and early 2002, and the introduction of the Air Travellers Security
Charge in April 2002. The increase in GST revenues reflects both the strong
growth in the applicable tax base as well as a decline in refunds. Over the next
two fiscal years, growth in this component is expected to mirror more closely
the growth in the applicable tax bases.

o Non-tax revenues include return on investments and other non-tax revenues.
Under full accrual accounting, the latter now include interest and penalties
accrued on income taxes owing.


                                      207


                              THE BUDGET PLAN 2003

OUTLOOK FOR BUDGETARY REVENUES

TABLE 8.6
The Revenue Outlook



                                       2001-         2002-       2003-         2004-
                                       2002          2003        2004          2005
                                      -------      -------      -------      -------
                                                    (millions of dollars)
                                                                 
INCOME TAX
  Personal income tax                  80,536       84,181       86,618       91,106
  Corporate income tax                 24,565       21,944       24,337       25,536
  Other income tax                      1,805        2,875        3,107        3,304
                                      -------      -------      -------      -------
  Total income tax                    106,906      109,000      114,063      119,946

EMPLOYMENT INSURANCE REVENUES          17,660       18,320       17,586       17,551

EXCISE TAXES/DUTIES
  Goods and services tax               25,434       28,672       29,997       31,779
  Customs import duties                 3,075        3,200        3,318        3,465
  Energy taxes                          4,848        4,900        5,055        5,153
  Other excise taxes/duties             3,947        4,400        4,336        4,288
  Air Travellers Security Charge            0          405          375          395
                                      -------      -------      -------      -------
  Total                                37,304       41,577       43,081       45,080

TOTAL TAX REVENUES                    161,870      168,897      174,729      182,577

NON-TAX REVENUES
  Return on investments                 5,892        5,739        5,774        6,011
  Other non-tax revenues                3,952        4,089        4,199        4,354
                                      -------      -------      -------      -------
  Total                                 9,844        9,828        9,973       10,365

TOTAL BUDGETARY REVENUES              171,714      178,725      184,702      192,942

Percentage of GDP
  Personal income tax                     7.4          7.4          7.2          7.2
  Corporate income tax                    2.2          1.9          2.0          2.0
  Employment insurance premiums           1.6          1.6          1.5          1.4
  Goods and services tax                  2.3          2.5          2.5          2.5
  Other excise                            1.1          1.1          1.1          1.0
                                      -------      -------      -------      -------
  Tax revenues                           14.8         14.8         14.5         14.4

  Non-tax revenues                        0.9          0.9          0.8          0.8

  TOTAL                                  15.7         15.7         15.4         15.2
                                      -------      -------      -------      -------


Note: Numbers may not add due to rounding.


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                  SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD

REVENUE RATIO LOWERED DUE TO TAX CUTS

FEDERAL REVENUE-TO-GDP RATIO

          [LINE GRAPH SHOWING CHANGE IN FEDERAL REVENUE-TO-GDP RATIO]


o A picture of movements in budgetary revenues can be obtained by examining the
"revenue ratio"--federal revenues in relation to total income in the economy (or
GDP).

o There is a cyclical element to the revenue ratio. It declines during economic
downturns and tends to increase during recoveries, reflecting the progressive
nature of the tax system and the cyclical nature of corporate profits. This was
the primary factor underlying the increase in the revenue ratio between 1994-95
and 1997-98, as the economy recovered from the 1990-1991 recession.

o The revenue ratio dropped significantly in 2001-02 due primarily to the tax
reductions that came into effect in January 2001 as part of the $100-billion
Five-Year Tax Reduction Plan. The revenue ratio is expected to continue to
decline over the budget-planning period due to the ongoing impact of the
Five-Year Tax Reduction Plan as well as further tax cuts proposed in this
budget.



                                      209


THE BUDGET PLAN 2003






DETAILS OF THE 2003 BUDGET PLAN:
OUTLOOK FOR PROGRAMS SPENDING

o The program spending projections presented in Table 8.7 include the impact of
the move to full accrual accounting, the February 5, 2003 First Ministers'
Accord on Health Care Renewal, as well as the spending initiatives proposed in
this budget.

o As a result of the measures proposed in this budget, coupled with economic and
demographic factors, program spending is expected to increase by $14.3 billion,
or 11.5 per cent, in 2002-03. Nearly three-quarters of the increase is due to
the following:

     -    $7.2 billion is attributable to health-related transfers and
          equalization entitlements to the provinces, including $3.8 billion
          under the Canada Health and Social Transfer, $1.5 billion for
          diagnostic/medical equipment fund, $0.6 billion for health information
          technology, and $0.5 billion to research hospitals;

     -    $2.5 billion is for increased elderly and employment insurance
          benefits;

     -    $0.8 billion is for increased defence and security-related spending;
          and

     -    The remainder--$3.8 billion--is for other direct program spending.
          This component includes the operating costs of government, payments to
          Crown corporations and other transfers and subsidies, such as farm
          income assistance, transfers to Aboriginal communities and
          international assistance.

o Over the next two fiscal years, the growth in total program spending is
projected to be less than the growth in the economy. This reflects, in part,
the impact of the $1-billion savings from reallocating spending from lower to
higher priorities and the one-time initiatives in 2002-03, primarily for health.

o Major transfers to persons are projected to increase, reflecting both higher
elderly and employment insurance benefits.




                                      210


                SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD






TABLE 8.7
The Program Spending Outlook




                                                    2001-        2002-        2003-          2004-
                                                    2002         2003         2004           2005
                                                   -------      -------      -------        -------
                                                                (millions of dollars)
                                                                                
MAJOR TRANSFERS TO PERSONS
  Elderly benefits                                  24,640       25,799       26,800         27,783
  Employment insurance benefits                     13,726       15,036       15,712         16,117
                                                    ------       ------       ------         ------
  Total                                             38,366       40,835       42,512         43,900

MAJOR TRANSFERS TO OTHER LEVELS OF GOVERNMENT
  Federal transfers support for
    health and other social programs
      Canada Health and Social Transfer             17,300       18,600       19,300
      CHST supplement                                             2,500
      Canada Health Transfer                                                                 12,650
      Canada Social Transfer                                                                  7,750
      Health Reform Fund                                                       1,000          1,500
      Diagnostic/Medical Equipment Fund                           1,500
                                                    ------       ------       ------         ------
      Total                                         17,300       22,600       20,300         21,900

  Fiscal arrangements                               11,978       12,720       13,408         14,074
  Alternative Payments for
    Standing Programs                               -2,662       -2,544       -2,697         -2,752
                                                    ------       ------       ------         ------
  Total                                             26,616       32,776       31,011         33,222

Direct program spending                             59,290       64,993       69,516         72,433

TOTAL PROGRAM SPENDING                             124,272      138,604      143,039        149,555

PER CENT OF GDP
  Major transfers to persons
      Elderly benefits                                 2.3          2.3          2.2            2.2
      Employment insurance benefits                    1.3          1.3          1.3            1.3
                                                    ------       ------       ------         ------
      Total                                            3.5          3.6          3.5            3.5

MAJOR TRANSFERS TO OTHER LEVELS
  OF GOVERNMENT
  Federal transfers support for health
    and other social programs                          1.6          2.0          1.7            1.7
  Fiscal arrangements                                  1.1          1.1          1.1            1.1
  Alternative Payments for
    Standing Programs                                 -0.2         -0.2         -0.2           -0.2
                                                    ------       ------       ------         ------
  Total                                                2.4          2.9          2.6            2.6

Direct program spending                                5.4          5.7          5.8            5.7

TOTAL PROGRAM SPENDING                                11.4         12.2         11.9           11.8
                                                    ------       ------       ------         ------



Note: Numbers may not add due to rounding.


                                      211


                              THE BUDGET PLAN 2003






o Major transfers to other levels of government are projected to decline in
2003-04. This decline reflects liabilities with respect to the proposed Canada
Health and Social Transfer supplement and the Diagnostic/Medical Equipment Fund,
which are recorded in 2002-03. Thereafter increased funding for the Health
Reform Fund as well as the Canada Health Transfer and Canada Social Transfer
result in higher spending.

     As part of the February 2003 health accord, first ministers reaffirmed the
importance of the equalization program in ensuring that all provinces have the
ability to provide comparable levels of public services at comparable levels of
taxation. The federal government has agreed to permanently remove the
equalization ceiling on a going-forward basis. The budget will implement this
commitment through amendments to the equalization legislation to eliminate the
ceiling, effective fiscal year 2002-03.

o Direct program spending is projected to increase by $4.5 billion in 2003-04
and $2.9 billion in 2004-05--an average annual increase of 6 percent.



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                  SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD


SPENDING-TO-GDP RATIO DOWN SIGNIFICANTLY FROM MID-1990S

FEDERAL PROGRAM SPENDING AS A SHARE OF GDP

       [LINE GRAPH SHOWING CHANGE IN FEDERAL PROGRAM SPENDING AS A SHARE OF GDP]


o The program spending-to-GDP ratio has declined significantly, from about 16
per cent in 1993-94 to about 11 per cent in 2000-01. This decline was largely
attributable to the expenditure reduction initiatives announced in the 1995
budget aimed at eliminating the deficit.

o In 2001-02 the spending ratio increased to 11.4 per cent, from 11.1 percent in
2000-01, reflecting the impact of higher cash transfers to the provinces of $3.8
billion as specified under the September 2000 health agreement, and increased
employment insurance benefits, reflecting both the impact of program
enhancements as well as an increase in the number of people receiving benefits
due to the slowdown in the economy.

o Reinvestment in the key priorities of Canadians, including increased cash
transfers to the provinces and territories under the Canada Health and Social
Transfer, results in a projected increase in the ratio in 2002-03.

o Over the next two years the ratio is projected to decline, as economic growth
exceeds growth in program spending. As a percentage of GDP, program spending is
expected to average about 12 per cent over the 2002-03 to 2004-05 period.



                                      213


                              THE BUDGET PLAN 2003

MARKET DEBT DECLINING

FEDERAL DEBT AND MARKET DEBT

[BAR CHART SHOWING CHANGE IN FEDERAL DEBT AND MARKET DEBT AS PERCENTAGE OF GDP]

Sources: Public Accounts of Canada and Statistics Canada.

o The federal government's market debt consists of debt issued on credit markets
in the form of Government of Canada bonds, Canada Savings Bonds and Treasury
bills. The decline of $34.6 billion in market debt since 1996-97, coupled with
sustained economic growth, resulted in a decline in the market debt-to-GDP ratio
from 57 per cent to 40.5 per cent in 2001-02, a decline of 16.5 percentage
points.

o This decline mirrors the rapid fall in the federal debt-to-GDP ratio over the
last five years.



                                      214


                SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD


DEBT MANAGEMENT

o Effective management of the federal debt is important to all Canadians as the
annual debt-servicing cost is the largest single spending program of the federal
government. One of the Government's key objectives in managing the debt is to
strike an appropriate balance between low financing costs and cost stability. In
general, borrowing long-term debt is less risky but more costly than borrowing
short-term debt.

o The Government maintains a prudent debt structure to protect its fiscal
position from unexpected increases in interest rates and to limit annual
refinancing needs. One of the measures of prudence is the fixed-rate share of
the debt, that is, the share of the debt that does not need to be refinanced
within a year.

o During the 1990s the Government raised the fixed-rate portion of the federal
debt from one-half to two-thirds to provide more cost stability in an
environment of annual deficits, volatile interest rates and high debt levels.

o Over the past five years the economic and fiscal position in Canada has
strengthened considerably. Canada now has low and stable inflation and interest
rates, strong employment growth, lower foreign indebtedness and a current
account surplus. The federal debt has fallen by $47.6 billion and is at
its lowest level, relative to the size of the economy, in nearly two decades.
These developments have provided the Government of Canada with greater financial
stability, reduced vulnerability to events happening beyond its borders, and
contributed to the restoration of Canada's triple-A credit rating.

o As a result of these positive economic and fiscal developments, the Government
is now in a position to reduce the fixed-rate portion of the market debt in
order to lower debt-servicing costs. The Government now intends to reduce the
target for the fixed-rate portion of the debt from two-thirds to 60 per cent.
The reduction will begin in the upcoming fiscal year and will be implemented in
an orderly and transparent manner over the next five years to allow the market
time to adjust. The debt structure remains prudent, with a majority of the debt
being at a fixed rate.

o Based on the budget outlook, the planned change to the debt structure
is expected to reduce the Government's debt-servicing costs by up to
$750 million cumulatively during the five-year phase-in period and by up to
$500 million, on average, each year thereafter. These savings can be used to
meet the priorities of Canadians.

o Further details on the outlook for 2003-04 borrowing programs and the federal
government's debt structure will be provided in the 2003-04 Debt Management
Strategy, which will be released in March.




                                      215


                                  THE BUDGET PLAN 2003



PUBLIC DEBT CHARGES FALLING

PUBLIC DEBT CHARGES AS A SHARE OF REVENUES

    [LINE GRAPH SHOWING CHANGE IN PUBLIC DEBT CHARGES AS SHARE OF REVENUES]

o Public debt charges are projected to decline by $2.1 billion in 2002-03 due to
the impact of lower interest rates and a decline in interest-bearing debt, as
shown in Table 8.5. Over the next two fiscal years they are projected to
increase slightly, reflecting the forecast increase in interest rates.

o Public debt charges as a percentage of budgetery revenues declined from its
peak of 37 per cent in 1995-96 to 22.9 per cent in 2001-02. This ratio means
that in 2001-02, the Government spent just under 23 cents of each revenue dollar
on interest on the federal debt.

o This ratio is expected to continue to decline, falling to under 20 per cent in
2004-05.






                                      216


                SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD






FINANCIAL REQUIREMENTS/SOURCE

TABLE 8.8
The Budgetary Balance and Financial Requirements/Source



                                       2001-      2002-   2003-     2004-
                                       2002       2003    2004      2005
                                       -----      -----   -----     -----
                                             (billions of dollars)
                                                        
BUDGETARY SURPLUS                       8.2        0.0     0.0       0.0

NON-BUDGETARY TRANSACTIONS
  Loans, investments and advances      -0.1       -1.3    -1.4      -1.5
  Pensions and other accounts          -0.1        0.4    -0.6      -1.4
  Other                                -3.2        4.3    -3.7       0.7
                                       ----       ----    ----      ----
  Total                                -3.5        3.4    -5.8      -2.1

FINANCIAL REQUIREMENTS/SOURCE           4.7        3.4    -5.8      -2.1
                                       ----       ----    ----      ----


Note: Numbers may not add due to rounding.



o The budgetary balance is presented on a full accrual basis of accounting,
recording government liabilities and assets when they are incurred or acquired,
regardless of when the cash payment or receipt is made. In addition, the
budgetary balance includes only those activities over which the Government has
legislative control.

o In contrast, financial requirements/source measures the difference between
cash coming in to the Government and cash going out. This measure is affected
not only by the budgetary balance but by the cash requirements/source resulting
from the Government's investing activities through loans, investments and
advances; its acquisitions of capital assets; and its operating activities,
primarily through the federal employees' pension accounts. These activities are
included in non-budgetary transactions.

o With a projected balanced budget in 2002-03, there is a projected financial
source of $3.4 billion in 2002-03, down from $4.7 billion in 2001-02. Financial
requirements are forecast in each of the next two fiscal years.


                                      217


                              THE BUDGET PLAN 2003

o The cash requirement in "loans, investments and advances" is primarily due to
government borrowing on behalf of the Canada Student Loans Program. The
requirement in both 2003-04 and 2004-05 in "pensions and other accounts"
reflects the transfer of the Government's holdings in the Canada Pension Plan to
the Canada Pension Plan Investment Board. A source of $4.3 billion is estimated
in "other" transactions in 2002-03, with a financial requirement of $3.7 billion
in 2003-04. This is largely attributable to liabilities in 2002-03 for which
cash disbursements will not be made until passage of applicable legislation in
early 2003-04.

o In 2003-04 and 2004-05 the Government will need to fund cash requirements
arising from previous budgetary initiatives, as well as the transfers of Canada
Pension Plan operating balances from non-market debt to market debt. Financial
requirements are currently planned to be met without raising new market debt.






                                      218


                SOUND FINANCIAL MANAGEMENT IN AN UNCERTAIN WORLD






SENSITIVITY OF THE FISCAL OUTLOOK TO ECONOMIC SHOCKS

TABLE 8.9
Estimated Change in Fiscal Position



                                                YEAR 1    YEAR 2
                                              --------  ---------
                                             (billions of dollars)
                                                  
1-PER-CENT DECREASE IN REAL GDP GROWTH
  Revenue impact                                -1.9      -1.9
  Expenditure impact                             0.6       0.7
                                                ----      ----
  Deterioration in fiscal balance               -2.5      -2.6

1-PER-CENT DECREASE IN GDP INFLATION
  Revenue impact                                -1.9      -1.8
  Expenditure impact                            -0.5      -0.5
                                                ----      ----
  Deterioration in fiscal balance               -1.4      -1.3

100-BASIS-POINT DECREASE IN INTEREST RATES
  Revenue impact                                -0.4      -0.5
  Expenditure impact                            -1.2      -1.8
                                                ----      ----
  Improvement in fiscal balance                  0.8       1.3



o The fiscal projections are extremely sensitive to changes in economic
assumptions--particularly to changes in real economic (GDP) growth, inflation
and interest rates. To ensure that such developments do not adversely affect the
government's balanced budget target, it follows a prudent approach to budget
planning.

o A decrease in the growth of real GDP (through equal reductions in employment
and productivity) would lead to lower federal government revenues through a
contraction in various tax bases and an increase in spending, primarily due to
higher employment insurance benefits. Using standard sensitivity analysis,
a 1-per-cent decrease in real GDP growth for one year would lower the budgetary
balance by $2.5 billion in the first year and by $2.6 billion in the second
year.






                                      219


THE BUDGET PLAN 2003

o A 1-per-cent reduction in the growth in nominal GDP resulting solely from a
one-year decline in the rate of GDP inflation would lower the budgetary balance
by $1.4 billion in the first year and $1.3 billion in year two. Most of the
impact would be on budgetary revenues, as wages and profits would be lower, as
well as the price of goods and services subject to sales and excise taxes. The
impact on expenditures would be largely reflected in those programs that are
indexed to inflation, such as elderly benefit payments.

o A sustained 100-basis-point decline in all interest rates would improve the
budgetary balance by $0.8 billion in the first year, rising to $1.3 billion
in year two. This improvement comes solely from the reduction in public debt
charges, which reduces overall budgetary expenditures. Expenditures would fall
by $1.2 billion in the first year and $1.8 billion in year two, as longer-term
debt matures and is refinanced at the lower rates. Moderating this impact are
somewhat lower interest earnings on the Government's interest-bearing assets,
which are recorded as part of non-tax revenues.






                                      220

ANNEX 1

SPENDING AND TAX RELIEF SINCE THE 1997 BUDGET







                              THE BUDGET PLAN 2003

SPENDING AND TAX RELIEF SINCE THE 1997 BUDGET

The following tables present the fiscal impact of the spending and tax relief
initiatives since 1997-98--the first year a budgetary surplus was recorded. They
show the various initiatives undertaken in the 1998, 1999, 2000, 2001 and 2003
budgets, as well as the October 2000 Economic Statement and Budget Update.

     The Table A1.1 summarizes the fiscal impact of the initiatives over the
period 1997-98 to 2004-05, as well as the reduction in federal debt realized to
date.

     Tax relief since 1997-98 has been of two forms--increases in tax
expenditures and general tax cuts. Tax expenditure measures include the Canada
Child Tax Benefit, the education credit, disability tax credit and the credit
for interest on student loans, among others. While netted against revenues in
the Government's financial statements, the tax expenditure measures share
features with spending initiatives. They provide benefits to targeted
groups--benefits which could be delivered through spending programs.

     In contrast, general tax cuts affect the basic parameters of the tax system
and provide benefits to a large number of taxpayers. These include changes to
tax rates, the amount of income that a taxpayer can earn tax-free and the
elimination of surtaxes. As a result, the overall allocation of the initiatives
between spending, tax relief and debt reduction is affected by whether the tax
expenditures are included as tax reduction or spending. Table A1.1 shows it both
ways.

     The cumulative amount of spending, tax relief and debt reduction over the
1997-98 to 2004-05 period is $331.1 billion. With targeted tax expenditures
included in spending, the cumulative amount of spending initiatives is $153.5
billion (46.4 per cent of the total) compared to general tax relief, employment
insurance premium reductions and debt reduction totalling $177.6 billion (53.6
per cent of the total).

     Including tax expenditures in overall tax relief, new spending initiatives
amount to $131.6 billion (39.7 per cent of the total) while tax relief amounts
to $151.9 billion and debt reduction amounts to $47.6 billion (60.3 per cent of
the total). The debt reduction total includes the actual reduction in federal
debt to date.





                                      222


                                     ANNEX 1



TABLE A1.1

Cumulative Amount of Spending, Tax Relief and Debt Reduction From 1997-98 to
2004-05




                                                        TAX EXPENDITURES
                                           ---------------------------------------------
                                               AS TAX REDUCTION          AS SPENDING
                                           ---------------------- ----------------------
                                            (billions   (per cent (billions    (per cent
                                           of dollars)  of total) of dollars)  of total)
                                                                   
SPENDING INITIATIVES
  Improving the quality of life
    of Canadians                                76.2       23.0       91.9       27.7
  Making Canada's economy
    more innovative                             34.0       10.3       40.3       12.2
  Providing essential public services           23.4        7.1       23.4        7.1
  Expenditure reallocation                      -2.0       -0.6       -2.0       -0.6
                                               -----       ----      -----       ----
  Total spending initiatives                   131.6       39.7      153.5       46.4

TAX EXPENDITURES AND GENERAL TAX RELIEF
  Tax expenditures
    Making Canada's economy
      more innovative                            7.3        2.2
    Improving the quality of life
      of Canadians                              15.7        4.7
    Tax fairness measures                       -1.1       -0.3
  General tax relief                           101.2       30.6      101.2       30.6
  EI premium reductions                         28.8        8.7       28.8        8.7
                                               -----       ----      -----       ----
  Total tax initiatives                        151.9       45.9      130.0       39.3

Debt reduction                                  47.6       14.4       47.6       14.4

Tax plus debt reduction                        199.5       60.3      177.6       53.6

Total                                          331.1      100.0      331.1      100.0
                                               -----       ----      -----      -----




                                      223


                                  THE BUDGET PLAN 2003





TABLE A1.2

Spending and Revenue Initiatives Proposed in the 2003 Budget




                                                  2002-       2003-     2004-
                                                  2003        2004      2005
                                                 -------    --------   --------
                                                   (millions of dollars)
                                                              
SPENDING INITIATIVES PROPOSED IN THIS BUDGET
INVESTING IN CANADA'S HEALTH CARE SYSTEM
  CHST supplement(1)                              2,500
  Health reform
    Health Reform Fund                                       1,000      1,500
    Diagnostic/Medical Equipment Fund(1)          1,500
    Health information technology(1)                600
                                                  -----      -----      -----
  Total                                           2,100      1,000      1,500

  Direct Health Accord initiatives
    Employment insurance compassionate
      family care leave benefit                                 86        221
    Canadian Coordinating Office
      for Health Technology Assessment                           5         10
    Patient safety                                              10         10
    Governance and accountability                    70         15         30
    National immunization strategy                               5         10
                                                  -----      -----      -----
    Total                                            70        121        281

  Other health initiatives
    Canadian Health Services
      Research Foundation                            25
    Pharmaceuticals management                                  40         40
    Planning, coordination and partnerships                     10         20
    Health services in official language
      minority communities                                      12         13
    Sport participation                                          5         10
                                                  -----      -----      -----
    Total                                            25         67         83

  First Nations and Inuit health                     25        181        231
                                                  -----      -----      -----
  TOTAL                                           4,720      1,369      2,095

INVESTING IN CANADIAN FAMILIES AND
  THEIR COMMUNITIES
  Supporting Canadian families
    Families with children
      Early learning and child care services                    25         81
    Canadians with disabilities
      Employability Assistance
        for Persons with Disabilities                          193        193
    Child and family law strategy                               27         26
                                                  -----      -----      -----
        Total                                                  245        300
                                                  =====      =====      =====



(1)  These transfers will be paid to a third-party trust and accounted for by
     the federal government in 2002-03, pending passage of legislation.





                                      224


                                     ANNEX 1

TABLE A1.2

Spending and Revenue Initiatives Proposed in the 2003 Budget (cont'd)




                                                        2002-       2003-       2004-
                                                        2003        2004        2005
                                                      --------    --------    --------
                                                            (millions of dollars)
                                                                     
Supporting communities
  Affordable housing and support for homeless
    Affordable Housing Initiative                                     30         50
    Residential Rehabilitation
      Assistance Program                                             128        128
    Supporting Communities
      Partnership Initiative                                         135        135

  Infrastructure
    Strategic infrastructure
      ($2 billion over 10 years)                                      50
    Municipal infrastructure
      ($1 billion over 10 years)                                     100        100

  Proceeds of crime                                                   23         23
                                                        ------    ------     ------
  Total                                                              416        486

Strengthening Aboriginal communities
  First Nations policing                                              18         24
  Aboriginal language and culture                                      8         10
  Federal Interlocutor for Metis and
    Non-Status Indians                                                 3          3
  Urban Aboriginal strategy                                            9          8
                                                        ------    ------     ------
  Total                                                               38         45

Promoting Canadian culture and values
  Historic places                                                     10         10
  Canadian Television Fund                                            75         75
  Katimavik                                                            5         12
  Official languages                                                  38         77
  Legal aid                                                           45         45
  New Citizenship Act                                                 11         10
  Amateur sport                                                        5          5
                                                        ------    ------     ------
  Total                                                              188        233
                                                        ------    ------     ------
Total                                                                886      1,065






                                      225


                                  THE BUDGET PLAN 2003

TABLE A1.2

Spending and Revenue Initiatives Proposed in the 2003 Budget (cont'd)




                                                  2002-      2003-       2004-
                                                  2003       2004        2005
                                                --------    -------     ------
                                                     (millions of dollars)
                                                               
INVESTING IN A MORE PRODUCTIVE,
  SUSTAINABLE ECONOMY
  Strengthening research and innovation
    Federal granting councils                                 125        125
    Canada Graduate Scholarships                               25         55
    Indirect costs of research                                225        225
    Northern science                                            8          8
    Canada Foundation for Innovation               500
    Genome Canada                                   75
    Rick Hansen Leadership Fund                                 2          2
    The Medical and Related Sciences Project                   10         10
    SchoolNet and Community Access Program                     30
    National Research Council of Canada                        35         35
    Business Development Bank of Canada(2)        (102)       (88)
    Aboriginal Business Canada                                 10         10
                                                  ----       ----       ----
    Total                                          575        470        470

  Skills and learning
    Skilled immigrants                                         20         22
    Canada Student Loans Program                               27         32
    Canadian Learning Institute                               100
    First Nations' education                                   10         25
    Post-secondary scholarship
      for Aboriginal Canadians                      12
    Aboriginal skills
      and employment partnerships                              10         15
    Aquatic resources management                                4          8
                                                  ----       ----       ----
    Total                                           12        171        102

  Total                                            587        641        572

  Advancing sustainable development
    Climate change
      Sustainable Development
        Technology Canada                                     250
      Canadian Foundation
        for Climate
        and Atmospheric Sciences                               50
      Other climate change measures                           200        200
                                                  ----       ----       ----
      Total                                                   500        200




                                      226


                                     ANNEX 1



TABLE A1.2
Spending and Revenue Initiatives Proposed in the 2003 Budget (cont'd)




                                                          2002-         2003-        2004-
                                                          2003          2004         2005
                                                        --------      --------    ---------
                                                               (millions of dollars)
                                                                         
  The environment
    Federal contaminated sites(2)                                        (75)        (100)
    Air quality                                                           15           25
    Safe water systems                                                   100          100
    Canadian Environmental Protection Act                                 32           43
    Species at risk                                                       13           20
    World Summit
      on Sustainable Development                              4            7            6
    Investing in national parks                                           32           42
                                                          -----       ------       ------
    Total                                                     4          199          237
                                                          -----       ------       ------
  Total                                                       4          699          437

  Agriculture
    Crop Reinsurance Fund                                   220
    Enhancing food safety                                                 50           50
    Canadian Grain Commission                                             15           15
    Farm Credit Canada(2)                                                (10)         (10)
    Veterinary colleges                                     113
                                                          -----       ------       ------
    Total                                                   333           65           65
                                                          -----       ------       ------
Total                                                       924        1,405        1,074

CANADA IN THE WORLD
  Defence
    New defence funding                                     270          800          800
    Contingency                                             125          200
  International assistance                                  353          202          820
  Other
    Enhanced presence in the U.S.                                          2            9
    Security Contingency Reserve                                          50           25
    Canadian Coast Guard                                                  47           47
                                                          -----       ------       ------
  Total                                                     748        1,301        1,701

EXPENDITURE MANAGEMENT AND ACCOUNTABILITY
  Streamlining for a potential natural gas pipeline           7           13           12
  Strenthening enforcement                                                10           20
  Smart regulation strategy                                                2            2
                                                          -----       ------       ------
  Total                                                       7           25           34

  Expenditure reallocations                                           -1,000       -1,000

TOTAL SPENDING INITIATIVES                                6,398        3,986        4,969
                                                          -----       ------       ------




(2)  These are non-budgetary expenditures. Although they do not affect the
     budgetary balance, they do result in a cash requirement.




                                      227


                                  THE BUDGET PLAN 2003





TABLE A1.2

Spending and Revenue Initiatives Proposed in the 2003 Budget (cont'd)




                                                 2002-         2003-     2004-
                                                 2003          2004      2005
                                                ------        ------    -------
                                                     (millions of dollars)
                                                               
REVENUE INITIATIVES PROPOSED IN THIS BUDGET
INVESTING IN CANADA'S HEALTH CARE SYSTEM
    GST rebate for health care institutions                      30       55
INVESTING IN CANADIAN FAMILIES
  AND THEIR COMMUNITIES
  Supporting Canadian families
    Families with children
      Increasing the National
        Child Benefit supplement                                200      300

  Canadians with disabilities
    Child Disability Benefit                                     40       50
    Enhanced tax assistance
      for persons with disabilities
      RRSP/RRIF rollovers to an infirm child                     10       10
      Expanding list of eligible expenses
        for the medical expense tax credit                       20       20
      Ensuring the effectiveness
        of the disability tax credit                             25       80
                                                 ------       -----     ----
      Total                                                      95      160

INVESTING IN A MORE PRODUCTIVE,
  SUSTAINABLE CANADIAN ECONOMY
  Advancing sustainable development
    Climate change
      Excise tax exemption
        for bio-diesel fuels                                      s        s
      Improving tax incentives
        for renewable and alternative energy                      5        5
                                                 ------       -----     ----
      Total                                                       5        5






                                      228


                                     ANNEX 1

TABLE A1.2

Spending and Revenue Initiatives Proposed in the 2003 Budget (cont'd)




                                                      2002-      2003-      2004-
                                                      2003       2004       2005
                                                      -----      -----      -----
                                                        (millions of dollars)
                                                                   
  IMPROVING THE TAX SYSTEM
  Supporting savings by Canadians
    Increase RPP/RRSP limits                             25        105        165

  Supporting entrepreneurship and small business
    Small business deduction
      increase to $300,000                                          60        110
    Capital gains rollover
      for small business investors                                  10         10
    Venture capital and qualified
      limited partnerships                                          --         --
    Automobile benefit and expense provisions                       20         20

  Strengthening the Canadian tax advantage
    Federal capital tax                                             60        395
    Extension of mineral exploration tax credit                                25
    Improving the income taxation
      of the resource sector                             10         55        100
    Film or Video Production Services
      Tax Credit                                                    25         25
                                                      -----      -----      -----
  TOTAL                                                  35        335        850

  EMPLOYMENT INSURANCE
    PREMIUM RATE REDUCTION                                          53        178

  TOTAL REVENUE INITIATIVES PROPOSED
    IN THIS BUDGET                                       35        718      1,548

TOTAL SPENDING AND REVENUE INITIATIVES                6,433      4,704      6,517
                                                      -----      -----      -----



TABLE A1.3

Spending Initiatives: October 2002 Economic and Fiscal Update




                                            2002-     2003-           2004-
                                            2003      2004            2005
                                            -----    -------        -------
                                                  (millions of dollars)
                                                           
SPENDING INITIATIVES
  International assistance                   70.4      202.6          116.7
  Canada Strategic Infrastructure Fund                   100            300
  Support for agriculture                     680      1,304            813
  Softwood lumber assistance                  149        156
                                            -----    -------        -------
  Total                                     899.4    1,762.6        1,229.7
                                            -----    -------        -------




                                      229


                              THE BUDGET PLAN 2003

TABLE A1.4

Spending and Tax Initiatives: 2001 Budget




                                                        2001-      2002-      2003-        2004-
                                                        2002       2003       2004         2005
                                                      --------   --------    -------     --------
                                                                (millions of dollars)
                                                                             
SPENDING INITIATIVES
  Improving the quality of life for
    Canadians and their children
      Health initiatives                                  182        181        173        185
      Employment insurance benefits                        35         89         89         89
      New partnerships with Aboriginal peoples             19        123        125        100
      Crime prevention                                     53         62         75         75
      Cultural initiatives                                305        395        196        146
      International assistance                            240         37        311
                                                        -----      -----      -----      -----
      Total                                               834        887        969        595

  Making Canada's economy more competitive
      Investing in skills, learning and research          549        318        318        318
      Strategic infrastructure and the environment        284        225        278        241
                                                        -----      -----      -----      -----
      Total                                               833        543        596        559

  Providing essential public services
      Security                                          1,067      1,217      1,236      1,003
      Maintaining a secure, open and
        efficient border                                   72        316        260        257
      Departmental operations                             752        464        318        258
                                                        -----      -----      -----      -----
      Total                                             1,891      1,997      1,814      1,518

  TOTAL SPENDING INITIATIVES                            3,558      3,427      3,377      2,670

TAX EXPENDITURES AND GENERAL TAX ACTIONS
  Improving the quality of life for Canadians
    and their children
      Donations of certain publicly traded
        securities to charities                                       70         70         75
      Tobacco tax increases                              -275       -440       -440       -440
                                                        -----      -----      -----      -----
      Total                                              -275       -370       -370       -365

  Making Canada's economy more innovative                  10         40         60         60

  GENERAL TAX AND COST RECOVERY MEASURES
    Delay in monthly remittances for
      small businesses                                    300       -300
    Air Travellers Security Charge                                  -430       -445       -445
    Other cost recovery                                              -50        -50        -50
                                                        -----      -----      -----      -----
    Total                                                 300       -780       -495       -495

  TAX EXPENDITURES AND GENERAL TAX ACTIONS                 35     -1,110       -805       -800

TOTAL SPENDING AND TAX INITIATIVES                      3,593      2,317      2,573      1,871
                                                        -----      -----      -----      -----





                                      230


                                     ANNEX 1

TABLE A1.5

Spending and Tax Initiatives: 2000 Economic Statement




                                                2000-         2001-      2002-      2003-       2004-
                                                2001          2002       2003       2004        2005
                                              ---------    ---------   --------    -------     -------
                                                                (millions of dollars)
                                                                                
SPENDING INITIATIVES
  Improving the quality of life for
    Canadians and their children
      Canada Health and Social Transfer                      2,800       3,600       4,300       4,900
      Other health initiatives                   1,500         200         200         200         200
  Employment insurance benefits                    200         430         490         530         530
  Relief for Heating Expenses                    1,459
                                                 -----       -----       -----       -----       -----
  Total                                          3,159       3,430       4,290       5,030       5,630

  Making Canada's economy
    more competitive
      Canada Foundation for Innovation             500
      Social Sciences and Humanities
        Research Council of Canada                              20          20          20          20
      Clean environment                                                    100         100         100
                                                 -----       -----       -----       -----       -----
  Total                                            500         120         120         120          20

  TOTAL SPENDING INITIATIVES                     3,659       3,550       4,410       5,150       5,650

TAX EXPENDITURES AND GENERAL TAX ACTIONS
  Improving the quality of life for
    Canadians and their children
      Canada Child Tax Benefit                                 260         355         355         595
      Caregiver credit/disabilities                 25         100         110         110         115
                                                 -----       -----       -----       -----       -----
      Total                                         25         360         465         465         710

  Making Canada's economy more competitive
      Education credit                              10         225         230         240         240
      Capital gains inclusion rate                  20         175         485         715         985
      Flow-through shares                            5          35          40          50          20
                                                 -----       -----       -----       -----       -----
      Total                                         35         435         755       1,005       1,245

  General tax relief and fairness measures
      Personal income tax relief                 1,518       6,270       7,193       8,282      10,269
      Corporate income tax reductions                          268       1,300       2,450       3,530
      Reduction in EI premium rates(1)                         100         300
                                                 -----       -----       -----       -----       -----
      Total                                      1,618       6,838       8,493      10,732      13,799

  TAX EXPENDITURES AND GENERAL
    TAX ACTIONS                                  1,678       7,633       9,713      12,202      15,754

TOTAL                                            5,337      11,183      14,123      17,352      21,404
                                                 -----       -----       -----       -----       -----



(1)  Assumes employee premium rate of $2.25 for 2001, $2.20 for 2002 and $2.10
     for 2003.



                                      231


                                  THE BUDGET PLAN 2003

TABLE A1.6

Spending and Tax Initiatives: February 2000 Budget




                                              1999-      2000-      2001-      2002-     2003-      2004-
                                              2000       2001       2002       2003      2004       2005
                                            --------    -------    -------     -------  -------    -------
                                                                  (millions of dollars)
                                                                                 
SPENDING INITIATIVES
  Improving the quality of life for
    Canadians and their children
    Canada Health and
      Social Transfer(1)                      2,500
    Support for families with children                                800      1,300      1,375      1,455
    Opportunities for Canadians
      with disabilities                                     33         37         32         30         30
    Assisting the homeless                       63        235        220        220         16
                                              -----        ---      -----      -----      -----      -----
    Total                                     2,563        268      1,057      1,552      1,421      1,485

  Making the economy more competitive
    Investing and research
      and innovation
      Canada Foundation
        for Innovation                          900
      Genome Canada                             160
      Other                                      35        208        278        268        328        388
                                              -----        ---      -----      -----      -----      -----
    Total                                     1,095        208        278        268        328        388

  Promoting environmental technologies
    and practices                               235        148        143        159        170        135
  Strengthening federal provincial and
    municipal infrastructure                               300        550        750        750        750
                                              -----        ---      -----      -----      -----      -----
  Total                                       1,330        656        971      1,177      1,248      1,273

  Providing essential public services
    Defence                                     634        546        550        600        650        700
    Economic adjustment                         661        511        500
    Furthering international cooperation        175        110        155        200        155        155
    Operating and capital                       505      1,000        834        760        752        757
                                              -----        ---      -----      -----      -----      -----
    Total                                     1,974      2,167      2,039      1,560      1,557      1,612

  TOTAL SPENDING INITIATIVES                  5,867      3,091      4,066      4,288      4,226      4,370

TAX EXPENDITURES AND
  GENERAL TAX ACTIONS
  Improving the quality of life for
    Canadians and their children
      Canada Child Tax Benefit                             475      1,020      1,350      1,665      1,965

  Making the economy
    more competitive
    Capital gains inclusion rate                            15        135        230        265        295
    Rollover of capital gains                               20         75         75         75         75
    Taxation of gains on qualifying
      stock options                                         10         75         75         75         75
                                              -----        ---      -----      -----      -----      -----
    Total                                                   45        285        380        415        445






                                      232


                                     ANNEX 1

TABLE A1.6

Spending and Tax Initiatives: February 2000 Budget (cont'd)




                                          1999-       2000-      2001-       2002-       2003-      2004-
                                          2000        2001       2002        2003        2004       2005
                                        --------     -------    --------    --------    -------    -------
                                                              (millions of dollars)
                                                                                 
  General tax relief and
    fairness measures
    Personal income tax relief                        2,758       4,255       5,435       6,583       7,816
    Corporate income tax reductions                     -65         250         310         325         350
    Fairness measures                       -25         -55         -30         -25         -25         -25
    Reduction in EI premium rates(2)        345       1,392       2,174       2,980       3,780       4,380
                                          -----       -----      ------      ------      ------      ------
    Total                                   320       4,030       6,649       8,700      10,663      12,521

  TAX EXPENDITURES AND
    GENERAL TAX ACTIONS                     320       4,550       7,954      10,430      12,743      14,931

TOTAL SPENDING AND TAX INITIATIVES        6,186       7,640      12,020      14,718      16,968      19,301
                                          -----       -----      ------      ------      ------      ------



(1)  The 1999-2000 CHST cash supplement was paid into a third-party trust in
     2000-01, on passage of authorizing legislation.

(2)  Assumes a 10-cent-per-year reduction in employee premium rates for 2001,
     2002 and 2003.





                                      233


                                  THE BUDGET PLAN 2003

TABLE A1.7

Spending and Tax Initiatives: February 1999 Budget




                                              1998-      1999-      2000-      2001-      2002-     2003-       2004-
                                              1999       2000       2001       2002       2003      2004        2005
                                             ------     ------     ------     ------     ------    ------      ------
                                                                                          
                                                                      (millions of dollars)
BUILDING A SECURE SOCIETY
  Strengthening health care
    for Canadians
    Canada Health and
      Social Transfer(1)                      3,500                 1,000      2,000      2,500      2,500      2,500
    Other health care initiatives
      Improving health information
        systems                                  95         28         85        120        120        120        120
      Promoting health-related
        research and innovation(2)              160         50        115        225        225        225        225
      First Nations health services              20         60        110        110        110        110
      Preventive and other
        health initiatives                                  49        104        134        134        134        134
                                              -----      -----      -----      -----      -----      -----      -----
      Total                                     255        147        364        589        589        589        589

  New partnerships with
    Aboriginal peoples                                      49        144        159        159        159        159
  Crime prevention                               13         95        128        159        159        159        159
  Furthering international cooperation          187         55         80         80         80         80         80
  Addressing environmental challenges            12         18         17         17         17         17         17
  Other
    Equalization--technical improvements                    48         97        145        194        225        225
    Official languages in education                         70         70         70         70         70         70
    Parks Canada                                 35
    Compensation and benefit
      issues in the military                               175        175        175        175        175        175
                                              -----      -----      -----      -----      -----      -----      -----
  Total                                       4,002        657      2,075      3,394      3,943      3,974      3,974

BUILDING A STRONG ECONOMY
  Building on the Canadian
    Opportunities Strategy
      Creating knowledge
        Canada Foundation
          for Innovation(2)                     100
      Support for advanced research              16         50         55         55         55         55         55
      Disseminating knowledge                               27         42         27         27         27         27
      Commercializing knowledge                            121        232        317        317        317        317
      Supporting employment                                265        265        265        265        265        265
                                              -----      -----      -----      -----      -----      -----      -----
  Total                                         116        463        594        664        664        664        664

  Economic adjustment
    Canadian Fisheries Adjustment
      and Restructuring Program                 600        355        116         48
    Agriculture Income Disaster
      Assistance Program                        600        285         15
    DEVCO                                        41          5         21         21         21
                                              -----      -----      -----      -----      -----      -----      -----
    Total                                     1,241        645        152         69         21
                                              -----      -----      -----      -----      -----      -----      -----
Total: Building a strong economy              1,357      1,108        746        733        685        664        664

TOTAL SPENDING INITIATIVES                    5,359      1,765      2,821      4,127      4,628      4,638      4,638




                                      234


                                     ANNEX 1





TABLE A1.7
Spending and Tax Initiatives: February 1999 Budget (cont'd)




                                                  1998-      1999-      2000-       2001-      2002-       2003-      2004-
                                                  1999       2000       2001        2002       2003        2004       2005
                                                 ------     ------     ------      ------     ------      ------     ------
                                                                               (millions of dollars)
                                                                                                
TAX EXPENDITURES AND
  GENERAL TAX ACTIONS
  Building a secure society
    Increase in Canada Child Tax Benefit                                 225          300        300         300        300

  General tax relief and fairness measures
    Extension of $500 supplement
      to all taxpayers                                         665     1,110        1,290      1,499       1,742      2,025
    Increase in tax-free income by $175                        270       450          525        613         715        834
    Elimination of 3% surtax                                   595       995        1,150      1,329       1,536      1,776
    Tax fairness measures                                       15        25          100        100         100        100
    Reduction in 1999 EI premiums                  300       1,250     1,250        1,250      1,250       1,250      1,250
                                                 -----       -----     -----        -----      -----      ------     ------
    Total                                          300       2,795     3,830        4,315      4,791       5,343      5,985

  TAX EXPENDITURES AND
    GENERAL TAX ACTIONS                            300       2,795     4,055        4,615      5,091       5,643      6,285

TOTAL SPENDING AND TAX INITIATIVES               5,659       4,560     6,876        8,742      9,718      10,281     10,923
                                                 -----       -----     -----        -----      -----      ------     ------



(1)  CHST supplement in 1998-99 was paid to a third-party trust in 1999-2000.

(2)  An additional $200 million is being allocated to the Canada Foundation for
     Innovation. It is expected that about half will be used to improve
     infrastructure for health research.





                                      235


                                  THE BUDGET PLAN 2003





TABLE A1.8

Spending and Tax Initiatives: February 1998 Budget




                                                1997-     1998-       1999-      2000-      2001-      2002-     2003-      2004-
                                                1998       1999       2000        2001      2002       2003      2004       2005
                                               -----      -----      -----      -----      -----      -----      -----      -----
                                                                                   (millions of dollars)
                                                                                                    
THE CANADIAN OPPORTUNITIES
  STRATEGY
  Millennium Scholarship Foundation            2,500
  Canada Study Grants                                       100        103         57        120        120        120        120
  Increased funding for
    granting councils                                       120        135        150        150        150        150        150
  Student Loans Program                                      50        145        150        158        158        158        158
  Canada Education Savings Grant                            267        334        434        334        500        500        500
  Connecting Canadians to information
    and skills                                    55         60         70         75         75         75         75         75
  Supporting youth employment                                50         75        100        100        100        100        100
                                               -----      -----      -----      -----      -----      -----      -----      -----
  Total                                        2,555        647        862        965        937      1,103      1,103      1,103

BUILDING A SECURE SOCIETY
  Increase in CHST cash floor                    200        900      1,500      1,500      1,400      1,200      1,000        800
  Other health initiatives
    National AIDS Strategy                                   41         41         41         41         41         41         41
    Canadian Breast Cancer Initiative                         7          7          7          7          7          7          7
    Sustaining Canada's blood system                         55         55         25         25         25         25         25
    Hepatitis C                                  800
    Tobacco Demand Reduction
      Strategy                                               10         10         10         10         10         10         10
                                               -----      -----      -----      -----      -----      -----      -----      -----
    Total                                        800        113        113         83         83         83         83         83
                                               -----      -----      -----      -----      -----      -----      -----      -----
  Total                                        1,000      1,013      1,613      1,583      1,483      1,283      1,083        883

  Support for families
    Increased funding
      for employability
        Assistance for persons
          with disabilities                                  15         20         20         20         20         20         20

  New partnership with
    Aboriginal people                            350        126        126        126        126        126        126        126
  Promoting Canadian culture
    and sports                                    43        103        153        153        153        153        153        153
  Strengthening communities                                  42         67         67         67         67         67         67
  Environmental efficiency and innovation                    94         94         94         94         94         94         94
  Furthering international cooperation            90         70         20         20         20         20         20         20
                                               -----      -----      -----      -----      -----      -----      -----      -----
  Total                                          483        435        460        460        460        460        460        460

TOTAL SPENDING INITIATIVES                     4,038      2,110      2,955      3,028      2,900      2,866      2,666      2,466

TAX EXPENDITURES AND GENERAL TAX ACTIONS
  The Canadian Opportunities Strategy
    Credit for interest on student loans                     80        130        145        155        165        165        165
    Lifelong learning (RRSPs)                                15         40         45         50         55         55         55
    Part-time education tax credit
      (includes part-time CCED)                              25         90         90         90         90         90         90
    EI premium holiday for youth                                       100        100
                                               -----      -----      -----      -----      -----      -----      -----      -----
    Total                                                   120        360        380        295        310        310        310





                                      236


                                     ANNEX 1





TABLE A1.8
Spending and Tax Initiatives: February 1998 Budget (cont'd)




                                                1997-       1998-     1999-      2000-       2001-      2002-      2003-     2004-
                                                1998        1999      2000       2001        2002       2003       2004      2005
                                               ------      ------    ------     -------    -------     ------     ------    ------
                                                                                (millions of dollars)
                                                                                                    
  Building a secure society
    Deductibility of health/dental
      insurance premiums                                                 90        110        125        125        125        125
    Caregiver credit                                          30        120        125        130        130        130        130
    Canada Child Tax Benefit                                            320        750        850        850        850        850
    Child care expense deduction                              20         45         45         45         45         45         45
    Disability measures                                        5          5          5          5          5          5          5
    Alternative Min. Tax and RRSPs                            70         20         20         20         20         20         20
    Emergency services                                         5         10         10         10         10         10         10
                                                -----      -----      -----      -----      -----      -----      -----      -----
    Total                                                    130        610      1,065      1,185      1,185      1,185      1,185

  General tax relief and fairness measures
    Eliminate surtax for taxpayers
      up to $50,000                                          710      1,175      1,365      1,430      1,498      1,566      1,634
    Tax relief for low-income taxpayers                      170        270        315        330        346        350        355
    Reduction in EI premiums                      235        725        725        725        725        725        725        725
    Tax fairness measures                                     -5        -25         30         35         41         41         41
                                                -----      -----      -----      -----      -----      -----      -----      -----
    Total                                         235      1,600      2,145      2,435      2,520      2,610      2,682      2,755

  TAX EXPENDITURES AND
    GENERAL TAX ACTIONS                           235      1,850      3,115      3,880      4,000      4,105      4,177      4,250

TOTAL SPENDING AND TAX ACTIONS                  4,273      3,960      6,070      6,908      6,900      6,971      6,843      6,716
                                                -----      -----      -----      -----      -----      -----      -----      -----





                                      237


                              THE BUDGET PLAN 2003



TABLE A1.9

Summary of Spending and Tax Actions Since 1997 Budget



                                             1997-      1998-     1999-     2000-     2001-     2002-    2003-     2004-  CUMULATIVE
                                             1998       1999      2000      2001      2002      2003     2004      2005      TOTAL
                                            ------     -----    ------    ------    ------    ------    ------    ------  ----------
                                                                                 (millions of dollars)
                                                                                                
Spending initiatives
  Building a secure society
    Strengthening health care
      for Canadians
    Canada Health and Social Transfer          200     4,400     4,000     2,500     6,200    11,300     8,800    10,100    47,500
    Other health initiatives                   800       368       260     1,947       872     1,592     1,241     1,468     8,546
    Other                                      483       697       880     2,765     2,981     3,598     4,689     4,045    20,128
                                             -----     -----    ------    ------    ------    ------    ------    ------   -------
    Total                                    1,483     5,465     5,139     7,212    10,053    16,490    14,729    15,614    76,183
  Building a strong economy
    Canadian Opportunities Strategy          2,555       763     2,829     3,069     4,150     4,784     5,303     4,935    28,388
    Economic adjustment                                1,241       645       152        69       850     1,560     1,113     5,630
                                             -----     -----    ------    ------    ------    ------    ------    ------   -------
    Total                                    2,555     2,004     3,474     3,221     4,219     5,634     6,863     6,048    34,018
    Providing essential public services                          1,974     2,167     3,930     4,793     5,204     5,312    23,379
    Expenditure reallocation                                                                            -1,000    -1,000    -2,000
  TOTAL SPENDING INITIATIVES                 4,038     7,469    10,587    12,599    18,201    26,917    25,796    25,972   131,580
TAX EXPENDITURES AND GENERAL TAX RELIEF
  Canadian Opportunities Strategy                        120       360       460     1,025     1,485     1,795     2,065     7,310
  Building a secure society
    Canada Child Tax Benefit                                       320     1,450     2,430     2,855     3,370     4,010    14,435
    Other                                                130       290       340       160        75       105       140     1,240
    General tax relief                                   880     2,975     8,446    16,068    19,258    23,979    29,599   101,205
    Tax fairness measures                                 -5       -35         0       105      -364      -379      -379     -1057
    EI premium reductions                      235     1,025     2,320     3,467     4,449     4,955     5,808     6,533    28,792
    TAX EXPENDITURES/GENERAL TAX ACTIONS       235     2,150     6,230    14,163    24,237    28,264    34,678    41,968   151,925
TOTAL SPENDING AND TAX INITIATIVES           4,273     9,619    16,817    26,762    42,438    55,181    60,474    67,940   283,505
                                             -----     -----    ------    ------    ------    ------    ------    ------   -------




                                      238

ANNEX 2

BUILDING ON
THE FIVE-YEAR
TAX REDUCTION PLAN





                              THE BUDGET PLAN 2003





OVERVIEW

In the October 2000 Economic Statement and Budget Update, the Government
announced a plan to reduce taxes by $100 billion over five years--the largest
tax cut in Canadian history.

     About three-quarters of the tax relief provided under this plan goes toward
reducing the tax burden of Canadian families and individuals. By 2004-05 the
Government's tax reduction plan will have reduced federal personal income taxes
by 21 per cent on average. Families with children benefit even more--with
average tax savings of 27 per cent.

     The Government's Five-Year Tax Reduction Plan is also promoting economic
growth and jobs by creating an advantage for investment in Canada. In
particular, the 28-per-cent general corporate income tax rate has already been
reduced to 23 per cent and is legislated to fall to 21 per cent in 2004. As of
January 2003 Canada's average federal/provincial corporate tax rate is below the
average U.S. rate (see at the top of page 246). Moreover, with the reduction in
the capital gains inclusion rate to one-half in October 2000, capital gains are
now typically taxed at a lower rate in Canada than in the U.S. (see chart at the
bottom of page 246).

     The Government's tax reduction plan provided timely and significant
economic stimulus of about $17 billion in 2001 and $20 billion in 2002 (see
Table A2.1), playing a key role in sustaining Canadian economic performance in
the face of a global slowdown and enabling the Canadian economy to outperform
the U.S. during this period.

     This year and next, the Government's tax reduction plan will continue
to provide significant tax relief--about $24 billion in 2003 and more than
$30 billion in 2004.


TABLE A2.1
Five-Year Tax Reduction Plan: 2001 to 2004 Calendar-Year Tax Relief




                                             2001       2002       2003       2004
                                             ----       ----       ----       ----
                                                   (billions of dollars)
                                                                  
TOTAL TAX RELIEF ...................         17.3       19.9       24.2       30.6
Personal income tax ................         14.4       15.7       18.1       22.5
Corporate income tax ...............          0.5        1.4        2.5        3.7
Employment insurance ...............          2.4        2.8        3.6        4.4




                                      240

                                     ANNEX 2





     Most of the initiatives under the Government's tax reduction plan have
already been implemented. The remaining elements are legislated to take effect
in 2004 and will mean further tax reductions for Canadians, enhanced benefits
for families with children, and a more competitive climate for business in
Canada.

     Budget 2003 builds on the Five-Year Tax Reduction Plan, enhances support
for Canadian families and communities, and contributes further to a productive
and sustainable economy.


BUDGET 2003: BUILDING ON THE FIVE-YEAR TAX REDUCTION PLAN

     SUPPORTING FAMILIES AND COMMUNITIES

     This budget:

     o increases the National Child Benefit supplement for low-income families;

     o introduces a new Child Disability Benefit for low- and modest-income
     families with a child with a disability; and

     o sets aside $80 million per year to enhance tax measures for persons with
     disabilities, drawing on a forthcoming evaluation of the disability tax
     credit and the expert advice of a technical advisory committee.

     CONTRIBUTING TO A PRODUCTIVE AND SUSTAINABLE ECONOMY

     This budget:

     o increases the limits on tax-assisted savings in registered pension plans
     (RPPs) and registered retirement savings plans (RRSPs);

     o supports small businesses and entrepreneurs through a number of tax
     changes, including an increase in the small business deduction limit from
     $200,000 to $300,000 over four years;

     o phases out the federal capital tax over a period of five
     years--eliminating it next year for medium-sized corporations;


     o improves the tax structure for the resource sector;

     o enhances the Film or Video Production Services Tax Credit; and

     o extends tax assistance to emerging renewable energy technologies.






                                      241

                              THE BUDGET PLAN 2003





TAX RELIEF TO 2003

The Government's tax reduction plan includes tax relief for individuals and
measures to encourage jobs, growth, entrepreneurship and innovation.


PERSONAL INCOME TAX RELIEF

o Full indexation of the personal income tax system was restored as of January
1, 2000. In 2003 tax filers will benefit from the indexation factor of 1.6
percent (see Table A2.2).

o Personal income tax rates for all taxpayers were lowered effective January 1,
2001.

     - The 17-per-cent tax rate was reduced to 16 per cent.

     -  The 24-per-cent tax rate--reduced from 26 per cent on July 1, 2000--was
        reduced further to 22 per cent.

     -  The 29-per-cent top tax rate was reduced to 26 per cent on income
        between about $60,000 and $100,000.

     - The deficit reduction surtax was eliminated.

o The Canada Child Tax Benefit (CCTB) was substantially increased to help low-
and middle-income families with children.

o Additional tax assistance was provided to those who need it most, including
people with disabilities and caregivers.

o Tax support for students in post-secondary education was
substantially increased.



     THE FIVE-YEAR TAX REDUCTION PLAN: TAX SAVINGS FOR TYPICAL INDIVIDUALS AND
     FAMILIIES


     Compared to what taxes would have been in 2003 without the Government's tax
     reduction plan:

     o A typical two-earner family of four with a combined income of $60,000
     will pay $1,395 less net federal income tax--a savings of about 24 per
     cent.

     o A typical one-earner family of four with $40,000 in income will pay
     $1,477 less net federal income tax--a savings of about 44 per cent.

     o A typical single parent with one child and $25,000 in income will receive
     additional net benefits of $806.





                                      242

                                     ANNEX 2


BUDGET 2003: ADDITIONAL SUPPORT FOR FAMILIES WITH CHILDREN


This budget proposes to increase the National Child Benefit supplement component
of the Canada Child Tax Benefit (CCTB) by an annual amount of $150 per child in
July 2003, $185 in July 2005 and $185 in July 2006. With these increases, the
maximum CCTB benefit is projected to reach $3,243 for the first child in 2007.
This will bring the estimated annual support delivered through the CCTB to over
$10 billion--an increase of over 100 per cent since 1996.

This budget also introduces a new Child Disability Benefit, which will provide
up to $1,600 annually to low- and modest-income families with a disabled child.


MEASURES FOR JOBS, GROWTH, ENTREPRENEURSHIP AND INNOVATION


o The general corporate income tax rate has been reduced to 23 per cent in 2003,
after being reduced from 28 per cent in 2000 to 27 per cent in 2001 and 25 per
cent in 2002. Canada's average federal/provincial corporate tax rate, including
capital taxes, is now below the average U.S. rate (see at the top of page 246).
This comparison is unaffected by the recent tax changes proposed by the U.S.
administration.


o The corporate tax rate on small business income between $200,000 and $300,000
earned by a Canadian-controlled private corporation from an active business
carried on in Canada was reduced from 28 to 21 per cent effective January 1,
2001.


o The capital gains inclusion rate was cut to one-half as of October 18, 2000.
As a result, capital gains are typically taxed at a lower rate in Canada than in
the U.S. (see at the bottom of page 246). Again, this comparison is unaffected
by recent U.S. administration tax reduction proposals.


o Employees may defer the income inclusion from exercising certain employee
stock options in publicly listed corporations until the shares are sold.


o Individuals may defer qualifying capital gains on small business shares to the
extent that the proceeds are reinvested in other eligible small business shares.





                                      243

                              THE BUDGET PLAN 2003


BUDGET 2003: SUPPORT FOR SAVING, ENTREPRENEURSHIP AND SMALL BUSINESS


This budget proposes to increase the RPP and RRSP limits to support savings
and investment; better meet the retirement savings needs of Canadians, including
skilled workers and small business owners; and improve the ability of employers
to attract and retain highly qualified personnel.


A lower small business corporate income tax rate of 12 per cent applies on the
first $200,000 of qualifying income. With this budget, the limit for application
of the lower 12-per-cent rate will rise from $200,000 to $300,000 over four
years.


Investors may, subject to certain limits, defer the taxation of capital gains on
investments in eligible small business shares if the proceeds of disposition of
their shares are reinvested in other eligible small business shares. With this
budget, entitlement to this deferral is expanded by eliminating the individual
investor limits on the amount of the original investment and reinvestment
eligible for the deferral and by extending the allowable period for the
reinvestment.


TAX RELIEF IN 2004

PERSONAL INCOME TAX RELIEF

Under the plan, further measures have been legislated that will provide tax
relief in 2004. These measures will:


O  ensure that the basic personal amount, the amount an individual can earn
tax-free, is at least $8,000 (from $7,756 in 2003);


O  ensure that the spousal amount is at least $6,800 (from $6,586 in 2003);


O  raise the second bracket threshold to at least $35,000 (from $32,183 in
2003);


O  raise the third bracket threshold to at least $70,000 (from $64,368 in 2003);


O  raise the fourth bracket threshold to at least $113,804 (from $104,648 in
2003);


O  raise the amount of family net income at which the National Child Benefit
supplement is fully phased out and the CCTB base benefit phase-out begins to at
least $35,000 (from $33,487 in 2003); and


O  reduce the phase-out rate of the base benefit of the CCTB from 5 to 4 percent
(from 2.5 to 2 per cent for families with one child).





                                      244

                                     ANNEX 2





MEASURES FOR JOBS, GROWTH, ENTREPRENEURSHIP AND INNOVATION

Under the Five-Year Tax Reduction Plan, businesses will also see further
tax relief in 2004.

     The general corporate income tax rate will be reduced from 23 to 21
per cent. This will encourage job creation and growth, reward entrepreneurship
and innovation, and improve the international competitiveness of Canada's
business environment.

     Corporate tax rate cuts, together with other measures in the
Government's tax reduction plan, such as the reduction in the capital gains
inclusion rate, have created a tax advantage for investment in Canada relative
to the U.S.


BUDGET 2003: BUILDING ON THE CANADIAN ADVANTAGE

When the phase-out of the federal capital tax announced in this budget is fully
implemented, the average corporate tax rate in Canada will be 6.6 percentage
points lower than in the U.S. (see at the top of page 246).

This comparison is unaffected by the recent tax changes proposed by the
U.S. administration.





                                      245

                              THE BUDGET PLAN 2003

CORPORATE TAX RATES IN CANADA AND THE U.S.

[BAR CHART SHOWING CORPORATE TAX RATES IN CANADA AND THE U.S.]

Note: Rates are based on changes announced to February 2003. Rates are average
federal plus provincial estate corporate tax rates and include the income tax
rate equivalent of capital taxes.


TOP MARGINAL TAX RATES ON CAPITAL GAINS FOR INDIVIDUALS

[CHART SHOWING TOP MARGINAL TAX RATES ON CAPITAL GAINS FOR INDIVIDUALS IN THE
U.S. AND CANADA]

Note: For Canada the top marginal tax rate is the top federal tax rate plus an
average of top provincial tax rates based on the half inclusion of capital
gains. For the U.S., the top marginal tax rate is the typical top federal/state
tax rate on capital gains for assets held for more than one year.


                                      246

                                     ANNEX 2





TABLE A2.2
Detailed List of Indexed Personal Income Tax Parameters Including
Budget 2003 Measures




                                                     PRE-2000
                                                     BUDGET       2002      2003
                                                     --------     ----      ----
                                                             (dollars)
                                                                  
PERSONAL AMOUNTS AND
  BRACKET THRESHOLDS
Basic personal amount ............................     7,131     7,634     7,756
Spousal/equivalent-to-spouse amount ..............     6,055     6,482     6,586
  Net income threshold ...........................       606       649       659
Taxable income at which 22-per-cent bracket begins    29,590    31,677    32,183
Taxable income at which 26-per-cent bracket begins    59,180    63,354    64,368
Taxable income at which 29-per-cent bracket begins       n/a   103,000   104,648
CREDIT AMOUNTS TO REFLECT NEEDS
Infirm dependant amount ..........................     2,353     3,605     3,663
  Net income threshold ...........................     4,778     5,115     5,197
Caregiver amount .................................     2,353     3,605     3,663
  Net income threshold ...........................    11,500    12,312    12,509
Disability amount ................................     4,233     6,180     6,279
Disabled child amount ............................       n/a     3,605     3,663
  Allowable child care and attendant care expenses       n/a     2,112     2,145
Medical expense tax credit--3 per cent of
  net income ceiling .............................     1,614     1,728     1,755
Refundable medical expense tax credit supplement .       500       535       544
  Minimum earnings threshold .....................     2,500     2,676     2,719
  Family net income threshold ....................    17,419    20,296    20,621
Age amount .......................................     3,482     3,728     3,787
  Net income threshold ...........................    25,921    27,749    28,193
Old Age Security repayment threshold .............    53,215    56,968    57,879
GOODS AND SERVICES TAX CREDIT(1)
Adult maximum ....................................       199       213       216
Child maximum ....................................       105       112       114
Single supplement ................................       105       112       114
Phase-in threshold for the single supplement .....     6,456     6,911     7,022
Family net income at which credit begins
  to phase out ...................................    25,921    27,749    28,193
CANADA CHILD TAX BENEFIT(1)
Base benefit .....................................     1,020     1,151     1,169
Additional benefit for third child ...............        75        80        82
Additional benefit for children under 7 years ....       213       228       232
Family net income at which base benefit begins
  to phase out ...................................    29,590    32,960    33,487






                                      247

                              THE BUDGET PLAN 2003





TABLE A2.2
Detailed List of Indexed Personal Income Tax Parameters Including
Budget 2003 Measures (cont'd)




                                                       PRE-2000
                                                         BUDGET    2002     2003
                                                       --------    ----     ----
                                                               (dollars)
                                                                 
NATIONAL CHILD BENEFIT (NCB) SUPPLEMENT(2)
First child                                                955    1,293    1,463
Second child                                               755    1,087    1,254
Third child                                                680    1,009    1,176
Family net income at which NCB supplement
  begins to phase out                                   20,921   22,397   21,529
Family net income at which NCB supplement
  phase-out ends                                        29,590   32,960   33,487
CHILD DISABILITY BENEFIT(3)
Maximum benefits                                           n/a      n/a    1,600
Family net income at which Child Disability Benefit
  begins to phase out                                      n/a      n/a   33,487



(1)  The GST credit and CCTB are paid on a benefit-year cycle beginning in July.

(2)  Includes Budget 2003 increase of $150 per child for July 2003.

(3)  Introduced in Budget 2003.



                                      248

ANNEX 3

REVIEW OF THE AIR TRAVELLERS
SECURITY CHARGE:
SUPPLEMENTARY INFORMATION
AND NOTICE OF WAYS AND
MEANS MOTION





                              THE BUDGET PLAN 2003





INTRODUCTION

In response to the events of September 11, 2001, the Government allocated
$7.7 billion through 2006-07 for a comprehensive plan to enhance personal and
economic security for Canadians. This amount included $2.2 billion to make air
travel more secure in accordance with rigorous new national Transport Canada
standards, including the creation of a new federal air security authority, the
Canadian Air Transport Security Authority (CATSA).

     To fund the enhanced air travel security system, the Air Travellers
Security Charge (ATSC) was introduced, to be paid by air travellers effective
April 1, 2002. The charge was established at a level sufficient to fund
the enhanced air travel security system through 2006-07, as set out in
Table A3.1.

     The enhanced air travel security system benefits principally and
directly travellers that use the Canadian air transportation system. In these
circumstances, a user charge is fair and fiscally responsible.


TABLE A3.1
Projected ATSC Revenue and Expenditures (Budget 2001)




                          2001-       2002-     2003-     2004-      2005-    2006-
                          2002        2003      2004      2005       2006     2007     TOTAL
                          -----       -----     -----     -----      -----    ----     -----
                                                (millions of dollars)
                                                                  
ATSC revenue                0         430       445       445        445      445      2,210
Expenditures              115         462       573       367        366      306      2,189



STRUCTURE AND OPERATION
The charge is payable by the purchaser of an air transportation service
and is collected by the air carrier at the time of payment for the air travel.
Where applicable, the total cost of the charge includes the goods and services
tax (GST) or the federal portion of the harmonized sales tax (HST).

     For air travel within Canada the total cost of the charge is
$12 per emplanement, to a maximum of $24 per ticket. For transborder air travel
to the continental United States the charge is $12. For other international
air travel the charge is $24.

     For domestic air travel the charge applies only to flights between the
89 airports at which CATSA is responsible for the delivery of the enhanced air
travel security system. These 89 airports are listed in a schedule to the
Air Travellers Security Charge Act. Travel between smaller airports not listed
in the schedule is not subject to the charge. Direct travel between listed
and non-listed airports is also not subject to the charge.







                                      250

                                     ANNEX 3





REVIEW OF THE CHARGE

In Budget 2001, the Government indicated that it would review the charge over
time to ensure that revenue remains in line with planned expenditures on the
enhanced air travel security system through 2006-07. The Government also
indicated that the charge would be reduced if revenue from the charge was
projected to be greater than required to fund the enhanced air travel security
system.

     On November 8, 2002, the Government released an update on the operation of
the charge, including an assessment of revenue and expenditures.(1) In addition,
interested parties were invited to submit written representations. The scope of
the review encompassed technical issues related to the application of the
charge, including its structure, provided that revenue from the charge would
remain sufficient to fund the enhanced air travel security system, and that no
one would pay more than under the current structure.

     Since that time the Government has assessed further updates to revenue and
expenditures and has carefully considered the more than 300 submissions received
from the air travel industry and interested parties.



REVENUE FROM THE CHARGE

REMITTANCES TO DATE

ATSC remittances are reported in The Fiscal Monitor, which is published each
month by the Department of Finance. As set out in The Fiscal Monitor for
December 2002, ATSC remittances for the period from April through December 2002
are $266 million.(2) In addition, GST/HST amounts are estimated at roughly $1
million per month, bringing total revenue to $274 million.

     Based on total revenue to date, and making allowance for seasonal
travel patterns, total revenue from the charge on an ongoing, full-year
basis is expected to be $425 million per year, compared to the original estimate
of $445 million per year. Total revenue from the charge for fiscal year 2002-03
is expected to be lower, at $375 million, compared to the original estimate of
$430 million. This reduced level of revenue is due to timing and transitional
factors associated with the introduction of the charge not fully reflected in
the original estimate.

(1)  The November 8 news release is available on the Department of Finance Web
     site at www.fin.gc.ca.

(2)  The period April through December represents eight months of ATSC
     remittances. Air carriers are required to remit ATSC amounts at the end of
     the month following the month when the charge is collected.







                                      251

                              THE BUDGET PLAN 2003




OUTLOOK FOR AIR PASSENGER TRAFFIC

At the time the charge was developed in the aftermath of the September 11
terrorist attacks in the United States, there was significant uncertainty about
the outlook for air passenger traffic. Given this uncertainty, the Government
used prudent assumptions to generate an estimate of air passenger traffic for
purposes of determining the appropriate level for the charge. These assumptions
included a 10-per-cent decline in air passenger traffic for 2002 relative to
2001 and no growth in future years.

     Data is now available on the recovery of air travel in 2002 and
the prospects for future growth have been updated. In the fall of 2002 the
Aviation Forecast Centre at Transport Canada delivered its updated forecast for
annual growth of origin-destination passengers through 2006, as set out in Table
A3.2.

     The level of air passenger traffic in 2002 was stronger than originally
estimated. Moreover, positive growth in air passenger traffic for 2003 to 2006
may now be factored into ATSC revenue projections with greater confidence than
in the fall of 2001. Accordingly, Transport Canada's forecast for growth in air
passenger traffic is used for the purpose of estimating ATSC revenue in future
years.


TABLE A3.2
Air Passenger Traffic Growth in Canada




                                  2002       2003       2004         2005      2006
                                  ----       ----       ----         ----      ----
                                                     (per cent)
                                                                
Budget 2001                        -10          0          0            0         0
Updated forecast                  -5.4        3.9        5.9          4.6       4.3



UPDATED REVENUE FORECAST

As noted above, the current forecast for full-year revenue from the charge
is $425 million per year. This amount represents total revenue that would
be generated from 2002 traffic levels, setting aside any adjustments for timing
or transitional factors. Applying Transport Canada's forecast for growth in air
passenger traffic to this base of $425 million results in the updated revenue
forecast set out in Table A3.3.

     Total revenue through 2006-07 is expected to exceed the original estimate
by $80 million. This amount is available to reduce the level of the charge.





                                      252

                                     ANNEX 3





TABLE A3.3
ATSC Revenue


                              2002-          2003-     2004-       2005-      2006-
                              2003           2004      2005        2006       2007     TOTAL
                              -----          -----     -----       -----      -----    -----
                                                       (millions of dollars)
                                                                     
Budget 2001                   430            445       445         445        445      2,210
Updated forecast              375            445       470         490        510      2,290
DIFFERENCE                    -55              0       +25         +45        +65        +80



EXPENDITURES FOR THE ENHANCED
AIR TRAVEL SECURITY SYSTEM

The Government's new approach to air travel security provided Transport Canada
with additional funding to strengthen its capacity to set regulations, review
standards, and monitor and inspect all air security services. In addition, CATSA
was created to consolidate the delivery of a number of key aviation security
services under a single new federal authority. CATSA is a Crown corporation
operating on a not-for-profit basis and reports to Parliament through
the Minister of Transport.

     For fiscal year 2001-02, $115 million was allocated to Transport Canada and
the Royal Canadian Mounted Police for expenditures on enhanced air travel
security in the aftermath of the events of September 11, 2001.
Actual expenditures incurred in fiscal year 2001-02 were slightly lower, at
$97 million, and the resulting difference of $18 million may be subtracted from
original planned expenditures through 2006-07.

     For fiscal years 2002-03 through 2006-07, Transport Canada and CATSA have
indicated that expenditures on the enhanced air travel security system are
expected to be consistent with the original estimate. While some re-profiling of
expenditures among fiscal years may be necessary, this will not have a material
effect on total spending over the five-year period.

     Adjusting the expenditure track by $18 million to reflect lower-than-
estimated expenditures in 2001-02 has the effect of reducing the total amount
that must be recovered by the charge through 2006-07. As such, this amount is
available to reduce the level of the charge.





                                      253

                              THE BUDGET PLAN 2003





ACCRUAL ACCOUNTING BY THE GOVERNMENT OF CANADA--IMPLICATIONS FOR ATSC REVENUE
AND EXPENDITURES FOR THE ENHANCED AIR TRAVEL SECURITY SYSTEM

The Air Travellers Security Charge was set at a level to recover the costs of
the enhanced air travel security system through 2006-07 in a manner consistent
with the method of accounting in effect at the time the charge was developed.
The Government's decision to adopt full accrual accounting in this budget has
implications for both revenue from the charge and expenditures for the enhanced
air travel security system through 2006-07. Further details on the Government's
change to full accrual accounting are provided in Annex 6.


REVENUE
Under full accrual accounting, revenue is recognized as it accrues rather than
when cash is remitted. This means, for example, that ATSC amounts accrued to the
end of March 2003 will be included in the financial results for fiscal year
2002-03, even though they are not due to be remitted by the air carriers until
the end of April 2003.

     Thus, the change to full accrual accounting has the effect of adding one
additional month of revenue--approximately $35 million--that would not otherwise
have been recognized over the five-year period through 2006-07. This amount is
available to reduce the level of the charge.


EXPENDITURES
The change to full accrual accounting also means that capital assets will be
amortized in the Public Accounts of Canada over their useful economic life
rather than expensed on a cash basis in the year of acquisition. This change
requires an adjustment to the costs that must be recovered from the ATSC through
2006-07 to fund the enhanced air travel security system.

     Transport Canada and CATSA have indicated that capital assets are expected
to represent about $650 million of the total expenditures for the enhanced air
travel security system through 2006-07. They have further indicated that these
capital assets will have, on average, a useful economic life of about seven
years. As set out in Table A3.4, the amortization of $650 million of capital
assets over this seven-year period will result in an average depreciation
expense of about $95 million per year, or $475 million over a five-year period.


                                      254

                                     ANNEX 3





     Setting the charge at a level to reflect the average depreciation expense
of $475 million over a five-year period ensures that the charge is sufficient
to fund the enhanced air travel security system on a sustainable basis. Because
the charge was established on the basis of recovering capital expenditures
through 2006-07 on a cash basis rather than a full accrual basis, the difference
between the $650-million cash expenditure and the $475-million depreciation
estimate represents a reduction in the costs to be recovered. This difference of
$175 million through 2006-07 is available to reduce the level of the charge.


TABLE A3.4
Treatment of Capital Assets Through 2006-07(1)




                                                          (millions of dollars)
                                                          ---------------------
                                                                       
Acquisition of capital assets                                             650
Average annual depreciation                                      95
Average five-year depreciation                                            475
Adjustment for accrual accounting                                         175



(1)  Based on approximate economic life of assets of about seven years.




SCOPE FOR REDUCING THE CHARGE

The total amount available through 2006-07 to reduce the level of the charge is
$329 million, as set out in Table A3.5.


TABLE A3.5
Adjustments Through 2006-07
Recovery of Costs for the Enhanced Air Travel Security System




                                                          (millions of dollars)
                                                          ---------------------
                                                                
REVENUE
Budget 2001                                                             2,210
Passenger traffic growth                                           +80
Adjustment for accrual accounting                                  +35
Total                                                                   2,325

EXPENDITURES
Budget 2001                                                             2,189
Actual expenditures (2001-02)                                      -18
Adjustment for accrual accounting                                  -175
Total                                                                   1,996
TOTAL AMOUNT AVAILABLE TO REDUCE THE CHARGE                               329






                                      255


                              THE BUDGET PLAN 2003





ASSESSMENT OF OPTIONS FOR ADJUSTING
THE AIR TRAVELLERS SECURITY CHARGE

The Government has indicated that where revenue from the charge is projected to
be greater than required to fund the enhanced air travel security system, the
charge would be lowered.

     In this regard, the review process, including representations from
interested parties and studies from independent consultants,(3) has played
an important role in determining how to allocate the $329 million that is
available to reduce the level of the charge.

     Common to the vast majority of representations was a concern about the
effect of the charge on air travel in Canada. At the same time, a range of
opinion was expressed about how the charge should apply.

     For example, some submissions called for the charge to be based on ticket
price or distance travelled, so as to reduce the level of the charge for
low-cost or short-haul air travel. Others noted that these types of approaches
would favour certain routes and passengers at the expense of others. In
particular, northern and regional customers, who often do not have access to
low-cost fares or who do not fly on short-haul routes, would be disadvantaged.

     On the basis of these considerations, the $329 million available will be
applied to reduce the level of the charge for air travel within Canada.



REDUCING THE AIR TRAVELLERS SECURITY CHARGE

The level of the charge for air travel within Canada will be reduced from $12
to $7 for one-way travel and from $24 to $14 for round-trip travel(4)--a
reduction of more than 40 per cent that will benefit all domestic travellers in
Canada.

     Focusing the reduction on domestic air travel responds to concerns that
were raised as part of the review process, while fulfilling the goals of
maintaining revenue in line with expenditures for the enhanced air travel
security system, and ensuring that no one pays more than under the original
structure for the charge. Maintaining the flat-rate structure preserves the


- --------------------------------------------------------------------------------
(3)  On January 22, 2003, the Department of Finance released two reports
     undertaken by independent consultants. Sypher: Mueller International Inc.
     reported on low-cost and regional air carriers while Dr. David Gillen of
     Wilfrid Laurier University reported on air travel demand elasticities.
     The two studies are available on the Department of Finance Web site at
     www.fin.gc.ca.

(4)  The new level of $7/$14 represents the total cost of the charge for air
     travel within Canada and includes, where applicable, the GST or the federal
     portion of the HST.





                                      256

                                     ANNEX 3





simplicity of the charge for ease of compliance and administration, and allows
for the reduction to be implemented quickly and with minimal administrative
disruption. The new level of the charge for air travel within Canada will apply
to tickets purchased on or after March 1, 2003, as set out in the Notice of Ways
and Means Motion.

     The Government will continue to work with industry and travellers to ensure
that the operation and administration of the charge is carried out in the
most efficient manner possible.





                                      257


                              THE BUDGET PLAN 2003





NOTICE OF WAYS AND MEANS MOTION TO AMEND
THE AIR TRAVELLERS SECURITY CHARGE ACT

That it is expedient to amend the Air Travellers Security Charge Act to provide
among other things:

     (1) That the Air Travellers Security Charge payable in respect of an
air transportation service acquired in Canada that does not include
transportation to a destination outside of Canada be reduced to:

     (a) $6.54 for each chargeable emplanement included in the service, to a
     maximum of $13.08, if tax under subsection 165(1) of the Excise Tax Act is
     required to be paid in respect of the service; or

     (b) $7.00 for each chargeable emplanement included in the service,
     to a maximum of $14.00, if tax under subsection 165(1) of the Excise Tax
     Act is not required to be paid in respect of the service.

     (2) That any enactment founded on paragraph (1) apply to air transportation
services that include a chargeable emplanement on or after March 1, 2003 and for
which consideration is paid or becomes payable on or after that day.








                                      258









ANNEX 4

CANADA'S FINANCIAL
PERFORMANCE IN AN
INTERNATIONAL CONTEXT





                                      259


                              THE BUDGET PLAN 2003





INTRODUCTION

O This annex compares Canada's financial position with that of the other Group
of Seven (G7) countries (United States, United Kingdom, France, Germany, Japan
and Italy).

O Two important factors need to be taken into account in making international
comparisons: differences in accounting methods among countries, which affect the
comparability of data, and differences in financial responsibilities among
levels of government within countries.

O For these reasons, the standardized System of National Accounts definitions
and data are used, and the focus is the total government sector rather than
distinguishing between the national and subnational level. These data are fairly
uniform among countries, and hence are used for international comparisons. The
Organisation for Economic Co-operation and Development (OECD) produces a
complete series of estimates based on this system. The data presented in this
annex are based on the December 2002 OECD Economic Outlook and, as such, do not
include any data revisions since then. On this basis:

     -  Canada has had the largest improvement in its budgetary situation among
        the G7 countries over the last decade. In 2002 Canada was the only G7
        country to record a surplus.

     -  Canada has achieved the sharpest decline in the debt burden among the G7
        countries since the mid-1990s. In 2002 Canada's debt burden declined to
        41.1 per cent of gross domestic product (GDP), below the G7 average.
        This year only the UK and the U.S. are expected to have lower debt
        burdens than Canada.

O Financial comparisons at the federal government level between Canada and the
United States also require caution, given differences in accounting practices
and the treatment of public sector pension funds. The most appropriate way to
compare the federal financial situation of the two countries is to use a cash
basis of accounting. On this basis:

     -  The Canadian federal government posted a surplus of 0.4 per cent of GDP
        in 2001-02, whereas the U.S. federal government ran a deficit of 1.5 per
        cent of GDP.

     -  The difference between the federal market debt-to-GDP ratios in Canada
        and the U.S. has been nearly halved since 1999-2000, to 6.2 percentage
        points in 2001-02.





                                      260




CANADA WAS THE ONLY G7 COUNTRY TO RECORD A SURPLUS IN 2002

[BAR CHART SHOWING TOTAL FINANCIAL BALANCES OF G7 COUNTRIES]

Source: OECD Economic Outlook, No. 72 (December 2002).











O Canada was the only G7 country to record a surplus in 2002, according to OECD
estimates of Canada's total government sector financial position(1).




























(1)  Measured on a National Accounts basis (the measure commonly used to make
     comparisons between countries). Includes federal, provincial-territorial
     and local governments as well as the Canada Pension Plan and Quebec Pension
     Plan.





                                      261

                              THE BUDGET PLAN 2003





CANADA'S FINANCIAL BALANCE HAS SHOWN THE MOST IMPROVEMENT OF ALL G7 COUNTRIES

[CHART SHOWING CANADA'S FINANCIAL BALANCE AS COMPARED TO G7 AVERAGE]

TOTAL GOVERNMENT FINANCIAL BALANCES

O Canada's total government sector financial balance has improved substantially
over the last decade. The total government deficit peaked at 9.1 percent of GDP
in 1992, which was almost double the G7 average deficit-to-GDP ratio that year.

O By 1997, however, fiscal improvements at all levels of government enabled
Canada's total government sector to post a surplus. Canada has recorded six
consecutive surpluses since that time.

O In 2002 Canada recorded a surplus estimated at 0.6 per cent of GDP, compared
to an average deficit of 3.7 per cent in the G7 countries. Canada was the only
G7 country to record a surplus in 2002, according to OECD estimates.





                                      262

                                     ANNEX 4





CANADA IS THE ONLY G7 COUNTRY TO MAINTAIN A FINANCIAL SURPLUS DESPITE THE GLOBAL
SLOWDOWN

[BAR CHART SHOWING TOTAL GOVERNMENT FINANCIAL BALANCES OF G7 COUNTRIES]

O Canada made the greatest fiscal improvement of the G7 countries from1992 to
2002. In 1992 Canada had the second highest deficit of the G7countries in
relation to GDP.

O All of the G7 countries have experienced pressure on government finances over
the past couple of years, largely due to the global economic slowdown. However,
according to OECD estimates, Canada was the only G7country to record a surplus
in 2002.





                                      263

                              THE BUDGET PLAN 2003





CANADA'S PROGRAM SPENDING AS A SHARE OF GDP ISNOWBELOW THE G7 AVERAGE

TOTAL GOVERNMENT NET FINANCIAL LIABILITIES

[BAR CHART SHOWING TOTAL GOVERNMENT PROGRAM SPENDING OF G7 COUNTRIES]

O The rapid turnaround in Canada's financial position, as a percentage of GDP,
is attributable in large part to a sharp reduction in program spending, that is,
all expenditures less gross debt charges.

O Between 1992 and 2002, Canada's total government program spending as a share
of GDP was reduced by 9.1 percentage points, a far greater reduction than in any
other G7 country.

O As a result, Canada's program spending relative to GDP is now below the G7
average, whereas in 1992 it was well above the G7 average.

O In fact, in 2002 Canada's program spending, as a percentage of GDP, was lower
than in all other G7 countries except the U.S.





                                      264

                                     ANNEX 4





CANADA HAS ACHIEVED THE LARGEST DECLINE IN THE DEBT BURDEN AMONG THE G7
COUNTRIES

TOTAL GOVERNMENT NET FINANCIAL LIABILITIES

[BAR CHART SHOWING TOTAL GOVERNMENT NET FINANCIAL LIABILITIES OF G7 COUNTRIES]

O  Since the mid-1990s Canada's total government sector has achieved the largest
decline in its debt burden of all the G7 countries. Between 1995 and 2002 the
net debt-to-GDP ratio was reduced by 26.8 percentage points.

O  As a result, Canada's total government debt burden moved below the G7 average
in 2001, and only the UK and the U.S. are expected to have lower debt burdens
than Canada in 2003.

O  Based on OECD projections of continuing fiscal surpluses in Canada and large
deficits in the U.S., Canadian and U.S. total government debt burdens are
expected to converge by 2004.





                                      265

                              THE BUDGET PLAN 2003


CANADA-UNITED STATES FEDERAL COMPARISONS

O This section compares the financial situation of the Canadian federal
government with that of the U.S. federal government.

O In making such comparisons, it is important to note that there are fundamental
differences in the accounting practices and responsibilities of the Canadian and
U.S. federal governments. For example, in the U.S. the Social Security system,
which is the equivalent of the Canada Pension Plan (CPP) and Quebec Pension Plan
(QPP), is considered part of the federal sector, whereas in Canada the CPP and
QPP are not part of the federal government sector. As a result, U.S. federal
financial balance and market debt figures reflect the substantial surpluses in
the Social Security system, whereas such surpluses are not included in Canadian
federal figures.

O However, a reasonable comparison of the two countries' fiscal situations can
be made using the financial requirements/source of the Canadian federal
government (rather than the budgetary balance) and the U.S. federal unified
budget balance. This primarily compares the financial situation in both
countries on a cash basis of accounting.

O On this basis, the Canadian federal government posted a surplus of 0.4 per
cent of GDP in 2001-02. By contrast, the U.S. federal government moved into a
deficit position in 2001-02, recording a deficit of 1.5 per cent of GDP. In
2002-03 the Canadian federal government is forecast to have a slight surplus,
while the U.S. federal deficit is expected to increase to 2.8 percent of GDP.

O Similarly, Canadian federal market debt (rather than federal debt or the
accumulated deficit) is the most appropriate measure of debt to be compared with
U.S. federal debt held by the public. As a result of continued surpluses at the
federal level in Canada and the recent deterioration in U.S. federal finances,
the difference between the federal market debt-to-GDP ratios in Canada and the
U.S. has been nearly halved since 1999-2000, to 6.2 percentage points in
2001-02. In 2002-03 Canadian federal market debt is expected to decline to 38.8
percent of GDP, while U.S. federal debt held by the public is forecast to rise
to 36.1 per cent of GDP, further narrowing the gap to 2.7 percentage points.





                                      266

                                     ANNEX 4


WHILE CANADA HAS MAINTAINED A FINANCIAL SURPLUS SINCE 1996-97, THE U.S. FELL
BACK INTO DEFICIT IN 2001-02

FEDERAL GOVERNMENT FINANCIAL BALANCES

[CHART SHOWING CHANGE IN FEDERAL GOVERNMENT FINANCIAL BALANCES - CANADA AS
COMPARED TO THE U.S.]

O Both countries achieved a significant turnaround in the financial balance over
the last decade, moving from large deficits in the first half of the 1990s to a
surplus position in the latter half of the 1990s.

O The Canadian federal government achieved a financial surplus in 1996-97, one
year earlier than the U.S. federal government. The Canadian federal government
has maintained a financial surplus since that time, posting a surplus of 0.4 per
cent of GDP in 2001-02 despite the economic slowdown. By contrast, the U.S.
federal fiscal situation has deteriorated markedly: the U.S. returned to a
deficit position in 2001-02, recording a deficit of 1.5 percent of GDP.

O Moreover, the Canadian federal government is expected to record a balanced
budget or better in 2002-03, while the U.S. federal deficit is expected to
increase to 2.8 per cent of GDP.





                                      267

                              THE BUDGET PLAN 2003


THE DIFFERENCE BETWEEN FEDERAL MARKET DEBT-TO-GDP RATIOS IN CANADA AND THE U.S.
HAS BEEN NEARLY HALVED OVER THE PAST TWO YEARS


FEDERAL GOVERNMENT MARKET DEBT

[BAR CHART SHOWING CHANGE IN CANADA'S FEDERAL GOVERNMENT MARKET DEBT AS COMPARED
TO THE U.S.]

O For debt comparisons, the appropriate measures are market debt for Canada and
publicly held debt for the U.S.

O Both countries have achieved a significant decline in the debt-to-GDP ratio
since the mid-1990s. Moreover, due to continued surpluses at the federal level
in Canada and the deterioration in U.S. federal finances, the difference between
the federal market debt-to-GDP ratios in the two countries has been nearly
halved since 1999-2000, to 6.2 percentage points in 2001-02.

O In 2002-03 Canadian federal market debt is expected to decline to 38.8 percent
of GDP, while U.S. federal debt held by the public is forecasttorise to 36.1 per
cent of GDP, further narrowing the gap to 2.7 percentage points.




                                      268

ANNEX 5

FISCAL PERFORMANCE OF CANADA'S
FEDERAL-PROVINCIAL-TERRITORIAL GOVERNMENT SECTOR







                                  THE BUDGET PLAN 2003
INTRODUCTION

o This annex presents historical data on the fiscal situation of the aggregate
federal-provincial-territorial government sector, based on Public Accounts data,
as published by individual governments. Data for the federal government, Nova
Scotia, Quebec, Ontario, Manitoba, Alberta, British Columbia, the Northwest
Territories and Nunavut are presented on an accrual basis of accounting.

o The aggregate federal-provincial-territorial government sector recorded an
estimated surplus of $8.2 billion in 2001-02, the fourth consecutive annual
surplus.

o In aggregate, the provincial-territorial government sector is estimated to
have been in a slight deficit position ($22 million) in 2001-02. However, six
provinces and one territory are estimated to have posted budgetary surpluses for
2001-02. The federal government recorded a surplus of $8.2 billion.

o Revenue-to-GDP (gross domestic product) ratios declined last year at both the
federal and provincial-territorial levels, reflecting tax reduction measures
implemented by both levels of government. Provincial-territorial revenues
continue to exceed federal revenues.

o Spending as a percentage of GDP increased at both the federal and
provincial-territorial government levels in 2001-02, although at both levels of
government, the spending ratios were well below those in 1993-94.

o Debt-to-GDP ratios continue to fall. On an accrual basis, the federal ratio
has declined by 21 percentage points from its peak of 67.5 per cent in 1995-96
to 46.5 per cent in 2001-02. The aggregate provincial-territorial government
ratio has declined by over 5 percentage points to 22.1 per cent, which is less
than half the federal level.






                                      270


                                         ANNEX 5

FEDERAL-PROVINCIAL-TERRITORIAL GOVERNMENTS RECORDED
AN AGGREGATE SURPLUS FOR THE FOURTH CONSECUTIVE YEAR

FEDERAL AND PROVINCIAL-TERRITORIAL BUDGETARY BALANCES


[CHART SHOWING CHANGE IN FEDERAL AND PROVINCIAL-TERRITORIAL BUDGETARY BALANCES]


o In 2001-02 the federal-provincial-territorial governments recorded an
aggregate surplus of $8.2 billion, representing the fourth consecutive surplus.

o This represents a remarkable turnaround from 1993-94, when the
federal-provincial-territorial government sector posted a $58.7-billion deficit.





                                      271


                                  THE BUDGET PLAN 2003

A MAJORITY OF PROVINCES RECORDED SURPLUSES IN 2001-02

PROVINCIAL-TERRITORIAL BUDGETARY BALANCES

           [CHART SHOWING PROVINCIAL-TERRITORIAL BUDGETARY BALANCES]

o Six provinces and one territory recorded surpluses in 2001-02.(1) The
provincial-territorial sector, as a whole, is estimated to have posted a small
deficit of $22 million for 2001-02.

- -----------

(1)  All provinces and territories (except for Nunavut) have provided final
     results for 2001-02.





                                      272


                                         ANNEX 5

TOTAL PROVINCIAL-TERRITORIAL REVENUES HAVE CONSISTENTLY EXCEEDED FEDERAL
REVENUES

FEDERAL AND PROVINCIAL-TERRITORIAL REVENUES

         [LINE GRAPH SHOWING CHANGE IN PROVINCIAL-TERRITORIAL REVENUES
                        AS COMPARED TO FEDERAL REVENUES]

o For the last 10 years provincial-territorial revenues (including federal
transfers such as the Canada Health and Social Transfer and equalization) have
consistently exceeded federal revenues.

o Federal revenues as a share of GDP declined from 17.1 per cent in 2000-01 to
15.7 per cent in 2001-02, reflecting reductions in personal and corporate income
taxes and employment insurance premiums, as well the slowdown in global economic
activity.

o Provincial-territorial revenues as a percentage of GDP declined from 18.3 per
cent in 2000-01 to 17.4 per cent in 2001-02, reflecting lower natural resource
revenues and tax reduction measures.




                                      273


                              THE BUDGET PLAN 2003

PROGRAM SPENDING HAS DECLINED SIGNIFICANTLY AS A SHARE OF GDP

FEDERAL AND PROVINCIAL-TERRITORIAL PROGRAM SPENDING

          [LINE GRAPH SHOWING PROVINCIAL-TERRITORIAL PROGRAM SPENDING
                    AS COMPARED TO FEDERAL PROGRAM SPENDING]

o From 1993-94 to 2001-02 federal program spending as a share of GDP fell by
4.5 percentage points--from 15.9 to 11.4 per cent.

o Over the same period provincial-territorial program spending, measured as a
share of GDP, fell by 3.5 percentage points--from 19.1 to 15.6 per cent.


                                      274


                                         ANNEX 5

THE DEBT BURDEN IS MUCH LARGER AT THE FEDERAL LEVEL

FEDERAL AND PROVINCIAL-TERRITORIAL DEBT

     [BAR CHART SHOWING CHANGE IN FEDERAL AND PROVINCIAL-TERRITORIAL DEBT]

o Throughout the past decade the federal debt burden, as measured by the
debt-to-GDP ratio, has been more than twice as high as the
provincial-territorial debt burden.

o In 2001-02 the federal debt-to-GDP ratio, measured on an accrual basis, was
estimated at 46.5 per cent, a drop of 21 percentage points from its peak of
67.5 per cent of GDP in 1995-96.

o The provincial-territorial debt-to-GDP ratio was estimated at 22.1 percent in
2001-02, a decline of 5.3 percentage points from 1995-96.





                                      275


                                  THE BUDGET PLAN 2003

DEBT CHARGES AS A PER CENT OF TOTAL REVENUES ARE SIGNIFICANTLY HIGHER AT THE
FEDERAL LEVEL

FEDERAL AND PROVINCIAL-TERRITORIAL DEBT CHARGES

       [BAR CHART SHOWING CHANGE IN FEDERAL AND PROVINCIAL DEBT CHARGES]

o As a result of its larger debt burden, the federal government faces much
higher debt-servicing charges than the provincial-territorial sector.

o In 1995-96 the federal government spent 37 cents of every dollar of revenue on
debt charges. Although significant progress has been made in reducing this
burden, federal debt charges still consume 22.9 cents of every dollar of
revenue, compared to 11.3 cents for the provincial-territorial sector.





                                      276

ANNEX 6

IMPLEMENTATION OF FULL ACCRUAL ACCOUNTING IN THE FEDERAL GOVERNMENT'S FINANCIAL
STATEMENTS








                              THE BUDGET PLAN 2003


INTRODUCTION

o As recommended by the Auditor General of Canada and beginning with this
budget, the Government will adopt full accrual accounting as its accounting
standard, replacing the modified accrual standard it has been using since the
mid-1980s. Under full accrual accounting, the Government's financial statements
will provide a more comprehensive and up-to-date picture of the Government's
financial situation.

o National and international accounting standards bodies and the Auditor General
strongly support full accrual accounting.

     -    The Public Sector Accounting Board of the Canadian Institute of
          Chartered Accountants, which recommends accounting standards for
          senior levels of government, urges governments in Canada to adopt full
          accrual accounting.

     -    The Auditor General has strongly recommended full accrual accounting
          as "...superior to the Government's current accounting policies." The
          Government announced its commitment to full accrual accounting in the
          1995 budget.

o Over the past several years, as part of the Financial Information Strategy,
the Receiver General for Canada and departments have worked to put in place new
financial information systems and to acquire the accounting expertise required
to implement full accrual accounting. Overseeing this initiative, the Treasury
Board Secretariat also developed the necessary accounting policies and training
programs to implement full accrual accounting government-wide.

     -    In her Observations on the Government's 2002 financial statements, the
          Auditor General encouraged the Government to resolve the concerns that
          were causing delays in the introduction of full accrual accounting and
          to implement it for the 2002-03 financial statements. After extensive
          consultations with the Office of the Auditor General, the Government
          is confident that it has sufficient assurance as to the reliability of
          the accrual accounting amounts that it can now proceed.

o Implementing full accrual accounting will improve transparency and
accountability because:

     -    the Government's balance sheet will provide a more comprehensive
          picture of the Government's assets and liabilities; and

     -    the annual budgetary balance will better reflect the impact of
          economic events and government decisions during the fiscal year.







                                      278



                                    ANNEX 6

o Implementing full accrual accounting will provide new information that can be
used to improve government decision making in the following ways:

     -    As full accrual accounting recognizes the value of the Government's
          physical assets in its financial statements, it will encourage better
          stewardship of these assets and better decisions about whether to buy,
          lease or sell buildings and equipment. Under full accrual accounting,
          there is more focus on the consumption or use of such resources.

     -    Full accrual accounting will show more accurately the cost of owning
          and operating capital equipment, providing a better picture of the
          cost of providing some programs and services. This provides a much
          better means to relate the costs of programs to the performance
          results being achieved.

     -    More complete recording of the Government's liabilities will encourage
          departments to develop better plans for managing those liabilities.


o The shift to full accrual accounting, which affects tax revenues and the
valuation of liabilities and non-financial assets, leads to some changes in the
annual budgetary balance and the value of the federal debt (that is, the
accumulated deficit).

     -    For example, under full accrual accounting, tax revenues are accounted
          for in the period to which they relate, not when they are received, as
          was the case under modified accrual. Under full accrual, the budgetary
          balance will now be more reflective of economic developments occurring
          within the year. Largely due to the accrual of tax revenues, the
          budgetary surplus for 2001-02 has been reduced by $0.7 billion to $8.2
          billion.

     -    Full accrual is more comprehensive as additional liabilities are
          recognized and non-financial assets, such as government buildings, are
          now included. The estimated value of the federal debt (accumulated
          deficit) at March 31, 2002, declines from $536.5 billion to $507.7
          billion.


FEDERAL DEBT (ACCUMULATED DEFICIT)

In response to the Auditor General of Canada, this budget is presented on a full
accrual basis of accounting. Under the previous accounting standard-- modified
accrual accounting--net debt and the accumulated deficit were identical. Under
the new standard, net debt now includes a more comprehensive costing for
financial liabilities but excludes non-financial assets. The accumulated deficit
includes both. It is the sum of all surpluses and deficits in the past. The
accumulated deficit will be also referred to in the Annual Financial Report of
the Government of Canada and budget documents as the "federal debt."





                                      279



                              THE BUDGET PLAN 2003

IMPLEMENTING FULL ACCRUAL ACCOUNTING

In this budget the Government has moved to full accrual accounting as its
accounting standard. Full accrual accounting replaces the previous accounting
standard, modified accrual. The Auditor General recommended the shift to full
accrual accounting as soon as the outstanding issues causing delays were
resolved. Following extensive consultations with the Office of the Auditor
General, the Government believes that there is now sufficient quality assurance
as to the reliability of the accrual accounting numbers. The Government noted
that it intended to take this step in last October's Economic and Fiscal Update.

WHAT IS FULL ACCRUAL ACCOUNTING?

The Government's previous accounting standard--modified accrual--used a mix of
accrual and cash accounting, depending on the type of transaction. With this
budget the Government is extending the use of accrual accounting to all items
that were previously recorded on a cash basis. Accordingly, the new accounting
standard is called full accrual accounting.

     Moving to full accrual accounting extends the accrual approach to three new
areas.

NON-FINANCIAL ASSETS

Under modified accrual accounting, the value of the Government's stock of
capital assets, such as buildings, vehicles and equipment, was not shown on the
Government's balance sheet. Under full accrual, the cost of these non financial
assets will now be recorded. Under modified accrual accounting, the full
purchase price of a capital asset was shown as an expenditure item in the year
of purchase and therefore had an immediate impact on the annual budgetary
balance. Under full accrual, the annual cost of owning a capital asset will be
the estimated depreciation (or amortization) in the value of the asset according
to Generally Accepted Accounting Principles. Full accrual accounting therefore
spreads the cost over the useful life of the asset. Similarly, under modified
accrual, the cost of an item held in inventory is recognized in the year in
which the item is purchased while, under full accrual, it is recognized as an
expense in the year in which the item is used.



                                      280


                                    ANNEX 6

EXAMPLE: THE CANADIAN COAST GUARD BUYS A NEW ICEBREAKER

Under modified accrual accounting:

o The ship is not included as part of the Government's assets. Other things
being equal, the federal debt (accumulated deficit) increases by the amount of
cash used to pay for the ship, in the year in which the Canadian Coast Guard
takes ownership, without any recognition that this cash has purchased a
long-lived asset.

o The only part of the annual cost of owning the ship that is recorded is the
annual cash outlay for operations and maintenance.

Under full accrual:

o The ship is included as part of the Government's assets, offsetting the
reduction in cash needed to pay for the ship.

o The annual cost of owning the ship is reported as the depreciation in the
value of the ship plus the cash outlays for operations and maintenance.

TAX REVENUES

Under modified accrual accounting, tax revenues were recorded on a cash basis in
the year they were received. Refunds were charged against revenues in the year
in which the refunds were paid. Under full accrual accounting, tax receipts and
refunds will generally be recorded in the year in which the taxable activity
took place, not when cash payments occurred. Accordingly, a receivable will be
established for taxes still owing to the Government and a payable will be
established for tax refunds owing to taxpayers.





                                      281


EXAMPLE: TAXES AND REFUNDS

THE BUDGET PLAN 2003

There are significant collection lags between the time that a taxpayer earns
taxable income and when the associated taxes are actually received by the
Government. For example, individuals are required to file their final tax
returns by the end of April for the previous taxation year. This results in a
significant amount of taxes received in April and May on income earned in the
previous taxation year. It also results in tax refunds being paid in the period
April to June for overpayment of taxes made in the previous taxation year.

Under modified accrual accounting:

o Taxes paid when income tax returns were filed after March 31, 2001, were
recorded as revenue in fiscal year 2001-02, which began April 1, 2001, even
though those payments arose from income earned in 2000. Refunds to taxpayers
paid after March 31, 2001, were charged against revenues in fiscal year 2001-02,
even though these payments returned overpayments made in 2000.

o There is no recognition of taxes due to the Government or refunds due to
taxpayers. They are only recorded when they are received or paid.

Under full accrual:

o Taxes paid in fiscal year 2001-02 that relate to the year 2000 are recorded in
fiscal year 2000-01, to the extent that reliable estimates can be made. Refunds
to taxpayers paid in fiscal year 2001-02 are charged against revenues in fiscal
year 2000-01, as those refunds reflect overpayments made in 2000.

o A receivable is established for taxes owed to the federal government on
March31, 2001, for taxation year 2000. Similarly, a liability, or payable, is
established for taxes still to be refunded to taxpayers as of March31, 2001.

LIABILITIES

Under full accrual accounting, a more comprehensive list of liabilities will be
recorded on the balance sheet. As a result of the shift to full accrual
accounting, the Government will now include the estimated cost of environmental
clean-ups in areas of federal jurisdiction; the value of liabilities related to
Aboriginal claims to the extent payment is likely and estimable; and increased
liabilities for post-employment benefits for federal employees, including
workers' compensation, veterans' disability costs, and federal employee
retirement benefits such as health and dental care.





                                      282


                                    ANNEX 6

EXAMPLE: THE COST OF CLEANING UP FEDERAL CONTAMINATED SITES

Under modified accrual accounting:

o The Government's liability for cleaning up its contaminated sites is not
recognized on its balance sheet.

o Expenditures on cleaning up contaminated sites are included in the fiscal
years in which they are made.

Under full accrual:

o The Government's estimated liability for cleaning up its existing contaminated
sites is included on its balance sheet.

o Expenditures for cleaning up these contaminated sites are not included as
expenses in the years in which payments are made because they reduce,
dollar-for-dollar, a liability that has already been recognized on the
Government's books.

o New liabilities will be included in the year in which they become known.


EXAMPLE: DISABILITY BENEFITS FOR VETERANS

Under modified accrual accounting:

o The Government's liability for veterans' disability benefits is not recognized
on its balance sheet.

o Expenditures for veterans' disability benefits are recognized in the fiscal
years in which the payments are made.

Under full accrual:

o The Government's liability for veterans' disability benefits is recorded on
its balance sheet. This is the present value of all expected future payments for
these veterans' future benefits as a result of past services provided by
veterans.

o Payments for veterans' disability benefits are no longer reported as
expenditures in the years in which payments are made, but instead reduce the
liability that has already been recognized on the Government's books.

o For currently serving members, the annual expense cost reflects the net
present value of all future payments expected as a result of new disabilities
arising during the year.

o Each year, as the liability is adjusted to reflect its current actuarial
value, an interest component is added and charged to public debt charges,
similar to the recording of the liability for federal employees' pensions.

o Thus one result of moving to accrual accounting is an increase in recorded
public debt charges. However, the increase will have no impact on cash outflows.





                                      283


                              THE BUDGET PLAN 2003

WHAT ARE THE BENEFITS OF FULL ACCRUAL ACCOUNTING?

Full accrual accounting improves transparency and accountability by providing
more comprehensive and up-to-date financial statements and greater
accountability by the Government to Parliament and the Canadian public.

o The Government's balance sheet will provide a more comprehensive picture of
the Government's assets and liabilities. For example, the cost of the buildings
that the Government owns will appear on its balance sheet for the first time, as
will its liabilities for cleaning up contamination on its properties.

o The annual budgetary balance will better reflect the impact of economic events
during the fiscal year. In particular, year-to-year changes in recorded tax
revenues will more accurately reflect the year-to-year changes in the tax base
and tax rates, as these changes will not be affected by lags in tax collections
and the payment of refunds.

o The annual budgetary balance will better reflect the impact of government
decisions during the fiscal year. In particular, government decisions that cause
an increase (or decrease) in the Government's liabilities for post-employment or
retirement benefits will be recorded in the year in which the decision was made.
Under modified accrual accounting, the full costs of some of these decisions
would not be shown in the Government's financial statements until all of the
resulting cash payments were made many years later.

Full accrual accounting enables more effective decision making about government
operations, spending and longer-term risks and obligations.

o As full accrual accounting recognizes the value of the Government's physical
assets in its financial statements, it requires the Government to recognize the
amortization of those assets as a cost. This will lead to better recording of
assets, and encourage better stewardship of those assets and better decisions
about whether to buy, lease or sell buildings and equipment.

o Full accrual accounting will show more accurately the cost of owning and
operating capital equipment, providing a better picture of the cost of providing
programs and services, and better relate decisions about whether to buy, lease
or sell buildings and equipment.

o More complete recording of the Government's liabilities (i.e. environmental
liabilities, liabilities to Aboriginal peoples and liabilities for retirement
and post-employment benefits) will encourage departments to develop better plans
for managing those liabilities.





                                      284


                                    ANNEX 6

     The Public Sector Accounting Board of the Canadian Institute of Chartered
Accountants (CICA) recommends that senior levels of government adopt full
accrual accounting in the presentation of their financial statements.(1) In
their "Observations" on the Government's financial statements, Auditors General
have strongly encouraged the Government to adopt full accrual accounting. It is
the accounting practice already used by six provinces--including Quebec, Ontario
and Alberta--and by foreign governments such as Australia and New Zealand. Among
G7 countries, the United Kingdom has announced its intention to move to accrual
accounting.

     The Treasury Board Secretariat has established a working group on accrual
budgeting to examine the potential application of accrual information to the
budgetary process. The working group is examining how accrual concepts bear on
many types of decisions, drawing on the experience of other governments that
have implemented accrual accounting. For the present, appropriations by
Parliament will remain unchanged.


THE BENEFITS OF FULL ACCRUAL ACCOUNTING

As the Auditor General indicated in her comments on the Government's 2001-02
financial statements:

"I remain convinced that accrual accounting is superior to the Government's
current accounting policies. It provides a more complete measure of the overall
size of the Government, which should enhance accountability to Parliament; it
eliminates the distortion of reported financial results caused by altering the
timing of cash receipts and disbursements; and it is an essential component of
management reform initiatives underway in the Government."

Sheila Fraser
Auditor General of Canada
Public Accounts of Canada (2002), Volume 1

WHY IMPLEMENT FULL ACCRUAL ACCOUNTING IN THIS BUDGET?

The Government has been working towards full accrual accounting since the 1995
budget. The Treasury Board Secretariat has developed accrual accounting
policies. The Receiver General for Canada and departments have put in place new
financial information systems and acquired the accounting expertise needed to
report on the greater range of financial activity that this approach requires.
The phase-in by departments started in April 1999 and was completed in April
2001.


- -------------

(1)  See the CICA Web site at www.cica.ca.



                                      285



                              THE BUDGET PLAN 2003

     In the 2001 budget the Government announced that it had decided to delay
the move to full accrual by at least one year given the timing of the budget and
the fact that important components of the information required to implement
accrual accounting had yet to be audited and verified. In her "Observations" on
the 2002 Public Accounts last fall, the Auditor General encouraged the
Government to resolve the issues which had caused delays in the introduction of
full accrual accounting and to implement it for the 2002-03 financial
statements. Given the progress that has been made since that time in finalizing
the estimates, and working closely with the Office of the Auditor General, the
Government is now confident it can introduce accrual accounting.

HOW DOES FULL ACCRUAL ACCOUNTING AFFECT FISCAL PLANNING?

The Government's fiscal anchor remains the annual budgetary balance. With the
implementation of full accrual accounting, there will be changes to how the
annual budgetary balance is calculated. Details on these changes and how they
affect the reported results are provided below.


FEDERAL DEBT (ACCUMULATED DEFICIT)

The Government will continue to use the accumulation of all annual surpluses and
deficits in the past, or the accumulated deficit as it is labelled in the Public
Accounts of Canada, to measure the debt and the debt-to-GDP (gross domestic
product) ratio. For communications purposes, the accumulated deficit will also
be referred to as the "federal debt."

     Prior to the shift to full accrual accounting there was no distinction
between net debt and the accumulated deficit, so these terms were used
interchangeably. With the implementation of full accrual accounting that is no
longer the case. Net debt is the Government's liabilities excluding the value of
its non-financial assets. The accumulated deficit, however, takes into account
the value of the non-financial assets. With the shift to full accrual accounting
and the resulting inclusion of non-financial assets, the two indicators will
represent different measures of the Government's financial position.






                                      286



                                    ANNEX 6

WHAT IS THE IMPACT OF IMPLEMENTING FULL ACCRUAL ACCOUNTING ON THE GOVERNMENT'S
FINANCIAL STATEMENTS?

The implementation of full accrual accounting affects the financial position
(the statement of assets and liabilities) of the Government of Canada and
therefore the annual change in assets and liabilities, or the budgetary balance.

IMPACT ON THE STATEMENT OF ASSETS AND LIABILITIES-- FEDERAL DEBT(ACCUMULATED
DEFICIT)

The most comprehensive measure of the Government's overall financial position is
the ACCUMULATED DEFICIT or the FEDERAL DEBT. This is the difference between the
Government's total liabilities and its total assets. Accordingly, it is also
equal to the accumulation of annual deficits and surpluses since Confederation.

o Under full accrual accounting, the Government's liabilities will include a
number of liabilities not previously recognized. These include liabilities for:
environmental clean-ups on federally owed lands; Aboriginal claims;
post-employment benefits such as veterans' disability costs, workers'
compensation and retirement benefits for dental and health costs of federal
public servants; and tax refunds payable by the federal government. As shown in
Table A 6.1, the net impact of these accrual adjustments is to increase total
liabilities by $71.0 billion at March 31, 2002.

o Under full accrual accounting, the Government's assets also include financial
assets that were not taken into account before, namely tax receivables (taxes
owed by taxpayers) and the value of the Government's holdings in its enterprise
Crown corporations. The value of these assets amount to $45.9 billion at March
31, 2002. The Government's assets also include non-financial assets, such as
tangible capital assets, inventories and prepayments. The value of these
non-financial assets is estimated at $53.8 billion at March 31, 2002. Thus total
recorded assets increase by $99.7 billion at March 31, 2002.

o As the increase in the value of the assets more than offsets the additional
liabilities, the federal debt (i.e. total liabilities net of all financial and
non-financial assets) is $507.7 billion at March 31, 2002, under full accrual
accounting, $28.7 billion lower than the corresponding figure calculated using
modified accrual accounting.

o Net debt, which excludes non-financial assets, is now estimated at $563
billion at March 31, 2002, compared to $536 billion under modified accrual. This
occurs because the value of the financial liabilities that are added to the
balance sheet in shifting to full accrual is greater than the value of the
additional financial assets (as shown in Table A 6.1).




                                      287


THE BUDGET PLAN 2003

TABLE A6.1

Statement of Assets and Liabilities: March 31, 2002(1)




                                                        IMPACT OF MOVING TO FULL ACCRUAL
                                              -------------------------------------------------------
                                               MODIFIED    ACCRUAL    RECLASSI-     NET        FULL
                                                ACCRUAL     IMPACT    FICATION     IMPACT     ACCRUAL
                                              ---------    -------    ---------   --------   --------
                                                              (millions of dollars)
                                                                              
LIABILITIES
   Accounts payable and
     accrued liabilities                        28,786      11,690     -6,388       5,302     34,088
   Tax refunds payable                                      30,363      3,005      33,368     33,368
   Interest and matured debt                     7,817                                         7,817
   Allowance for loan guarantees
     and borrowings of
     Crown corporations                          4,076                                         4,076
                                               -------      ------     ------      ------    -------
   Total                                        40,679      42,053     -3,383      38,670     79,349
   Interest-bearing debt
     Unmatured debt                            442,271                                       442,271
     Pension and other liabilities
       Public sector pensions                  126,921                                       126,921
       Other employee/veterans'
         future benefits                                    27,782      3,383      31,165     31,165
       Due to Canada
         Pension Plan                            6,770                                         6,770
       Other liabilities                         7,469       1,171                  1,171      8,640
                                               -------      ------     ------      ------    -------
       Total                                   141,160      28,953      3,383      32,336    173,496
                                               -------      ------     ------      ------    -------

   Total interest-bearing debt                 583,431      28,953      3,383      32,336    615,767
TOTAL LIABILITIES                              624,110      71,006          0      71,006    695,116






                                      288


                                    ANNEX 6

TABLE A6.1

Statement of Assets and Liabilities: March 31, 2002 (1)(cont'd)




                                                       IMPACT OF MOVING TO FULL ACCRUAL
                                              -------------------------------------------------------
                                               MODIFIED    ACCRUAL    RECLASSI-     NET        FULL
                                               ACCRUAL     IMPACT     FICATION     IMPACT    ACCRUAL
                                              ----------  ---------  -----------  --------  ---------
                                                               (millions of dollars)
                                                                             
FINANCIAL ASSETS
   Cash and accounts receivable
     Cash                                        13,467     -2,107                 -2,107     11,360
     Tax receivable                                 285     44,120                 44,120     44,405
     Other receivables                            3,077                                        3,077
                                                -------     ------      ------     ------    -------
     Total                                       16,829     42,013                 42,013     58,842

   Foreign exchange accounts                     52,046                                       52,046
   Loans, investments and advances
     Enterprise Crown corporations
       and other government
       business enterprises                       9,192      3,885         610      4,495     13,687
     National governments                         7,342                                        7,342
     Other loans, investments
       and advances                              11,283                 -1,370     -1,370      9,913
     Less allowance for valuation                 9,071                    610        610      9,681
                                                -------     ------      ------     ------    -------
     Total                                       18,746      3,885      -1,370      2,515     21,261

   TOTAL FINANCIAL ASSETS                        87,621     45,898      -1,370     44,528    132,149

NET DEBT (EXCLUDING
   NON-FINANCIAL ASSETS)                        536,489     25,108       1,370     26,478    562,967

NON-FINANCIAL ASSETS
   Tangible capital assets                                  41,616       1,370     42,986     42,986
   Inventories                                              11,033                 11,033     11,033
   Prepayments                                               1,198                  1,198      1,198
                                                -------     ------      ------     ------    -------
   Total                                                    53,847       1,370     55,217     55,217
FEDERAL DEBT
   (ACCUMULATED DEFICIT)                        536,489    -28,739           0    -28,739    507,750
                                                -------     ------      ------     ------    -------



(1)  Unaudited. These numbers will be audited as part of the audit of the
     2002-03 financial statements. It is not expected that the final results
     will be materially different from those in Table A6.1 and in the other
     tables.





                                      289


                              THE BUDGET PLAN 2003

     Moving to full accrual accounting leads to the reclassification of some
assets and liabilities. Some additional reclassifications have been made to
ensure conformity with current accounting standards. As shown in TableA6.1,
these reclassifications do not change the estimated value of the federal debt.

NET DEBT AND FEDERAL DEBT

            [LINE GRAPH SHOWING CHANGE IN NET DEBT AND FEDERAL DEBT]

IMPACT ON THE ANNUAL BUDGETARY BALANCE

The Government's fiscal anchor--the budgetary balance--is being presented on a
full accrual basis of accounting rather than on the previous modified accrual
accounting basis. As such, it better reflects current economic events and
government decisions.

     Table A6.2 reconciles the financial results for 2001-02 on a full accrual
basis of accounting with that previously published under modified accrual. The
budgetary surplus is now estimated at $8.2 billion, $0.7 billion lower than the
$8.9 billion under the modified accrual basis of accounting, largely reflecting
lower personal income tax revenues.

     The table shows separately the impact of moving to full accrual and the
impact of the classification changes. Although the classification changes affect
the individual components, they have no effect on the overall budgetary balance.
Among the major components:




                                      290


                                    ANNEX 6

     PERSONAL INCOME TAXES are $3.3 billion lower. Collections in 2001-02 were
affected by the extraordinary stock market gains in 2000, which resulted in
record final tax settlement payments in April and May 2001. Under accrual
accounting, these payments have been allocated to the year in which they were
earned. As a result, personal income tax revenues in 2001-02 have been lowered,
while those in 2000-01 have increased. There are also a number of classification
changes. Interest and penalties, which were previously included in personal
income tax revenues, are now part of other non-tax revenues. Largely offsetting
this impact is a reclassification of non-resident taxes from other income tax to
personal income tax revenues. Finally, repayments of Old Age Security benefits,
which were previously included in personal income taxes, are now netted against
elderly benefits.

     CORPORATE INCOME TAXES have been revised up by $0.6 billion. Half of this
is attributable to the reversal of the impact of the Budget 2001 measure which
allowed small businesses to defer their monthly instalments for January to March
2002 for a period of six months.

     OTHER INCOME TAX REVENUES are down $1.2 billion, primarily reflecting
reclassification of revenues between other income taxes and personal income
taxes.

     OTHER NON-TAX REVENUES are up $2.0 billion, primarily reflecting the
inclusion of interest and penalties on income tax owing. Previously, only
penalties and interest on goods and services tax revenues were included in this
component.

     Changes in the OTHER MAJOR REVENUE COMPONENTS are primarily attributable to
the timing of receipts.

     The decrease in ELDERLY BENEFITS is due to the reclassification of
repayments of Old Age Security benefits.

     The recognition of post-employment and retirement benefits (primarily
veterans' disability costs) as a liability results in a reduction in DIRECT
PROGRAM SPENDING with a roughly corresponding increase in PUBLIC DEBT CHARGES.
As these liabilities have been recognized in previous years, current benefit
payments no longer affect direct program spending. However, public debt charges
are now higher. This reflects the notional interest costs that ensure that the
liabilities established for future payments such as veterans' disability
benefits are always equal to the present value of those expected future
payments. This change does not cause higher cash payments to debt holders. This
is how the Government currently accounts for its unfunded public service pension
liabilities. Direct program spending is also affected by the capitalization of
assets, as the amortization adjustment is somewhat lower than capital
acquisitions.





                                      291


                              THE BUDGET PLAN 2003

TABLE A6.2

Impact of Full Accrual Accounting: 2001-02(1)




                                                        IMPACT OF MOVING TO FULL ACCRUAL
                                                -----------------------------------------------------
                                                MODIFIED    ACCRUAL    RECLASSI-     NET       FULL
                                                ACCRUAL     IMPACT     FICATION    IMPACT     ACCRUAL
                                                --------   ---------  ----------  --------  ---------
                                                                     (millions of dollars)
                                                                             
REVENUES
   Tax revenues
     Personal income tax                         83,790     -2,372        -882     -3,254     80,536
     Corporate income tax                        24,013        708        -156        552     24,565
     Other income tax                             3,035         76      -1,306     -1,230      1,805
                                                -------     ------      ------     ------    -------
     Total                                      110,838     -1,588      -2,344     -3,932    106,906

   Employment insurance
     premiums                                    17,980       -320                   -320     17,660
   Excise taxes and duties
     Goods and services tax                      24,909        637        -112        525     25,434
     Energy taxes                                 4,758         90                     90      4,848
     Customs import duties                        3,018         57                     57      3,075
     Other excise taxes and duties                3,953                                        3,953
                                                -------     ------      ------     ------    -------
     Total                                       36,638        784        -112        672     37,310

   TAX REVENUES                                 165,456     -1,124      -2,456     -3,580    161,876

   Non-tax revenues
     Return on investments                        5,892                                        5,892
     Other non-tax revenues                       1,967        263       1,722      1,985      3,952
                                                -------     ------      ------     ------    -------
     Total                                        7,859        263       1,722      1,985      9,844
                                                -------     ------      ------     ------    -------
   TOTAL REVENUES                               173,315       -861        -734     -1,595    171,720

TOTAL SPENDING
   Major transfers to persons
     Elderly benefits                            25,365          9        -734       -725     24,631
     Employment insurance benefits               13,748        -22                    -22     13,726
                                                -------     ------      ------     ------    -------
     Total                                       39,113        -13        -734       -747     38,357

     Major transfers to other levels
       of government                             26,616                                       26,616

   Direct program spending                       60,944     -1,653                 -1,653     59,291
                                                -------     ------      ------     ------    -------
   Total program spending                       126,673     -1,666        -734     -2,400    124,273

   Public debt charges                           37,735      1,532                  1,532     39,267
                                                -------     ------      ------     ------    -------
   TOTAL SPENDING                               164,408       -134        -734       -868    163,540

BUDGETARY SURPLUS                                 8,907       -727           0       -727      8,181
                                                -------     ------      ------     ------    -------


- -----------

(1)  Unaudited.






                                      292


                                    ANNEX 6

     The chart below shows the budgetary balance using both the full accrual
standard of accounting and the modified accrual standard back to 1993-94. Under
full accrual accounting, deficits over the 1993-94 to 1996-97 period are some
what lower than previously reported. The surplus for 1997-98 is slightly lower;
the surplus for 1998-99 is virtually unchanged while those for both 1999-2000
and 2000-01 are somewhat higher.

IMPACT OF FULL ACCRUAL ACCOUNTING ON THE BUDGETARY BALANCE

 [LINE GRAPH SHOWING IMPACT OF FULL ACCURAL ACCOUTING ON THE BUDGETARY BALANCE]

     Tables A6.3 to A6.6 present the summary statement of transactions,
budgetary revenues, total expenditures and the statement of assets and
liabilities on a full accrual basis of accounting for the years 1993-94 to
2001-02. The impact of moving to full accrual accounting has no effect on the
financial requirements/source. The reconciling entry is in non-budgetary
transactions.

                                       293



THE BUDGET PLAN 2003


TABLE A6.3
Summary Statement of Transactions: Full Accrual(1)



                                              1993-   1994-   1995-   1996-    1997-   1998-   1999-   2000-    2001-
                                              1994    1995    1996    1997     1998    1999    2000    2001     2002
                                              -----   -----   -----   -----    -----   -----   -----   -----    -----
                                                                         (billions of dollars)
                                                                                     
Budgetary transactions
   Revenues                                   116.9   122.8   130.8   141.0    152.1   156.0   165.7   182.3    171.7
   Expenditures
     Program                                  115.9   115.1   111.8   102.6    106.9   110.0   109.4   118.5    124.3
     Public debt charges                       39.5    43.5    48.4    46.4     42.4    42.9    43.1    43.6     39.3
                                              -----   -----   -----   -----    -----   -----   -----   -----    -----
     Total                                    155.4   158.6   160.2   149.0    149.3   152.9   152.5   162.1    163.5
   Annual deficit/surplus                     -38.5   -35.8   -29.4    -8.0      2.8     3.1    13.2    20.2      8.2
Federal debt (accumulated deficit)            482.1   517.9   547.3   555.3    552.5   549.4   536.2   516.0    507.7
Non-budgetary transactions
   Modified accrual                            12.2    11.6    11.4    10.2      8.9     8.4     1.9     0.8     -4.2
   Adjustment for accrual                      -3.5    -1.6     0.8    -0.9      1.0     0.0    -0.5    -2.0      0.7
                                              -----   -----   -----   -----    -----   -----   -----   -----    -----
   Revised                                      8.7    10.0    12.2     9.3     10.0     8.3     1.4    -1.2     -3.5
Financial requirement/source                  -29.9   -25.8   -17.2     1.3     12.7    11.5    14.6    19.0      4.7
Per cent of GDP
   Revenues                                    16.1    15.9    16.1    16.8     17.2    17.1    16.9    17.1     15.7
   Program spending                            15.9    14.9    13.8    12.3     12.1    12.0    11.2    11.1     11.4
   Public debt charges                          5.4     5.6     6.0     5.5      4.8     4.7     4.4     4.1      3.6
   Deficit/surplus                             -5.3    -4.7    -3.6    -1.0      0.3     0.3     1.3     1.9      0.7
   Federal debt (accumulated deficit)          66.3    67.2    67.5    66.4     62.6    60.0    54.7    48.4     46.5
                                              -----   -----   -----   -----    -----   -----   -----   -----    -----


- -------

(1)  Unaudited.





                                      294


                                    ANNEX 6


TABLE A6.4

Budgetary Revenues: Full Accrual(1)




                                            1993-      1994-     1995-    1996-      1997-     1998-     1999-     2000-     2001-
                                            1994       1995      1996     1997       1998      1999      2000      2001      2002
                                           -------   -------   -------   -------   -------   -------   -------   -------   -------
                                                                               (millions of dollars)
                                                                                                
Net income tax collections
   Personal income tax                      49,977    55,326    58,834    62,557    69,597    72,179    79,070    85,879    80,536
   Corporate income tax                      9,098    10,969    15,372    16,235    21,179    21,213    22,115    28,293    24,565
   Other                                     1,533     1,700     1,882     2,671     1,999     2,208     2,646     2,982     1,805
                                           -------   -------   -------   -------   -------   -------   -------   -------   -------
   Total                                    60,608    67,995    76,087    81,463    92,774    95,600   103,831   117,154   106,906
   Employment insurance premium revenues    19,298    18,293    19,089    19,949    19,242    19,064    18,628    18,655    17,660
   Net excise taxes and duties
     Goods and services tax                 15,939    17,062    16,880    18,159    19,717    20,936    23,121    24,759    25,434
     Customs import duties                   3,652     3,575     2,969     2,676     2,766     2,359     2,105     2,784     3,075
     Other excise taxes/duties
       Energy taxes                          3,640     3,824     4,404     4,467     4,638     4,716     4,757     4,792     4,848
       Other                                 3,647     2,904     2,856     3,876     3,995     3,640     3,234     3,471     3,953
                                           -------   -------   -------   -------   -------   -------   -------   -------   -------
     Total                                   7,287     6,728     7,260     8,343     8,633     8,356     7,991     8,263     8,801
                                           -------   -------   -------   -------   -------   -------   -------   -------   -------
   Total                                    26,878    27,365    27,109    29,178    31,116    31,651    33,217    35,806    37,310
NET TAX REVENUES                           106,785   113,653   122,285   130,590   143,132   146,315   155,676   171,615   161,876
Net non-tax revenues
   Return on investments                     6,142     5,021     4,475     4,210     4,427     4,991     5,251     6,144     5,892
   Other non-tax revenues                    3,973     4,082     4,038     6,202     4,492     4,715     4,778     4,577     3,952
                                           -------   -------   -------   -------   -------   -------   -------   -------   -------
   Total                                    10,115     9,103     8,513    10,412     8,919     9,706    10,029    10,721     9,844
NET BUDGETARY REVENUES                     116,900   122,756   130,798   141,002   152,051   156,021   165,705   182,336   171,720
                                           -------   -------   -------   -------   -------   -------   -------   -------   -------

- ------------------
(1)  Unaudited.





                                      295


                              THE BUDGET PLAN 2003


TABLE A6.5

Total Expenditures: Full Accrual(1)




                                        1993-      1994-     1995-     1996-     1997-     1998-     1999-     2000-     2001-
                                        1994       1995      1996      1997      1998      1999      2000      2001      2002
                                       -------   -------   -------   -------   -------   -------   -------   -------   -------
                                                                        (millions of dollars)
                                                                                            
Net major transfers to persons
   Elderly benefits                     19,578    20,143    20,430    21,207    21,758    22,285    22,856    23,668    24,641
   Employment insurance benefits        17,626    14,815    13,476    12,380    11,842    11,884    11,301    11,444    13,726
   Other                                     7                                                                 1,459
                                       -------   -------   -------   -------   -------   -------   -------   -------   -------
   Total                                37,211    34,958    33,906    33,587    33,600    34,169    34,157    36,571    38,367
Major transfers to other levels
   of government
   Canada Health and Social Transfer    16,846    17,443    16,671    14,758    12,612    16,028    14,947    13,500    17,300
   Fiscal arrangements                  10,101     8,870     9,405     9,418    10,000    11,645    10,721    12,684    11,978
   Alternative Payments for Standing
     Programs                                                         -2,014    -2,108    -2,150    -2,425    -2,460    -2,662
   Other                                                                                                       1,000
                                       -------   -------   -------   -------   -------   -------   -------   -------   -------
   Total                                26,947    26,313    26,076    22,162    20,504    25,523    23,243    24,724    26,616
   Net direct program spending          51,776    53,805    51,817    46,846    52,781    50,332    52,033    57,242    59,290
   NET PROGRAM SPENDING                115,934   115,076   111,799   102,595   106,885   110,024   109,433   118,537   124,273
   Public debt charges                  39,506    43,529    48,380    46,442    42,395    42,852    43,098    43,606    39,267
NET BUDGETARY EXPENDITURES             155,440   158,605   160,179   149,037   149,280   152,876   152,531   162,143   163,540
                                       -------   -------   -------   -------   -------   -------   -------   -------   -------


- ------------------
(1)  Unaudited.







                                      296


                                    ANNEX 6


TABLE A6.6

Statement of Assets and Liabilities: Full Accrual (as of March 31)(1)




                                                   1994    1995    1996    1997    1998    1999    2000    2001    2002
                                                  -----   -----   -----   -----   -----   -----   -----   -----   -----
                                                                        (billions of dollars)
                                                                                       
LIABILITIES
   Accounts payable, accruals, and allowances
   Accounts payable and accrued liabilities        25.3    30.4    33.2    32.4    37.9    41.1    38.2    39.6    34.1
   Tax refunds payable                             21.9    22.9    24.0    25.1    27.6    28.8    29.8    32.5    33.4
   Interest and matured debt                        6.5     4.8     7.4    10.4    10.4     9.8     8.4     9.1     7.8
   Allowance for loan guarantees                    4.9     5.5     5.4     5.3     4.2     4.1     3.9     4.0     4.1
                                                  -----   -----   -----   -----   -----   -----   -----   -----   -----
   Total accounts payable, accruals
     and allowances                                58.6    63.7    70.1    73.1    80.1    83.8    80.3    85.1    79.4

   Interest-bearing debt
   Pension and other accounts
   Public sector pensions                          94.1   101.0   107.9   114.2   117.5   122.4   128.3   129.2   126.9
   Other employee and veterans' future
     benefits                                      30.8    30.6    30.2    29.7    29.4    29.5    29.5    31.0    31.2
   Due to Canada Pension Plan                       2.7     3.4     3.6     3.7     4.2     5.4     6.2     6.4     6.8
   Other liabilities                                4.9     5.9     6.5     7.0     7.1     7.9     8.2     8.4     8.6
                                                  -----   -----   -----   -----   -----   -----   -----   -----   -----
   Total pensions and other accounts              132.5   140.9   148.2   154.6   158.1   165.3   172.2   174.9   173.5

   Unmatured debt                                 414.0   441.0   469.5   476.9   467.3   460.4   456.4   446.4   442.3
                                                  -----   -----   -----   -----   -----   -----   -----   -----   -----
   Total interest-bearing debt                    546.5   581.9   617.8   631.5   625.4   625.7   628.6   621.3   615.8

   TOTAL LIABILITIES                              605.1   645.6   687.9   704.6   705.5   709.5   708.9   706.4   695.1




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                              THE BUDGET PLAN 2003


TABLE A6.6

Statement of Assets and Liabilities: Full Accrual (as of March 31)(1) (cont'd)




                                                1994    1995    1996    1997    1998    1999    2000    2001    2002
                                               -----   -----   -----   -----   -----   -----   -----   -----   -----
                                                                        (billions of dollars)
                                                                                    
FINANCIAL ASSETS
   Cash and accounts receivable
     Cash and other receivables                  4.9     4.8    14.0    13.4    14.5    14.0    17.7    18.4    14.1
     Accounts receivable                        34.4    35.5    37.3    38.1    39.4    40.6    42.0    47.0    44.7
                                               -----   -----   -----   -----   -----   -----   -----   -----   -----
     Total cash and accounts receivable         39.3    40.3    51.3    51.5    53.9    54.6    59.7    65.4    58.8

   Foreign exchange transactions                12.9    14.4    19.1    26.8    29.0    34.7    41.5    50.3    52.0

   Loans, investments and advances
     Enterprise Crown corporations              23.3    22.2    18.7    17.8    16.6    15.1    14.3    14.2    13.7
     National governments                        9.1     8.8     8.8     8.7     6.9     7.6     7.3     7.5     7.3
     Other loans, investments and advances       8.5     9.6     5.2     5.4     5.7     6.2     6.6     8.8     9.9
     Less: allowance for valuation              17.1    16.1    12.5    11.9    10.8    11.1     9.9     9.3     9.7
                                               -----   -----   -----   -----   -----   -----   -----   -----   -----
   Total loans, investments and advances        23.7    24.5    20.2    20.0    18.4    17.7    18.2    21.2    21.3

   FINANCIAL ASSETS                             76.0    79.1    90.5    98.4   101.3   107.0   119.5   136.9   132.1
   NET DEBT                                    529.1   566.5   597.4   606.2   604.2   602.5   589.4   569.5   563.0
   NON-FINANCIAL ASSETS
   Tangible capital assets                      36.5    37.9    39.2    39.9    40.3    41.7    41.7    41.6    43.0
   Inventories                                   9.6     9.8    10.0    10.2    10.4    10.5    10.7    11.0    11.0
   Prepayments                                   0.9     0.9     0.9     0.9     0.9     0.9     0.9     0.9     1.2
                                               -----   -----   -----   -----   -----   -----   -----   -----   -----
   TOTAL NON-FINANCIAL ASSETS                   47.1    48.6    50.1    51.0    51.6    53.1    53.3    53.5    55.2
FEDERAL DEBT (ACCUMULATED DEFICIT)             482.1   517.9   547.3   555.3   552.5   549.4   536.2   516.0   507.7
                                               -----   -----   -----   -----   -----   -----   -----   -----   -----


- ------------------
(1)  Unaudited.


                                      298

ANNEX 7

THE BUDGETARY BALANCE, FINANCIAL REQUIREMENTS/ SOURCE, AND NATIONAL ACCOUNTS
BUDGET BALANCE







                                  THE BUDGET PLAN 2003

ALTERNATIVE MEASURES OF ANNUAL FISCAL POSITION

There are three basic measures of the federal government's fiscal position--two
are based on the Public Accounts (the budgetary balance and financial
requirements/source, which are audited by the Auditor General of Canada) and one
on the System of National Accounts, as prepared by Statistics Canada.

     Differences in the measures arise because the accounting frameworks are
designed for different purposes.

PUBLIC ACCOUNTS BUDGETARY BALANCE

The fundamental purpose of the Public Accounts is to provide information to
Parliament on the Government's financial activities, as required under the
Financial Administration Act. The Public Accounts are based on generally
accepted accounting principles for the public sector (as recommended by the
Public Sector Accounting Board [PSAB] of the Canadian Institute of Chartered
Accountants) and are audited by the Auditor General of Canada.

     With this budget, the Government is presenting its financial statements on
a full accrual basis of accounting, as recommended by the PSAB and the Auditor
General of Canada.

PUBLIC ACCOUNTS FINANCIAL REQUIREMENTS/SOURCE

The financial requirements/source, excluding foreign exchange transactions,
measures the difference between cash payments by the Government and cash
receipts. It is roughly equivalent to the amount of money that the Government
has to borrow in credit markets or the amount of market debt that the Government
is repaying. However, in any one year, changes in the Government's cash balance
and foreign reserve position can also have an effect on the level of market
debt.

     In contrast, the budgetary balance is on a full accrual basis of
accounting, recognizing revenues when they are earned and obligations when they
are incurred.

     Prior to April 1, 2000, the main difference between the budgetary balance
and the financial requirements/source was the treatment of federal government
employees' pension accounts. The budgetary balance included total annual
pension-related obligations (the Government's contribution as an employer for
current service costs plus interest on its borrowings from the pension
accounts), while the financial requirements/source included only the benefits
paid out in that year less employee premiums paid.







                                      300


                                     ANNEX 7

     The legislated reform of the federal employee pension plans has
significantly narrowed this difference. Effective April 1, 2000, contributions
to the plans are invested in the market, thereby reducing the difference between
the budgetary balance and financial requirements/source by about $3.5 billion.

     The move to full accrual accounting in this budget further affects the
difference between the two measures. If the accrual and resulting cash impact
occur in the same year, then there is no difference. However, if the cash impact
of the accrual falls in a different year, there will be a difference between the
two measures.

     Most industrialized countries present their budgets on a basis that is more
comparable to the financial requirements/source. The financial
requirements/source corresponds closely to the unified budget balance in the
United States.

NATIONAL ACCOUNTS BUDGET BALANCE

The primary objective of the National Accounts is to measure current economic
production and income. In the National Accounts the government sector is treated
on the same basis as other sectors of the economy. As such, only tax revenues
collected on income generated in the current year are included as revenues, and
only spending which relates to economic activity in the current year is included
as expenditures.

     National Accounts budget balances are used for international fiscal
comparisons by the Organisation for Economic Co-operation and Development and
the International Monetary Fund.

     The National Accounts also provide a consistent framework for aggregation
and comparison of the fiscal positions of the various levels of government in
Canada.

CONCLUSION

The Public Accounts budgetary balance (deficit or surplus) is the most
comprehensive of the three measures. It includes all financial transactions
between the Government and outside parties. It also includes revenues earned for
which cash has not been received and liabilities incurred during the year for
which no cash payment has been made. This is the measure that is audited by the
Auditor General.





                                      301


                              THE BUDGET PLAN 2003

     Each of the three measures provides important and complementary
perspectives on the Government's fiscal position. Although the measures differ
in their levels, their trends are broadly similar (see the table and chart
below).

TABLE A7.1
Alternative Measures of the Federal Fiscal Position 1993--94 to 2001--02





                      BUDGETARY                    FINANCIAL
FISCAL                 BALANCE                REQUIREMENTS/SOURCE                       NATIONAL
YEAR                (FULL ACCRUAL             (EXCLUDING FOREIGN                        ACCOUNTS
                       BASIS)                EXCHANGE TRANSACTIONS)                 BUDGET BALANCE(1)
                    -------------      ---------------------------------------   -------------------------
                      (millions        (per cent      (millions      (per cent    (millions      (per cent
                     of dollars)         of GDP)     of dollars)       of GDP)   of dollars)       of GDP)
                                                                               
1993--94                  -38,540          -5.3        -29,850          -4.1       -39,696          -5.5
1994--95                  -35,849          -4.7        -25,842          -3.4       -35,088          -4.6
1995--96                  -29,381          -3.6        -17,183          -2.1       -31,700          -3.9
1996--97                   -8,038          -1.0          1,265           0.2       -16,957          -2.0
1997--98                    2,771           0.3         12,729           1.4         6,476           0.7
1998--99                    3,144           0.3         11,491           1.3         7,676           0.8
1999--00                   13,174           1.3         14,566           1.5         8,151           0.8
2000--01                   20,193           1.9         18,991           1.8        17,750           1.7
2001--02                    8,180           0.7          4,697           0.4        11,244           1.0



Note: A positive number denotes a surplus while a negative number denotes a
deficit.

(1)  National Accounts budget balance figures are on a calendar-year basis.

ALTERNATIVE MEASURES OF THE FEDERAL FISCAL POSITION

    [LINE GRAPH SHOWING ALTERNATIVE MEASURES OF THE FEDERAL FISCAL POSITION]


                                      302


                                    ANNEX 7

ALTERNATIVE MEASURES OF DEBT

As the deficits or surpluses derived from these three measures are different, so
are the measures of debt (see Table A7.2).

o The sum of annual budgetary deficits and surpluses since Confederation under
full accrual accounting is the federal debt (accumulated deficit). The change in
this measure is the annual budgetary balance.

o For financial requirements/sources, the relevant measure is the stock of
market debt that the Government has outstanding.

o Another debt measure in the Public Accounts is interest-bearing debt. This
measure includes all interest-bearing liabilities of the Government of Canada
and is the most appropriate measure for calculating the average effective
interest rate. Interest-bearing debt is larger than market debt because it
includes liabilities that have not been issued on markets--notably the
Government's liabilities to its employees' pension accounts.

o The National Accounts net worth represents the Government's total liabilities
minus its assets. With the move to full accrual accounting, the difference
between the Public Accounts measure of the accumulated deficit and the National
Accounts measure of net worth has increased, mainly due to the recognition of
environmental liabilities, aboriginal claims, and post-employment and retirement
benefits.





                                      303


                                  THE BUDGET PLAN 2003
TABLE A7.2

Alternative Measures of the Federal Government Debt 1993--94 to 2001--02




                   FEDERAL DEBT            INTEREST-                                           NATIONAL
FISCAL             (ACCUMULATED             BEARING                  MARKET                    ACCOUNTS
YEAR                  DEFICIT)                DEBT                    DEBT                    NET WORTH(1)
- ------       ---------------------   -----------------------  ----------------------    ----------------------
              (billions  (per cent   (billions     (per cent  (billions    (per cent    (billions    (per cent
             of dollars)   of GDP)    of dollars)   of GDP)    of dollars)   of GDP)    of dollars)   of GDP)
                                                                             
1993--94        482.1        66.3        546.5       75.2         414.0       56.9         440.0       60.5
1994--95        517.9        67.2        581.9       75.5         441.0       57.2         473.9       61.5
1995--96        547.3        67.5        617.8       76.2         469.5       57.9         510.0       62.9
1996--97        555.3        66.4        631.5       75.5         476.9       57.0         519.6       62.1
1997--98        552.5        62.6        625.4       70.8         467.3       52.9         512.5       58.1
1998--99        549.4        60.0        625.7       68.4         460.4       50.3         499.2       54.6
1999--00        536.2        54.7        628.6       64.1         456.4       46.5         497.2       50.7
2000--01        516.0        48.5        621.3       58.3         446.4       41.9         472.9       44.4
2001--02        507.7        46.5        615.8       56.4         442.3       40.5         454.2       41.6



(1)  National Accounts net worth figures are on a calendar-year basis.


                                      304

ANNEX 8

THE GOVERNMENT'S RESPONSE TO THE AUDITOR GENERAL'S OBSERVATIONS ON THE 2002
FINANCIAL STATEMENTS








THE BUDGET PLAN 2003

This annex reviews the "Observations" made by the Auditor General on the
financial statements of the Government of Canada for fiscal year 2001-02.

The Auditor General expressed a "clean" opinion on the Government's financial
statements for 2001-02. This marks the 9th time in the last 11 years that the
Auditor General has given a "clean" opinion on the Government's financial
statements.

However, the Auditor General raised a number of matters for Parliament's
attention in her Observations on the 2002 Public Accounts of Canada:

o    compliance with the Employment Insurance Act;

o    transfers to foundations;

o    accrual accounting;

o    management estimates;

o    communicating Canada's financial results to Parliament and Canadians;

o    offsetting Canada Child Tax Benefit disbursements against revenues
     ("netting"); and

o    statement of transactions of the Debt Servicing and Reduction Account.

     The Government's response to a number of these observations is addressed in
Chapter 7, "Improving Expenditure Management and Accountability." This annex
summarizes the responses contained in that chapter as well as the other
observations.

COMPLIANCE WITH THE EMPLOYMENT INSURANCE ACT

In the 2002 Observations, the Auditor General noted that she was unable to
conclude that the setting of premium rates observed the intent of the Employment
Insurance Act.

     The Employment Insurance Act required that the Canada Employment Insurance
Commission set premium rates at levels that would cover program costs while
keeping rates relatively stable over the business cycle.

     The December 1999 Report of the Standing Committee on Finance noted that
the current rate-setting process, "...involves not only a 'look forward' process
in assessing the level of revenues sufficient to cover program costs over a
business cycle, but also a 'look back' process by taking into consideration the
level of any past excesses or shortfalls of revenues relative to program costs."
As employment insurance premium revenues and







                                      306


                                     ANNEX 8

program costs are consolidated with other programs in the Government's financial
statements, the "look back" provision, the Report concluded, would cause serious
disruptions to the overall management of the federal government's budget. The
Report recommended, therefore, that employment insurance rates should be set on
the basis of the level of revenue needed to cover program costs over the
business cycle looking forward and not take into account the level of the
cumulative surplus or deficit.

     Recognizing these difficulties, the Government announced that it would
undertake a review of the premium rate-setting process. In the interim, Bill C-2
gave power to the Governor in Council to set the rates for 2002 and 2003.

     With this budget, the Government will launch consultations on a new
permanent rate-setting regime for 2005 and beyond based on the following
principles, which draw from the recommendations made by the Standing Committee
on Finance as well as advice received in pre-budget consultations:

o    premium rates should be set transparently;

o    premium rates should be set on the basis of independent expert advice;

o    expected premium revenues should correspond to expected program costs;

o    premium rate-setting should mitigate the impact on the business cycle; and

o    premium rates should be relatively stable over time.

     The Government intends to implement the new rate-setting regime through
legislation for 2005. In the interim, the Government proposes to set the
employee premium rate for 2004 at $1.98 by legislation. Based on the private
sector economic forecasts used in the budget and proposed changes to the
program, it is estimated that this rate would generate premium revenues equal to
projected program costs for 2004.

TRANSFERS TO FOUNDATIONS

The Auditor General expressed concern with the way the Government accounts for
transfers to foundations. The Government's accounting policy is to recognize a
transfer to a foundation in the year in which the transfer takes place. The
Auditor General urged the Government to change its accounting policy to
recognize expenditures when the foundation transfers the funds to the ultimate
recipient.





                                      307


                              THE BUDGET PLAN 2003

     The booking of the liabilities to these foundations is an area where
existing accounting standards do not offer explicit guidance, and professional
judgment must be brought to bear. Recognizing this, the Government consulted two
major accounting firms, both of which endorsed the Government's approach.
Furthermore, the previous Auditor General reported that he undertook research on
the accounting treatment of such "special purpose entities" to determine if they
should be consolidated in the Government's financial statements as part of the
Government's overall reporting entity. From his research, he concluded that the
application of current PSAB (Canadian Institute of Chartered Accountants' Public
Sector Accounting Board) accounting recommendations requires considerable
judgment to determine the appropriate accounting treatment. A PSAB taskforce is
currently reviewing this issue to determine if additional guidance is required.

     The Government has consistently argued that foundations such as the Canada
Foundation for Innovation are at arm's length from the Government, so
established liabilities to such foundations should be recorded in the years in
which the decisions to provide funding are made. Decisions on the projects
selected are made by the directors of the foundations, under broad agreements
signed with the Government. The Government continues to believe that, in
applying PSAB recommendations, these entities should not be considered part of
government and, therefore, not consolidated within its financial statements.

     The current accounting treatment enhances transparency and accountability
to Parliament and Canadians. As such, in accordance with its stated accounting
policy, non-recurring liabilities will be recognized in the year the decision to
incur them is made, provided the enabling legislation or authorization for
payment receives parliamentary approval before the financial statements for that
year are finalized.

     Consistent with Treasury Board's new Policy on Alternative Service
Delivery, which came into effect on April 1, 2002, this budget outlines the
principles which the Government would consider in using a foundation to deliver
public policy. These are:

o Foundations should focus on a specific area of opportunity, in which general
policy direction is identified through legislation and/or a funding agreement.

o Foundations should harness the insight and decision-making ability of
independent boards of directors with direct experience and knowledge about the
issues at stake.




                                      308


                                    ANNEX 8

o Decisions by foundations should be made using expert peer review.

o Foundations should be provided with guaranteed funding that goes beyond the
annual parliamentary appropriations to give the foundations the financial
stability needed for comprehensive medium- and long-term planning that is
essential in their specific area of opportunity.

o Foundations should have the opportunity and hence the ability to lever
additional funds from other levels of government and the private sector.

     In addition to clarifying the policy principles underlying the use of
foundations, the Government will make a number of changes to enhance the
accountability and governance arrangements of these foundations to Canadians and
parliamentarians, including:

o The Government will seek parliamentary approval of purpose and funding through
direct legislation for those foundations which are significant either from a
policy or financial perspective. In all cases Parliament will need to approve
funding for foundations. As noted above, the Government's use of foundations
will respect the requirements of the Treasury Board's Policy on Alternative
Service Delivery.

o Foundations will be required to provide corporate plans annually to the
Minister responsible for administering the funding agreement over the duration
of the agreement. Such corporate plans will include planned expenditures,
objectives and performance expectations relating to the federal funding.
Summaries of these plans will be made public by the responsible Minister and
hence available to Parliament. In addition, the departmental Reports on Plans
and Priorities, which are tabled in Parliament, will incorporate the significant
expected results to be achieved and situate these within departments' overall
plans and priorities.

o The Annual Report for each foundation, including relevant performance
reporting, audited financial statements and evaluation results, will be
presented to the Minister responsible for the funding agreement and made public.
In addition, the Department responsible for administering the funding agreement
will report on the significant results achieved by the foundation(s) in its
Departmental Performance Report for the duration of the funding agreement and
situate these within the Department's overall results achieved.

o Foundations will be required to conduct independent evaluations, present these
to the Minister responsible and make them public. Departments will incorporate
any significant findings within their annual Departmental Performance Reports,
which are tabled annually in Parliament.







                                      309



                              THE BUDGET PLAN 2003

o All foundations' Annual Reports will contain performance information as well
as audited financial statements prepared in accordance with Generally Accepted
Accounting Principles. As foundations are independent not-for-profit
organizations that have their own governance structures and members, it is the
members, as "shareholders" of the foundation, who appoint their external auditor
and to whom the external auditor reports. Foundations will be subject to
independent evaluations, comprehensive performance reporting and compliance
audits relative to the use of federal funding. These would cover most of the
expectations relating to value-for-money audits.

o Funding agreements reached with foundations arising from the 2001 budget
contain provisions for audits of compliance with funding agreements and for
program evaluations. This will be the case for all new foundations going
forward. Departmental internal auditors, external auditors or the Auditor
General, at the discretion of the Minister, could undertake these audits.

o There will be provisions for intervention in all funding agreements in the
event the responsible Minister feels that there have been deviations from the
terms of the funding agreement. The provisions will provide for dispute
resolution mechanisms.

o In all new funding agreements provisions will be put in place so that the
responsible Minister may, at his/her discretion, recover unspent funds in the
event of winding up.

     The Government will consult with existing foundations to explore the scope
for making changes to their agreements with the Government to incorporate these
new requirements.

ACCRUAL ACCOUNTING

In the December 2001 budget the Government announced a delay in the
implementation of full accrual accounting, as certain important components of
information required to implement accrual accounting had not yet been finalized.
In her 2002 Observations the Auditor General encouraged the Government to
implement accrual accounting in the 2002-03 financial statements.

     The Government is moving to full accrual accounting in this budget. The
2003 budget fiscal projections are presented on a full accrual basis. Moreover,
the 2002-03 financial statements will be audited on that basis. For more details
see Annex 6.



                                      310


                                     ANNEX 8

MANAGEMENT ESTIMATES

The Government's financial statements include a number of management estimates
for valuation allowances for loans and investments, pension liabilities and
estimates of losses arising from contingent liabilities. In her 2002
Observations the Auditor General encouraged the Government to strengthen the way
it develops its management estimates and to implement a more rigorous and timely
challenge and review function.

     The Government has taken steps to strengthen monitoring and development of
its management estimates. It has established a senior level committee,
consisting of representatives of the Treasury Board Secretariat and the
Department of Finance, who meet with representatives of the Office of the
Auditor General on a quarterly basis to review the management estimates.

COMMUNICATING CANADA'S FINANCIAL RESULTS TO PARLIAMENT AND CANADIANS

In her 2002 Observations the Auditor General stated that both the Annual
Financial Report of the Government of Canada (AFR) and the Public Accounts of
Canada could be improved to better communicate the financial results.

     Following previous suggestions from the Auditor General and working closely
with the Auditor General's staff, substantial improvements have been made to the
AFR. In addition, a user survey was conducted following the release of the
1998-99 AFR. The results of the survey, which were published in the 2000 budget,
were generally very positive.

     As with all of its publications, the Government will continue to explore
ways in which the presentation of both the AFR and the Public Accounts of Canada
can be improved.





                                      311


                              THE BUDGET PLAN 2003

OFFSETTING CANADA CHILD TAX BENEFIT DISBURSEMENTS AGAINST REVENUES("NETTING")

The Government currently reports revenues and expenditures on a net basis. For
budgetary purposes, there are a number of tax expenditures that are netted
against revenues and a number of revenue items that are netted against spending.
Netted against revenues are the Canada Child Tax Benefit (CCTB), the quarterly
goods and services tax (GST) credit and repayments of Old Age Security benefits.
Netted against spending are revenues of consolidated Crown corporations and
revenues from levies charged by departments for specific services, such as the
costs of policing services in provinces. This netting has no impact on the
overall budgetary balance.

     The Auditor General argues that this represents incomplete financial
disclosure. The Auditor General has recommended that the financial statements
and the budget be prepared only on a gross basis.

     For budget purposes, the Government believes that the "net" presentation is
the appropriate approach because it is consistent with the way Parliament
appropriates funds. Furthermore, programs like the CCTB and the quarterly GST
credit are integral parts of the tax system. They are thus netted from tax
revenues for budgetary purposes.

     It is important to note that netting has no impact on the overall budgetary
balance. From a financial disclosure perspective, it is also important to note
that the Government already publishes this information in both the Annual
Financial Report of the Government of Canada and the Public Accounts of Canada.

STATEMENT OF TRANSACTIONS OF THE DEBT SERVICING AND REDUCTION ACCOUNT

The Debt Servicing and Reduction Account (DSRA) was established by statute in
June 1992. Under that legislation, all GST revenues, net of applicable input tax
credits, rebates and the low-income credit, along with the net proceeds from the
sale of Crown corporations and gifts to the Crown explicitly identified for debt
reduction, must be deposited into this account. The funds in this account are
earmarked to pay interest on the public debt and, ultimately, to reduce the
debt.





                                      312


                                     ANNEX 8

     At the same time, all revenues received by the Government must be deposited
in the Consolidated Revenue Fund (CRF), and any disbursements from it must be
authorized by Parliament. Therefore, the specific revenues of the DSRA must be
deposited in the CRF, and the public debt expenditures chargeable to the account
must be appropriated from it by Parliament.

     Auditors General have repeatedly questioned the need for this account. They
noted that "given the fundamental concept of the Consolidated Revenue Fund (CRF)
underlying the Government's accounting system, the Account is an internal
mechanism that may not be necessary." This issue was raised again in the Auditor
General's 2002 Observations.

     The Government has reviewed the DSRA and agrees that there is limited
usefulness in having a separate financial statement for the information
contained in the DSRA. Therefore, in this budget, it will introduce legislation
to terminate the DSRA. The Government will ensure that all of the information
contained in the DSRA continues to be reported in other parts of the
Government's financial statements.





                                      313

ANNEX 9

TAX MEASURES:
SUPPLEMENTARY INFORMATION AND NOTICES OF WAYS AND MEANS MOTIONS







TABLE OF CONTENTS



                                                          
TAX MEASURES: SUPPLEMENTARY INFORMATION ..................   319
   Overview ..............................................   320
   Income Tax Measures ...................................   321
     National Child Benefit Supplement ...................   321
     Child Disability Benefit ............................   323
     RRSP/RRIF Rollovers for an Infirm Child .............   324
     Eligibility Criteria for the Disability Tax Credit ..   325
     Eligible Expenses for the Medical Expense Tax Credit    326
     Retirement Savings Measures .........................   327
     Capital Gains Rollover for Small Business Investors .   329
     Qualified Limited Partnerships ......................   330
     Automobile Benefit and Expense Provisions ...........   331
     Small Business Deduction ............................   334
     Federal Capital Tax .................................   335
     Proposal to Improve Resource Taxation ...............   337
     Mineral Exploration Tax Credit ......................   337
     Capital Cost Allowance Class 43.1
       (Renewable and Alternative Energy) ................   338
     Tax Shelter Definition ..............................   339
     Film or Video Production Services Tax Credit ........   340
Income Taxation--Other Matters ...........................   341
     Tax Measures for Persons With Disabilities ..........   341
     Tax Pre-Paid Savings Plans ..........................   341
     Deductibility of Interest and Other Expenses ........   342
     Cross-Border Share-For-Share Exchanges ..............   342
   Excise Tax Measures ...................................   343
     Excise Tax Exemption for Bio-Diesel and E-Diesel Fuel   343
     Fuel Excise Tax Refund Claims .......................   343
     Tobacco Tax .........................................   344



                                      317




THE BUDGET PLAN 2003



                                                                   
     Goods and Services Tax/Harmonized Sales Tax Measures .........   345
       Public Sector Body Rebates .................................   345
       Sales Tax Considerations in Institutional Health Care Reform   346
     Other Measures ...............................................   347
       Harmonization of Administrative Provisions
         (Standardized Accounting) ................................   347
       First Nations Taxation .....................................   350

TAX MEASURES TO SUPPORT ECONOMIC AND SOCIAL OBJECTIVES,
   ENHANCE TAX FAIRNESS AND IMPROVE THE TAX STRUCTURE .............   351

NOTICES OF WAYS AND MEANS MOTIONS .................................   373
   Notice of Ways and Means Motion
     to Amend the Income Tax Act ..................................   375
   Notice of Ways and Means Motion
     to Amend the Excise Tax Act ..................................   384
   Notice of Ways and Means Motion
     to Amend the Customs Tariff, the Excise Tax Act and
     the Excise Act,2001 ..........................................   386






                                      318


TAX MEASURES: SUPPLEMENTARY INFORMATION






                                  THE BUDGET PLAN 2003
OVERVIEW

This annex provides detailed information on each of the tax measures proposed in
this budget. Table A9.1 lists those measures that are proposed to be legislated
pursuant to the 2003 budget and provides estimates of their budgetary impact.
This annex also provides a listing of measures that have been introduced since
1994 that support economic and social objectives, enhance tax fairness and
improve the tax structure.

     Finally, this annex provides Notices of Ways and Means Motions to amend the
Income Tax Act, the Excise Tax Act, the Excise Act, 2001 as well as the Customs
Tariff.

TABLE A9.1

Federal Revenue Impact of Proposed Tax Measures



                                                             2002-      2003-      2004-
                                                             2003       2004       2005
                                                             -----      -----      ------
                                                                (millions of dollars)
                                                                          
INCOME TAX MEASURES
   National Child Benefit supplement                           --        200        300
   Child Disability Benefit                                    --         40         50
   RRSP/RRIF rollovers for an infirm child                     --         10         10
   Eligibility criteria for the disability tax credit          --         --         --
   Tax measures for persons with disabilities(1)               --         25         80
   Medical expense tax credit                                  --         20         20
   Retirement savings measures                                 25        105        165
   Capital gains rollover for small business investors         --         10         10
   Qualified limited partnerships                              --         --         --
   Automobile benefit and expense provisions                   --         20         20
   Small business deduction                                    --         60        110
   Federal capital tax                                         --         60        395
   Proposal to improve resource taxation(2)                    10         55        100
   Mineral exploration tax credit                              --         --         25
   Capital cost allowance class 43.1                           --          5          5
   Tax shelter definition                                      --         --         --
   Film or video production services tax credit                --         25         25
EXCISE TAX MEASURES
   Excise tax exemption for bio-diesel and e-diesel
   fuel                                                        --         --         --
   Fuel excise tax refund claims                               --         --         --
GST/HST MEASURES
   Public sector body rebates                                  --         --         --
   Health care rebate(3)                                       --         30         55
OTHER MEASURES
   Harmonization of administrative provisions                  --         --         --
TOTAL                                                          35        665      1,370



- -    Small, non-existent or prevents revenue loss.

(1)  Amount set aside to improve assistance for persons with disabilities,
     drawing on the evaluation of the disability tax credit and advice of
     technical advisory committee (see Chapter 4).

(2)  Proposed changes to the tax structure for the resource sector to be set out
     in a technical paper to be released by the Department of Finance shortly
     following the budget (see Chapter 5).

(3)  Measure to be elaborated following consultations (see Chapter 3).





                                      320


                                     ANNEX 9
INCOME TAX MEASURES

NATIONAL CHILD BENEFIT SUPPLEMENT

The Canada Child Tax Benefit (CCTB) is the main federal instrument for the
provision of financial assistance to families with children. The CCTB has two
components: the CCTB base benefit, which is targeted to low- and middle-income
families, and the National Child Benefit (NCB) supplement, which provides
additional assistance to low-income families.

     The budget proposes to increase the annual NCB supplement through increases
of $150 per child in July 2003, $185 in July 2005 and $185 in July 2006. With
these increases and annual indexation, the maximum CCTB benefit for the first
child will reach $2,632 in July 2003, and a projected $3,243 in July 2007. As a
result of these enhancements, investment in the NCB supplement will be increased
by $965 million per year for the 2007 CCTB program year, bringing total CCTB
benefits to over $10 billion annually.





                                      321


                                  THE BUDGET PLAN 2003

TABLE A9.2

Components of the Canada Child Tax Benefit




                                                                                MAXIMUM BENEFIT(1)
                                              --------------------------------------------------------------------------
                                               JULY          JULY        JULY          JULY           JULY          JULY
PROGRAM YEAR                                   2002          2003        2004          2005           2006          2007
- ------------                                  -----         -----       -----         -----          -----         -----
                                                                                  (dollars)
                                                                                                 
BASE BENEFIT
   Basic amount per child                     1,151         1,169       1,196         1,221          1,246         1,271
   Additional benefit for
     third child and subsequent
     children                                    80            82          83            85             87            89
   Additional benefit for
     children under 7 years of age              228           232         237           242            247           252

NCB SUPPLEMENT
   First child                                1,293         1,463(2)    1,497         1,713(3)       1,933(4)      1,972
   Second child                               1,087         1,254(2)    1,283         1,495(3)       1,710(4)      1,745
   Third child and subsequent
     children                                 1,009         1,176(2)    1,203         1,413(3)       1,626(4)      1,660

TOTAL CCTB BENEFIT--
   CHILD 7 YEARS OF AGE
   AND OVER
   First child                                2,444         2,632(2)    2,693         2,934(3)       3,179(4)      3,243
   Second child                               2,238         2,423(2)    2,479         2,716(3)       2,956(4)      3,016
   Third child and subsequent
     children                                 2,240         2,427(2)    2,482         2,719(3)       2,959(4)      3,020

TOTAL CCTB BENEFIT--
   CHILD UNDER 7 YEARS OF AGE
   First child                                2,672         2,864(2)    2,930         3,176(3)       3,426(4)      3,495
   Second child                               2,466         2,655(2)    2,716         2,958(3)       3,203(4)      3,268
   Third child and subsequent
     children                                 2,468         2,659(2)    2,719         2,961(3)       3,206(4)      3,272


(1)  Amounts for July 2004-July 2007 are projections based on an average annual
     indexation factor of about 2 per cent.

(2)  Including $150 increase to the NCB supplement in July 2003.


(3)  Including $185 increase to the NCB supplement in July 2005 and indexation
     adjustments.

(4)  Including $185 increase to the NCB supplement in July 2006 and indexation
     adjustments.

     To target the increase in the NCB supplement to lower-income families, the
income threshold at which the NCB supplement begins to be phased out will be
adjusted, keeping the reduction rate for the first child constant at its July
2003 level.

     Corresponding increases in benefits will be proposed for the Children's
Special Allowance, which provides benefits parallel to the CCTB to provincial
agencies for children in the care of the province.





                                      322


                                         ANNEX 9

     Going forward, building on the NCB initiative, the federal government and
the provinces will need to ensure that low- and modest-income families with
children have enhanced incentives to work and earn income. This will include
examining the reduction or "claw-back" rates for the CCTB as well as other
elements of the tax and benefit structure that may affect incentives to work and
earn income for low- and modest-income families.

TABLE A9.3

Changes to the Income Thresholds of the Canada Child Tax Benefit(1)



                                        JULY       JULY       JULY       JULY       JULY       JULY
                                        2002       2003       2004       2005       2006       2007
                                       ------     ------     ------     ------     ------     ------
                                                                     (dollars)
                                                                            
BASE BENEFIT
   Start phase-out                     32,960     33,487     35,000     35,735     36,450     37,179
NCB SUPPLEMENT
   Start phase-out                     22,397     21,529     22,764     21,734     20,650     21,061
   End phase-out                       32,960     33,487     35,000     35,735     36,450     37,179



(1)  Projections for July 2004-July 2007 are based on an average annual
     indexation factor of about 2 per cent.

CHILD DISABILITY BENEFIT

In recognition of the special needs of low- and modest-income families with a
disabled child, the budget proposes to introduce a $1,600 Child Disability
Benefit (CDB). The CDB will be a supplement of the CCTB, and will be paid for
children who meet the eligibility criteria for the disability tax credit (DTC).

     The full $1,600 CDB will be provided for each eligible child to families
having a net income below the amount at which the National Child Benefit (NCB)
supplement is fully phased out (that is, $33,487 in July 2003 for families
having three or fewer children). Beyond that income level, benefits will be
reduced by 12.2 per cent for one disabled child, 22.7 per cent for two disabled
children, and 32.6 per cent for three or more disabled children. Accordingly,
the CDB will be reduced to zero as net family income reaches $46,602 for a
family caring for one disabled child, $47,584 for a family caring for two
disabled children, and $48,211 for a family caring for three disabled children.
The CDB amount and income thresholds will be indexed to inflation.





                                      323


THE BUDGET PLAN 2003

$1,600 CHILD DISABILITY BENEFIT

    [CHART SHOWING CHILD DISABILITY BENEFIT AS RELATED TO NET FAMILY INCOME]

     The CDB will be effective in July 2003 but will become payable and be
included with the CCTB payment starting in March 2004. Accordingly, in March
2004 eligible families will receive a retroactive payment for the July 2003 to
March 2004 period.

     This measure is estimated to benefit 40,000 families and to cost $50
million per year.

     Families will continue to be able to claim the DTC and the DTC supplement
for disabled children.

RRSP/RRIF ROLLOVERS FOR AN INFIRM CHILD

When the annuitant under a registered retirement savings plan (RRSP) or
registered retirement income fund (RRIF) dies, the existing income tax rules
generally provide that the value of the RRSP or RRIF is included in computing
the deceased's income for the year of death. However, preferential tax treatment
is provided on RRSP or RRIF distributions made after death to the deceased's
surviving spouse or common-law partner, or to children or grandchildren who were
financially dependent on the deceased annuitant. In the case of a child or
grandchild who was financially dependent on the deceased annuitant, the RRSP or
RRIF proceeds are included in the income of the child rather than in the
deceased's income. If the child or grandchild





                                      324


                                     ANNEX 9

was also dependent on the deceased annuitant by reason of physical or mental
infirmity, the RRSP or RRIF proceeds may be transferred without tax to the RRSP
of the child or may be used to purchase an immediate life annuity.

     Currently, a child or grandchild is considered to be financially dependent
if the child's income for the year preceding the year of death was below the
basic personal amount for that year. A child with income above this amount may
also be considered to be financially dependent, but only if the dependency can
be demonstrated based on the particular facts of the situation. In recognition
of the need to provide ongoing care for dependent infirm children and to provide
supporting parents and grandparents with greater certainty in their estate
planning, the budget proposes to increase the level of income used to determine
the financial dependence of an infirm child or grandchild from $7,634 to $13,814
(indexed after 2003).

The measure will apply for the 2003 and subsequent taxation years.

ELIGIBILITY CRITERIA FOR THE DISABILITY TAX CREDIT

The disability tax credit (DTC) provides tax relief to individuals who, due to
the effects of a severe and prolonged impairment, require extensive therapy to
sustain a vital function or are blind or otherwise markedly restricted in their
ability to perform a basic activity of daily living. The basic activities of
daily living for determining eligibility for the DTC are: perceiving, thinking
and remembering; feeding and dressing oneself; speaking; hearing; eliminating
bodily waste; and walking.

     In March 2002, the Federal Court of Appeal rendered a decision that has
been interpreted as expanding eligibility for the DTC to individuals who,
because of food allergies or other similar conditions, must spend an inordinate
amount of time to shop for and prepare suitable food. Such an expansion of
eligibility goes far beyond the intent of the DTC and could increase the fiscal
cost significantly.

     Draft amendments to clarify the DTC eligibility criteria were released
on August 30, 2002. On November 29, 2002, the Minister of Finance announced that
the Department of Finance would consult further to develop revised proposals to
deal with the issues arising from the court decision. The budget proposes the
following three measures relating to the DTC.

     The first measure ensures that individuals markedly restricted in either
feeding or dressing themselves will continue to qualify for the DTC. This
measure was originally put forward in the proposed changes released last August,
and follows from a recommendation of the Standing Committee on Human Resources
Development and the Status of Persons with Disabilities.




                                      325


                                  THE BUDGET PLAN 2003

     The second measure specifies that the activity of "feeding oneself" does
not include any of the activities of identifying, finding, shopping for or
otherwise procuring food, or the activity of preparing food to the extent that
the time associated with that activity would not have been necessary in the
absence of a dietary restriction or regime. Accordingly, individuals who are
markedly restricted in their ability to prepare a meal for reasons other than a
dietary restriction (such as severe arthritis) will continue to be eligible for
the DTC.

     The third measure specifies that the activity of "dressing oneself" does
not include the activities of finding, shopping for and otherwise procuring
clothes.

     These measures contribute to ensuring that the DTC continues to be provided
to those most in need. These amendments are proposed to apply to the 2003 and
subsequent taxation years.

     As further follow-up to the consultations announced in the November 29,
2002, press release, the budget proposes, as set out below, that the list of
expenses eligible for the medical expense tax credit be expanded to include the
incremental cost associated with the purchase of gluten-free food products for
individuals with celiac disease who require a gluten-free diet.

ELIGIBLE EXPENSES FOR THE MEDICAL EXPENSE TAX CREDIT

The medical expense tax credit (METC) recognizes the effect of above-average
medical expenses on an individual's ability to pay tax. For 2003, the credit
equals 16 per cent of qualifying medical expenses in excess of the lesser of
$1,755 or 3 per cent of net income. The list of eligible medical expenses is
regularly reviewed in light of new technologies and other disability-specific or
medically related developments.

     This budget proposes to expand the list of eligible medical expenses to
include:


o the cost of real-time captioning, paid to persons engaged in the business of
providing such services, on behalf of individuals with a speech or hearing
impairment;

o the cost of note-taking services used by individuals with mental or physical
impairments and paid to persons engaged in the business of providing such
services, and the cost of voice recognition software used by individuals with a
physical impairment--the need for these services or the software must be
certified by a medical practitioner; and





                                      326


                                         ANNEX 9

o the incremental cost associated with the purchase of gluten-free food products
for individuals with celiac disease who require a gluten-free diet.


These additions will apply to the 2003 and subsequent taxation years.

RETIREMENT SAVINGS MEASURES

The budget proposes several measures relating to registered pension plans
(RPPs), registered retirement savings plans (RRSPs) and deferred profit sharing
plans (DPSPs). The proposed measures will support savings and help better meet
the retirement savings needs of Canadians.

RPP AND RRSP LIMITS

In 1996, the contribution limits for money purchase RPPs and RRSPs were frozen
at $13,500, after having been reduced from their 1995 levels of $15,500 and
$14,500 respectively. The $1,722 maximum pension limit for defined benefit RPPs
has been effectively frozen since 1976.

     Setting appropriate limits on tax-assisted retirement savings in RPPs,
RRSPs and DPSPs is an important means of encouraging savings, assisting
Canadians to plan and fund their retirement, and allowing employers in Canada to
provide competitive compensation packages to attract and retain highly skilled
personnel. Accordingly, the budget proposes the following increases in the
limits:

o The money purchase RPP limit will be increased to $15,500 for 2003, $16,500
for 2004 and $18,000 for 2005. Corresponding increases will be made to the
maximum pension limit of $1,722 per year of service for defined benefit RPPs,
thus raising the limit to $1,833 for 2004 and $2,000 for 2005.

o The DPSP limit will remain at one-half of the money purchase RPP limit. The
RRSP limit will be increased to $14,500 for 2003, $15,500 for 2004, $16,500 for
2005 and $18,000 for 2006.

o The RPP and DPSP limits will be indexed to average wage growth starting in
2006, and the RRSP limit will be indexed starting in 2007.





                                      327


                                  THE BUDGET PLAN 2003

     The existing and proposed limits are shown in the table below:

TABLE A9.4

Existing and Proposed RPP/RRSP Limits




                                                 2003        2004       2005        2006        2007
                                               ------      ------    --------   ---------   ----------
                                                                              (dollars)
                                                                             
MONEY PURCHASE RPPS
   Annual contribution limit
   Existing                                    14,500      15,500    indexed
   PROPOSED                                    15,500      16,500     18,000     INDEXED

DEFINED BENEFIT RPPS
   Maximum pension benefit
   (per year of service)
   Existing                                     1,722       1,722    indexed
   PROPOSED                                     1,722       1,833      2,000     INDEXED

RRSPS
   Annual contribution limit
   Existing                                    13,500      14,500     15,500     indexed
   PROPOSED                                    14,500      15,500     16,500      18,000     INDEXED



     The rules for calculating past service pension adjustments under defined
benefit RPPs will be modified to provide an exclusion for benefit increases
arising directly as a result of increases to the maximum pension limit.

RRIF-TYPE PAYOUTS FROM MONEY PURCHASE RPPS

Members of money purchase RPPs generally have two options on retirement. They
can purchase a life annuity with their money purchase account or they can
transfer the account to an RRSP or a registered retirement income fund (RRIF).

     To provide increased flexibility on retirement, the budget proposes to
allow money purchase RPPs to pay pension benefits in the form of the same income
stream currently permitted under a RRIF. This measure will allow money purchase
plan members to choose to benefit from the flexibility a RRIF offers without
having to assume greater responsibility for investment decisions or to pay the
higher investment fees typically charged on individual plans.

     A member will be required to withdraw from their money purchase account a
minimum amount each year beginning no later than the year in which they attain
age 70. The minimum amount will be determined in accordance with the existing
rules that apply to RRIFs.




                                      328


                                     ANNEX 9

     This measure will also permit the transfer of funds back into a pension
plan by former members who had previously transferred their money purchase
account to an RRSP or RRIF, subject to the new RRIF-type payout requirement.

The proposed changes will apply after 2003.

MAXIMUM PENSION ACCRUAL RATE FOR FIRE FIGHTERS

On May 2, 2002, the House of Commons passed a motion recommending that the
Government increase the pension accrual rate for fire fighters. The maximum
pension accrual rate in paragraph 8503(3)(g) of the Income Tax Regulations is
currently set at 2 per cent of earnings. The budget proposes to increase this
rate to 2.33 per cent for fire fighters who are members of defined benefit RPPs
that are integrated with the Canada or Quebec Pension Plan. This will allow the
pension benefits for fire fighters to be enhanced within an integrated plan
structure.

     The measure will not increase the tax assistance limit on pension benefits
available to fire fighters--the current maximum pension limit of 2 per cent per
year of service of best average earnings will continue to apply to benefits
provided to all defined benefit RPP members, including fire fighters.
The measure will apply for the 2003 and subsequent taxation years.

CAPITAL GAINS ROLLOVER FOR SMALL BUSINESS INVESTORS

A number of recent tax initiatives, including successive reductions in capital
gains inclusion rates, the introduction of a tax deferral or "rollover" on the
sale of small business corporation shares, and improvements in the regime for
venture capital investment by pension funds and non-resident investors, respond
to submissions made by the venture capital industry. The budget proposes two
further changes relating to the small business rollover and to the rules
applying to "qualified limited partnerships" that are designed to support
venture capital investment in Canada.

     The small business capital gains rollover measure was introduced in 2000 to
provide small businesses, especially start-up companies, greater access to risk
capital.

     Currently, an individual is allowed to defer the taxation of capital gains
realized on the disposition of common shares issued to the individual by an
eligible small business corporation. This deferral is available with respect to
an individual's investment of up to $2 million in such shares, and only to the
extent that the proceeds are reinvested in common shares of other eligible





                                      329


                                  THE BUDGET PLAN 2003

small business corporations. There are no limits on the total amount of the gain
eligible for deferral, provided that the amount reinvested in shares of a
particular corporation or related group does not exceed $2 million. To qualify
for a deferral, the reinvestment must take place no later than 120 days after
the original shares were disposed of and not more than 60 days after the end of
the year of disposition.

     To encourage greater access to risk capital, the capital gains rollover
measure will be expanded by:

o eliminating the $2-million limit on the amount of the original investment on
which the deferral is allowed;

o eliminating the $2-million limit on the amount that can be reinvested in
shares of eligible small business corporations; and

o allowing a reinvestment to be made at any time in the year of disposition or
within 120 days after the end of that year.

These changes will apply to dispositions that occur after February 18, 2003.

QUALIFIED LIMITED PARTNERSHIPS

Limited partnerships have a number of potential advantages as an investment
vehicle: they facilitate the pooling of investment funds; they limit investors'
liability; and, for income tax purposes, they allow any income or loss of the
partnership to be flowed through to investors. For these and other reasons,
limited partnerships are often chosen for venture capital investments.

     However, an interest in a limited partnership is generally treated as
"foreign property" for the purposes of the income tax rules that limit the
amount of foreign property that a deferred income plan may hold. This can reduce
the attractiveness of limited partnership investments for Canadian pension
funds, which represent a significant potential source of venture capital.

     The characterization of limited partnership investments as foreign property
does not apply to a qualified limited partnership (QLP). Accordingly, a QLP can
be an effective vehicle for pension funds wishing to make venture capital
investments.

     The Income Tax Regulations set out several conditions that must be met for
qualification as a QLP. One of these conditions was relaxed in the 2001 budget,
following industry consultations. Since then, other technical aspects of the QLP
rules have been identified as restricting the ability of a typical Canadian
venture capital fund to structure itself as a QLP. In response to these
concerns, the budget proposes the following changes to the QLP rules:




                                      330


                                     ANNEX 9


o The requirement that QLP units be identical will be relaxed to accommodate
differences in units that do not impact on the share or nature of the
partnership's income or loss allocated among limited partners. With this change,
matters such as variations in voting rights, the right to participate in
investment advisory committees, and co-investment rights will not be taken into
account in determining whether the units of a QLP are identical.

o The manner in which the foreign property limit is applied to QLPs will be
changed to more closely reflect the manner in which the limit is applied to
mutual fund trusts. This means that a QLP unit will generally not be treated as
foreign property during a calendar year, provided the QLP satisfied the foreign
property limit throughout the previous calendar year. This change will prevent a
QLP from permanently losing its status as a QLP solely because its foreign
property holdings had exceeded the 30% limit at some point in the past.

o The QLP rules will be modified to provide that a partnership does not lose its
QLP status solely because of a temporary fluctuation in the general partner's
share of the partnership's income as a result of the limited partners having
priority in the ordering of distributions.

o The investment limitations on a QLP will be relaxed to allow a QLP to invest,
as a limited partner, in units of other QLPs. However, for the purpose of
applying the foreign property limit to the investing QLP, the units of the other
QLP will be treated as foreign property of the investing QLP in the same
proportion as the foreign property held by the other QLP.

These measures will apply for the 2003 and subsequent taxation years.

AUTOMOBILE BENEFIT AND EXPENSE PROVISIONS

There are a number of income tax provisions that restrict the deductibility of
automobile expenses, generally in order to recognize the existence of an element
of personal consumption benefit. These restrictions include limits on the
capital cost of an automobile that can be depreciated for income tax purposes as
well as limits on the deduction of automobile lease payments, interest paid on
automobile loans, and tax-exempt allowances paid to employees. There are also
specific provisions to determine the amount of a taxable benefit for the
personal use of an employer-provided automobile.

     These provisions generally apply to automobiles, which are defined to
include any motor vehicle designed to carry individuals on highways and streets
and seating a driver and up to 8 passengers. However, certain vehicles




                                      331


                              THE BUDGET PLAN 2003

are specifically excluded from the definition of automobiles for this purpose,
including ambulances, taxis, buses and, in certain circumstances, vans or
pick-up trucks.

There are instances where the current limits on the deduction of automobile
expenses may be too restrictive or the taxable benefit may be excessive. As a
result, the budget proposes three changes to improve the fairness of the
application of the automobile provisions.

STANDBY CHARGE WHEN PERSONAL USE IS LIMITED OR RESTRICTED

The automobile standby charge reflects the benefit of having an
employer-provided vehicle available for personal use. The regular standby charge
is set at 2 per cent per month of the original cost of the vehicle (or
two-thirds of the lease payment).

     This charge can be reduced to the extent that personal driving is less
than 12,000 kilometres per year, but only if all or substantially all--generally
90 per cent--of the driving is for business purposes. However, the amount of the
taxable benefit may be excessive in certain circumstances. For example, although
employers may often restrict the non-business use of employer-provided vehicles
to commuting to and from work, the full standby charge would still apply where
commuting exceeds the 12,000-kilometre annual threshold or represents more than
10 per cent of total driving.

     To improve the application of the standby charge, the budget proposes to
allow the reduced standby charge to apply to the extent annual personal driving
does not exceed 20,000 kilometres, and the automobile is used primarily--that
is, more than 50 per cent--for business purposes. For example, where a vehicle
is driven 25,000 kilometres a year for business and 15,000 kilometres a year for
commuting and other personal driving, the standby charge will be 75 per cent
(15,000 divided by 20,000) of the regular standby charge.

     This measure will apply to the 2003 and subsequent taxation years.

EXTENDED CAB PICK-UP TRUCKS

Pick-up trucks and vans having a seating capacity for not more than a driver and
two passengers are excluded from the definition of automobile (and thereby the
restrictions on expense deductibility) if they are used primarily for the
transportation of goods or equipment in the course of gaining or producing
income. Such vehicles having a seating capacity for more than a driver and two
passengers are also excluded from the





                                      332


                                     ANNEX 9

automobile definition, but only if all or substantially all of the driving is
for the transportation of goods, equipment or passengers in the course of
gaining or producing income.

     "Extended cab" pick-ups, and similar trucks, having seating for more than
the driver and 2 passengers are often used at remote work locations to transport
workers and to evacuate workers in an emergency. In many instances, however, the
use of such vehicles does not substantially relate to the transportation of
goods, equipment or passengers in the course of gaining or producing income,
with the result that the vehicle is subject to the restrictions on the deduction
of expenses that apply to automobiles. This result may not be appropriate where
there is a need for a larger passenger-carrying capability such as for the
transportation of work crews.

     Therefore, the budget proposes to introduce a new exclusion from the
automobile definition for extended cab pick-up trucks used primarily for the
transportation of goods, equipment or passengers in the course of earning or
producing income at a work site at least 30 kilometres from any community having
a population of at least 40,000. Excluding such trucks used in these
circumstances will permit the full deduction of reasonable allowances paid to
employees for the use of employees' vehicles and permit the full deduction of
capital cost allowance, interest and lease costs related to these vehicles. This
proposal will also exclude these vehicles from the provisions requiring the
inclusion of a standby charge and operating expense benefit in the employee's
income.

     This amended definition will apply for taxation years that begin after
2002.

EMERGENCY FIRE AND POLICE VEHICLES

Many fire and police emergency-response vehicles are considered to be
automobiles and are therefore subject to the standby charge provisions. However,
in many instances, fire and police officers are often required to have immediate
access to their vehicles in order to respond as quickly as possible to an
emergency. In addition, it is often the case that use of the vehicle for
personal driving, other than for commuting to and from work and when on call, is
prohibited.

     The budget proposes to introduce a new exclusion from the automobile
definition for clearly marked police and fire emergency-response vehicles. This
change will exclude these vehicles from the provisions requiring the inclusion
of a standby charge and operating expense benefit in the employee's income.

     This measure will apply to the 2003 and subsequent taxation years.





                                      333


                              THE BUDGET PLAN 2003

SMALL BUSINESS DEDUCTION

The Government recognizes the important role that small businesses play in the
Canadian economy. The Government also recognizes that many small businesses have
difficulty in obtaining adequate financing. As a result, the federal income tax
system provides considerable tax support to small businesses, most significantly
through a reduced income tax rate provided under the "small business deduction".

     The small business deduction reduces the basic federal corporate income tax
rate to 12 per cent for the first $200,000 of active business income of a
Canadian-controlled private corporation (CCPC). This provision helps small CCPCs
retain more of their earnings for reinvestment and expansion. In addition, CCPCs
have, since 2001, benefited from a 21-per-cent corporate tax rate on active
business income between $200,000 and $300,000, a rate that will be fully phased
in for larger corporations in 2004.

     In order to provide additional support to small business, the budget
proposes that the annual amount of active business income eligible for the
reduced 12-per-cent tax rate--generally referred to as the "small business
limit"--be increased by $100,000, to $300,000, as follows:


o    for 2003, to $225,000,

o    for 2004, to $250,000,

o    for 2005, to $275,000, and

o    after 2005, to $300,000.

     Once fully implemented in 2006, this measure will reduce the federal
corporate income tax payable by a CCPC on its active business income by up to
$9,000 annually.

     These small business limits will be pro-rated where the taxation year of
the corporation does not coincide with the calendar year. In addition, there
will continue to be a requirement to allocate these limits among associated
corporations, and the limits will continue to be reduced on a straight-line
basis for CCPCs having between $10 million and $15 million of taxable capital
employed in Canada.

     For taxation years that begin before 2004, eligible CCPCs will continue to
have advance access to the reduced 21-per-cent general corporate income tax rate
on active business income exceeding the small business limit, as determined
above, up to $300,000.





                                      334


                                     ANNEX 9

     CCPCs are eligible to earn investment tax credits at an enhanced rate of 35
per cent on up to $2 million of scientific research and experimental development
expenditures annually. This $2-million expenditure limit is phased out as
taxable income in the previous year increases from $200,000 to $400,000 and
taxable capital of the previous year increases from $10 million to $15 million.
For these smaller CCPCs, all tax credits earned at the higher 35-per-cent rate
on current expenditures are fully refundable, and tax credits earned at the
higher rate on capital expenditures are 40-per-cent refundable.

     As a consequence of the proposal to increase the small business limit, the
budget also proposes that the $2-million expenditure limit be phased out where
taxable income in the previous year is between $300,000 and $500,000. This
change will apply where the previous taxation year ends after 2002. The
phase-out based upon taxable capital will not be changed.

     CCPCs that claim a small business deduction are permitted to pay any
balance of corporate income tax owing at the end of the third month after the
end of their taxation year, one month later than other corporations, provided
their taxable income in the previous year is less than the small business limit
for that year. As a consequence of increasing the small business limit, some
CCPCs with taxable income above $200,000, but below the proposed new limits,
will now have one more month in which to pay any balance of tax owing.

FEDERAL CAPITAL TAX

Unlike income taxes, which are paid when a corporation has taxable income,
capital taxes must be paid even where a corporation has not been profitable.
Capital taxes have been identified as a significant impediment to investment in
Canada.

     The federal capital tax was introduced in 1989 as Part I.3 of the Income
Tax Act. This tax is levied annually at a rate of 0.225 per cent of a
corporation's taxable capital employed in Canada in excess of a $10-million
capital deduction. A corporation's taxable capital is generally described as the
total of its shareholders' equity, surpluses and reserves, as well as loans and
advances to the corporation, less certain types of investments in other
corporations. A corporation's federal income surtax (1.12 per cent of taxable
income) is deductible against the corporation's capital tax liability.

     In order to promote investment, the budget proposes to eliminate this
federal capital tax over five years, starting January 1, 2004. This proposal
will be implemented by increasing the threshold for application of the tax from
$10 million to $50 million of capital, for taxation years ending after 2003, and
by reducing the rate of tax over the period 2004 to 2008.





                                      335


                              THE BUDGET PLAN 2003

     Federal capital tax liability will be eliminated for almost 5,000
medium-size corporations in 2004. The federal capital tax will be fully
eliminated in 2008.

     The following table summarizes the proposed changes to the federal capital
tax rates and threshold for application:

TABLE A9.5




                                                  2003       2004       2005       2006        2007
                                                 -----      -----      -----      -----      ------
                                                                              
Rate                                             0.225%     0.200%     0.175%     0.125%     0.0625%
Capital deduction threshold ($ millions)             10         50         50         50          50



     Rates will be pro-rated for taxation years that do not coincide with the
calendar year. The increased $50-million capital deduction will apply to all
taxation years ending after 2003, and will not be pro-rated. However, this
deduction will continue to be allocated among corporations within a related
group.

     Currently, federal corporate surtax in excess of a corporation's federal
capital tax liability for a taxation year may be applied against the
corporation's capital tax liability for the three preceding and seven subsequent
taxation years. After 2003, such excess corporate surtax (referred to as "unused
surtax credits") will continue to be calculated as if the federal capital tax
rate had remained at 0.225%, and the capital deduction had remained at $10
million. This will limit the ability of corporations to carry back and carry
forward unused surtax credits that arise solely because of the phased
elimination of the federal capital tax.

     The federal capital tax rules are relevant in determining the application
of a number of other provisions that impose special requirements or limitations
on larger corporations. To ensure that those provisions continue to operate
appropriately, the reduction under subsection 125(5.1) of the Act of the
"business limit" of larger Canadian-controlled private corporations, and the
definition "large corporation" in subsection 225.1(8), will continue to apply as
if there were no change to the current federal capital tax rate and capital
deduction. The federal capital tax levied on large financial institutions under
Part VI of the Income Tax Act will continue to apply with no change.




                                      336


                                     ANNEX 9

PROPOSAL TO IMPROVE RESOURCE TAXATION

Building on the Five-Year Tax Reduction Plan that lowered the general federal
corporate income tax rate from 28 per cent in 2000 to 21 per cent in 2004, the
Government proposes to improve the taxation of resource income by phasing in,
over a period of five years:

o a reduction of the federal statutory corporate income tax rate on income from
resource activities from 28 per cent to 21 per cent;

o a deduction for actual provincial and other Crown royalties and mining taxes
paid and the elimination of the existing 25-per-cent resource allowance; and

o a new tax credit for qualifying mineral exploration expenditures.


Transitional arrangements will be proposed in particular relating to the Alberta
Royalty Tax Credit.

     The proposal is discussed in Chapter 5 of the Budget Plan. A technical
paper to be released by the Department of Finance shortly following the budget
will set out the proposed changes to the resource tax structure in greater
detail.

MINERAL EXPLORATION TAX CREDIT

In October 2000, the Government introduced a tax credit for mineral exploration
as a temporary measure to moderate the impact of the global downturn in
exploration activity on mining communities across Canada. This credit applies at
the rate of 15 per cent of specified surface "grass roots" mineral exploration
expenses incurred in Canada by a corporation before 2004 and renounced to an
individual pursuant to a flow-through share agreement.

     A number of key mineral-producing provinces have also introduced similar
tax credits for mineral exploration. The operation of both the federal and
provincial mineral exploration tax credits has been reviewed by an
inter-governmental working group on the mineral industry, which recommended that
the credit be extended by at least one year and that the credit apply to
eligible expenses which are deemed to have been incurred in the final year of
the credit program under the existing "look-back" rule. The look-back rule
allows a corporation which incurs expenses in a given calendar year to renounce
those expenses to a flow-through share investor effective as of the last day of
the preceding year.





                                      337


                              THE BUDGET PLAN 2003

     The budget proposes to extend the scheduled expiry date for the mineral
exploration tax credit from December 31, 2003 to December 31, 2004, and that the
credit apply to eligible expenses incurred by a corporation in 2005 that are
deemed to have been incurred by a flow-through share investor on
December 31, 2004, under the "look-back" rule.

CAPITAL COST ALLOWANCE CLASS 43.1

(RENEWABLE AND ALTERNATIVE ENERGY)

Under the capital cost allowance (CCA) regime in the income tax system, Class
43.1 provides tax incentives in defined circumstances to encourage a more
efficient use of fossil fuels and the use of renewable and alternative energy
sources. Eligible assets qualify for an accelerated CCA rate of 30 percent.
Since the introduction of Class 43.1 in the 1994 budget, the Government has
expanded eligibility for this class.

     The 2001 budget announced consultations with industry to determine whether
additional improvements were required for Class 43.1. As a result of the
consultations and submissions received, this budget proposes to further broaden
eligibility for Class 43.1. These changes will apply to property acquired after
February 18, 2003.

     Fuel cells use hydrogen to generate electricity, or electricity and heat.
This budget proposes that certain fixed-location fuel cells and ancillary fuel
reformation and electrolysis equipment will now be eligible for Class 43.1
treatment. In order to qualify:


o the fuel cells must have a peak capacity of not less than 3 kilowatts of
electrical output;

o the fuel cells must be part of a system that includes fuel reformation
equipment or electrolysis equipment;

o where the fuel cells use hydrogen generated from ancillary fuel reformation
equipment that uses fossil fuel, the fuel cell system will be required to
satisfy the existing 6000-BTU-per-Kwh heat rate calculation; and

o where the fuel cells of a taxpayer use hydrogen generated by ancillary
electrolysis equipment, the electrolysis equipment must use solar energy, wind
energy conversion or hydroelectric energy equipment of the taxpayer.

This change will help make fuel cells more cost-competitive with both
conventional power sources and other new technologies already in Class 43.1.





                                      338


                                     ANNEX 9

     This budget also proposes changes to provide incentives for the use of
bio-oil. Bio-oil is created through a thermo-chemical conversion process that
uses biomass that is wood waste or other plant residues. Equipment of a taxpayer
that is used in a system to convert biomass into bio-oil will now be eligible
for Class 43.1 if this bio-oil is used by the taxpayer (or a lessee) primarily
to generate electricity or electricity and heat. Bio-oil is considered to be a
neutral energy source with respect to greenhouse gases. This change will provide
other environmental benefits and further encourage the efficient use of forestry
and agricultural residues.

     The budget also proposes changes to extend eligibility for Class 43.1 to
certain equipment used primarily to generate heat energy for use in a taxpayer's
greenhouse operation. Qualifying equipment will include active solar heating
equipment and equipment used to generate heat energy from the consumption of
wood waste, municipal waste, landfill gas or digester gas. This measure will
help promote the use of renewable and alternative energy in the Canadian
greenhouse industry.

TAX SHELTER DEFINITION

Generally, a tax shelter is any property in respect of which it is represented
that a potential purchaser will be able to claim, within four years, deductions
from income or taxable income which equal or exceed the net cost of the property
to the purchaser (that is, net of certain prescribed benefits such as
limited-recourse debt).

     Promoters of tax shelter properties are not permitted to sell a tax shelter
without first obtaining an identification number from the Canada Customs and
Revenue Agency ("CCRA"). This identification number does not constitute
confirmation by the CCRA of entitlement to any tax benefits that may have been
described to potential purchasers; rather, the CCRA uses the number for
administrative purposes such as identifying tax shelters for audit.

     If an identification number is not obtained in advance, no person may claim
any deduction in respect of the tax shelter until the number is obtained.

     While the existing definition of "tax shelter" in the Income Tax Act
applies to arrangements promoted as providing deductions in computing income or
taxable income, it may not currently apply to those that are promoted as
providing only the deduction of tax credits. The budget proposes to eliminate
this technical distinction so that promoters will be required to register a
property as a tax shelter if representations are made that a potential purchaser
will be able to claim, within four years, any combination of deductions in
computing income or taxable income and federal tax credits which in total equal
or exceed the purchaser's net cost





                                      339


                              THE BUDGET PLAN 2003

of the property. The definition of tax shelter will also be amended to clarify
its application to property acquired under an arrangement in respect of which it
is represented that a donation or contribution of the property would generate
tax credits or deductions (such as charitable donations tax credits or
deductions) equal to or exceeding the net cost to the donor of the property.

     In order to avoid a double counting of tax credits in the formula used to
determine if a property or an arrangement is a tax shelter, it is proposed that
the definition of "prescribed benefits" in paragraph 231(6)(b) of the Income Tax
Regulations be amended to exclude any federal tax credit already taken into
account in determining whether tax credits and deductions exceed net cost.
Provincial tax credits would continue to be considered prescribed benefits.

     Further, the budget proposes to treat as a tax shelter any arrangement that
involves a transfer of property in respect of which it is represented that a
donation or contribution of the property would generate tax credits or
deductions, if it may reasonably be considered that a person will incur
limited-recourse debt in connection with the arrangement. If the transfer
otherwise qualifies for a tax credit or deduction, the amount of the donation or
contribution will be reduced for the purposes of calculating the amount of the
credit or deduction to the extent of the associated limited-recourse debt. A
repayment of the limited-recourse debt will be treated as a donation or
contribution in the year it is repaid.

     These amendments will generally apply in respect of property acquired, and
gifts, contributions and representations made, after February 18, 2003.

FILM OR VIDEO PRODUCTION SERVICES TAX CREDIT

In 1997, the government announced a new program in support of film and video
production in Canada. The Film or Video Production Services Tax Credit provides
a refundable tax credit equal to 11 per cent of qualified Canadian labour
expenditures. Eligible claimants are corporations that carry on business in
Canada and that either own an "accredited production" or have contracted
directly with a non-resident owner of the production to provide production
services.

     The budget proposes to increase the existing 11-per-cent credit rate to
16 per cent of qualified Canadian labour expenditures, applicable to
expenditures incurred after February 18, 2003.

     Canadian film or video productions benefit from a refundable tax credit of
25 per cent of labour costs under the Canadian Film or Video Production Tax
Credit (CFVPTC). In keeping with plans announced in Budget 2000,




                                      340


                                     ANNEX 9

the Government has been consulting with the Canadian film industry to develop
criteria for a streamlined mechanism for delivering the CFVPTC. These
consultations will continue with a view to ensuring that the structure and
operation of the CFVPTC are appropriate to achieve intended support for Canadian
film and video productions.

INCOME TAXATION--OTHER MATTERS

TAX MEASURES FOR PERSONS WITH DISABILITIES

The Government will be conducting an evaluation of the disability tax credit
(DTC) as data from the 2001 Participation and Activity Limitations Survey
becomes available. The objective of the evaluation will be to determine whether
the DTC is achieving its policy purpose.

     In addition, this budget announces the establishment of a technical
advisory committee on tax measures for persons with disabilities, to advise the
Ministers of Finance and National Revenue over a mandate of 18 months.

     As described more fully in Chapter 4, this budget sets aside $25 million in
2003-04 and $80 million per year starting in 2004-05 to improve assistance for
persons with disabilities, drawing on the evaluation of the DTC and the advice
of the technical advisory committee.

TAX PRE-PAID SAVINGS PLANS

This budget contains proposals to increase registered pension plan and
registered retirement savings plan limits to support saving by Canadians. It is
important that the tax system continue to provide and improve upon mechanisms to
support saving. The Government has received numerous representations from
individuals, researchers and businesses that Canada's tax system should be more
conducive to saving. In particular, some of these have proposed the creation of
tax pre-paid savings plans (TPSPs).

     TPSPs are savings vehicles that, like RRSPs, increase the after-tax return
to saving compared to saving in unregistered plans. TPSPs, however, are
structured differently than RRSPs. In a TPSP, no deduction is provided on
contributions (in this sense, the income tax on contributions is "pre-paid") but
the investment income in the plan and withdrawals are not subject to income tax.
A number of other countries provide for availability to taxpayers of a
combination of RRSP-type and TPSP-type vehicles that improve the tax treatment
of savings.





                                      341


                              THE BUDGET PLAN 2003

     There are a number of important issues that would have to be considered in
examining any proposal to introduce TPSPs, for example: their effect on savings
behaviour, impact on government revenues, and whether such plans could be
effectively administered.

     The Government intends to review and consult with respect to these issues
in order to assess whether TPSPs could be a useful and appropriate mechanism to
provide additional savings opportunities for Canadians.

DEDUCTIBILITY OF INTEREST AND OTHER EXPENSES

Recent court decisions have raised uncertainties as to how taxpayers are to
treat expenses, in particular interest, in computing income from a business or
property for purposes of the Income Tax Act. Most notably, these decisions could
lead to inappropriate tax results where a taxpayer derives a tax loss by
deducting interest expenses, even if under any objective standard there is no
reasonable expectation that the taxpayer would earn any income (as opposed to
capital gains), or where the presence or the prospect of revenue (as opposed to
income net of expenses) is enough to conclude that an expenditure was incurred
"for the purpose of earning income".

     Neither of these results is consistent with appropriate tax policy, nor
would they have been generally expected under prior law and practice. Therefore
legislative amendments to the Income Tax Act will be considered in order to
provide continuity in this important area of the law. Before finalizing any
proposals, however, the Department of Finance will release them for public
consultation, with a general goal of ensuring that they restore continuity with
the expected consequences before these recent court decisions.

CROSS-BORDER SHARE-FOR-SHARE EXCHANGES

Under the Income Tax Act, certain share-for-share exchanges can be undertaken on
a tax-deferred basis where the corporations involved are all resident in Canada
or are all non-residents. These rules do not apply, however, to a Canadian
resident shareholder who exchanges shares of a domestic corporation for shares
of a foreign corporation. While there may be other indirect means of
accomplishing such an exchange on a tax-deferred basis, the resulting
transactions can be complex and costly.





                                      342


                                     ANNEX 9

     In the October 2000 Economic Statement and Budget Update, the Government
undertook to consult with interested parties on a tax deferral provision that
specifically address tax-deferred cross-border share-for-share exchanges. At the
same time, the Government noted that a basic requirement for such a mechanism is
that it protect Canada's tax base.

     A draft of legislative proposals, designed to balance these objectives,
will be released in the near future for public review and comment.

EXCISE TAX MEASURES

EXCISE TAX EXEMPTION FOR BIO-DIESEL AND E-DIESEL FUEL

Renewable fuels, such as ethanol and methanol produced from biomass sources, and
bio-diesel of a biological non-fossil fuel origin, can offer a number of
important environmental benefits for Canada.

     Ethanol is a commercial alcohol that, at present, is chiefly made from
grain but that can also be manufactured from cellulose fibres (for example,
straw). Ethanol can be blended into fuels like gasoline to help reduce harmful
emissions from vehicles. Since 1992 the portion of blended gasoline that is
ethanol or methanol, produced from biomass, has been exempted from the
10-cent-per-litre federal excise tax on gasoline. This treatment has encouraged
the production and use of ethanol in Canada.

     Consistent with the treatment of ethanol in gasoline, this budget proposes
to remove the 4-cent-per-litre federal excise tax on diesel fuel from the
biomass-produced ethanol or methanol portion of blended diesel fuel.

     Bio-diesel fuel is a diesel fuel that can be made from a variety of
vegetable oils and animal fats (including recycled cooking greases). It can be
blended with diesel fuel from fossil fuel sources to obtain environmental
benefits, such as lower greenhouse gas emissions.

     In order to stimulate the production and use of bio-diesel, this budget
proposes to remove the 4-cent-per-litre federal excise tax on diesel fuel from
bio-diesel fuel and from the bio-diesel portion of blended diesel fuel, where
the bio-diesel is of a biological non-fossil fuel origin.

     These measures will apply after February 18, 2003.

FUEL EXCISE TAX REFUND CLAIMS

Excise tax is imposed on gasoline and diesel fuel manufactured or imported for
sale or use in Canada. The tax does not apply to fuel products that are





                                      343


                              THE BUDGET PLAN 2003

exported from Canada by the manufacturer or producer. Where fuel on which excise
tax has been paid is subsequently exported from Canada, a rebate of the tax is
paid to the exporter.

     With respect to fuel taken out of the country in the fuel tank of a vehicle
being driven across the border, the Government's longstanding position has been
that the fuel does not qualify as an export and no rebate of the excise tax is
available. Similarly, the Government has not considered fuel in the tank of a
vehicle being driven into Canada to be imported and has not required tax to be
paid on the fuel. This approach simplifies tax accounting and reporting for both
taxpayers and the Government and avoids difficulties at border crossings.

     A recent court decision ruled that fuel in the fuel tank of a vehicle
leaving Canada was exported for purposes of Part VII of the Excise Tax Act and
that the person who exported the fuel was entitled to recover the excise tax
paid on the fuel. The court did not address the related issue of whether fuel in
the fuel tank of a vehicle entering Canada is imported and hence subject to the
excise tax.

     The budget proposes to amend Part VII of the Excise Tax Act to clarify that
fuel taken out of the country in the fuel tank of a vehicle being driven across
the border does not qualify as an export and that no rebate of excise tax is
payable in respect of that fuel. It is proposed that this amendment apply to
rebate applications received by the Canada Customs and Revenue Agency on or
after February 18, 2003.

TOBACCO TAX

The Government will be introducing legislation amending the Excise Tax Act, the
Customs Tariff, and the Excise Act, 2001, to implement tobacco tax increases
proposed on June 17, 2002.

     These proposals include:


o an increase in the excise tax of $3.50 per carton of cigarettes, $2.50 per 200
tobacco sticks and $2.50 per 200 grams of other manufactured tobacco; and

o increases in the taxes and duties on cigars, exported tobacco products, and
tobacco products delivered to duty-free shops, sold as ships' stores or imported
by Canadian residents returning to Canada.


These increases in taxes and duties are effective June 18, 2002, and are part of
the Government's comprehensive strategy to improve the health of Canadians by
discouraging tobacco consumption.




                                      344


                                     ANNEX 9

The proposed increases in tobacco taxes and duties are set out in more detail in
a Notice of Ways and Means Motion to Amend the Customs Tariff, the Excise Tax
Act and the Excise Act, 2001, tabled with the budget.

GOODS AND SERVICES TAX/HARMONIZED SALES TAX MEASURES

PUBLIC SECTOR BODY REBATES

Under the goods and services tax/harmonized sales tax (GST/HST), most services
provided by public sector bodies, which include municipalities, school
authorities, universities and public colleges and hospital authorities, are
treated as exempt. This means that these entities do not charge tax on their
exempt services, but they cannot recover the tax paid in respect of their
related purchases by way of input tax credits in the way that businesses making
taxable sales recover tax. The public sector body rebate system entitles public
sector bodies to claim partial rebates of this otherwise unrecoverable tax on
inputs. These rebates were negotiated for each sector at the time of
introduction of the GST to recognize the level of tax borne by entities within
the sector under the former federal sales tax. This treatment of public sector
bodies has been well understood and administered consistently since the
inception of the GST.

SCHOOL TRANSPORTATION SERVICES

In a decision rendered in 2001, the Federal Court of Appeal held that, under
certain provincial funding arrangements, the supply of student transportation
services by school authorities could be subject to the GST/HST rules applicable
to taxable activities, instead of the rules applicable to exempt activities. The
decision had the effect of allowing those school authorities to obtain
100-per-cent input tax credits for tax paid on their inputs related to the
provision of student transportation services, instead of the 68-per-cent public
sector body rebate for school authorities.

     This result was inconsistent with the policy underlying the GST/HST.
Consequently, on December 21, 2001, the Government announced a proposed
amendment to ensure that the service of transporting elementary or secondary
school students to or from a school operated by a school authority continues to
be treated as an exempt service where the service is supplied by a school
authority to a person other than another school authority. To ensure consistent
exempt treatment regardless of how these services were funded, the Government
proposed that the amendment be effective from the date of introduction of the
GST, except that the amendment would not affect the cases that had been decided
by the Federal Court at the time of the announcement.





                                      345


                              THE BUDGET PLAN 2003

     A Notice of Ways and Means Motion to implement the proposed GST/HST
amendment, as announced on December 21, 2001, is included in the Notice of Ways
and Means Motion to amend the Excise Tax Act, tabled with the budget.

CONTRACTED MUNICIPAL SERVICES

Consistent with the GST/HST treatment of public services generally, the supply
to municipal residents of basic municipal services is exempt from the GST/HST
whether or not the services are delivered directly by the municipality or by
private companies with which a municipality contracts to provide the services.
However, the charges made by private contractors to municipalities are taxable
in the same way as are most of the purchases by municipalities in the course of
their activities. Municipalities cannot recover, by way of input tax credits,
the GST/HST they pay on their purchases for use in their exempt activities, but
are instead entitled to a public sector body rebate equal to 57.14 per cent of
the GST they pay on such purchases.

     As a result of a recent Quebec Court of Appeal decision relating to similar
rules under the Quebec Sales Tax, some municipalities have asserted that certain
of their purchases of services from private contractors, such as garbage
collection and snow removal services, are exempt for GST/HST purposes and that
they are owed GST/HST refunds for past purchases of contracted services. This
result is contrary to the policy underlying the GST/HST treatment of municipal
services.

     The budget therefore proposes to amend the GST/HST legislation to clarify
that purchases by municipalities of contracted services continue to be taxable.
The amendment is proposed to be effective from the date of introduction of the
GST.

SALES TAX CONSIDERATIONS IN INSTITUTIONAL HEALTH CARE REFORM

Under the public sector body rebate system, hospitals may recover 83 percent of
the GST that they pay on their purchases, while charities and certain non-profit
organizations may recover 50 per cent.

     In recent years, the restructuring of health delivery has resulted in some
services formerly provided in hospitals being performed in other non-profit
institutions, which are entitled to the lesser rebate of GST. The Department of
Finance is undertaking discussions with the provinces and territories to assess
and improve the current application of the health care rebate with respect to
health care functions that are devolved from hospitals. Consultations will also
be held with representatives of the health care sector.





                                      346


                                     ANNEX 9

     The target date for the coming into force of changes to the application of
the rebate is October 1, 2003.

OTHER MEASURES

HARMONIZATION OF ADMINISTRATIVE PROVISIONS (STANDARDIZED ACCOUNTING)

To simplify tax compliance for businesses, the Government has, for a number of
years, been working on an initiative referred to as "Standardized Accounting."
The objective of this initiative is to harmonize various accounting, interest
and penalty provisions of federal tax laws. The ultimate result of this
initiative will be an integrated set of rules for payment due dates, interest
and penalties that would simplify the system for both tax filers and government
administration.

     The budget proposes to begin the implementation of Standardized Accounting
by harmonizing a number of accounting, interest, penalty and related
administrative and enforcement provisions of the Excise Tax Act (non-GST) and
the Income Tax Act. These proposals are part of a larger initiative that will
eventually extend to other Acts such as the Excise Tax Act (GST), the Customs
Act, the Customs Tariff and the Special Import Measures Act. This larger package
of changes is currently under review and will be the subject of a future
announcement.

     The budget proposes the following changes to the non-GST provisions of the
Excise Tax Act (insurance premiums tax and excise taxes on fuel, jewellery,
automotive air conditioners and heavy vehicles):

o Calculation of Interest: The rate of interest on amounts owed by persons
(taxpayers) will be based on the Government of Canada Treasury bill rate plus 4
per cent. Interest on amounts owed to taxpayers will be based on the Treasury
bill rate plus 2 per cent. Currently, interest on amounts owed by taxpayers is
based on the Treasury bill rate and an additional 6 per cent penalty. Interest
on amounts owed to taxpayers is based on the Treasury bill rate. This measure
will apply to all amounts outstanding after June 2003.

o Compounding of Interest on Amounts Owed by and to Taxpayers: Interest will be
compounded on a daily basis. Interest is currently calculated monthly in respect
of each month or fraction of a month. This measure will apply to amounts
outstanding after June 2003.

o Waiver/Cancellation of Interest/Penalty: Currently, the authority of the
Minister of National Revenue to waive penalties is limited to penalties that are
calculated in the same manner as interest. The budget proposes to allow the
Minister of National Revenue, as part of the Canada Customs and





                                      347


                              THE BUDGET PLAN 2003

Revenue Agency's fairness initiative, to waive or cancel any interest and
penalties after June 2003.

o Date Interest Begins to Accrue on Excess Refunds: Currently, where a taxpayer
has been paid or credited with an amount of a refund or rebate to which the
taxpayer was not entitled, the amount is required to be repaid no later than the
last day of the first month after the month in which the amount was credited.
Interest on the amount begins to accrue after that day. The budget proposes that
interest begin to accrue on the amount the day after the day the amount was
credited. This measure will apply to amounts credited after June 2003.

o Due Date on Holidays: The current legislation provides that where the due date
for the remittance of taxes falls on a weekend or holiday, the due date is the
day before the weekend or holiday. This legislation will be repealed, effective
July 1, 2003, such that the application of the Interpretation Act will permit
the remittance to be made on the first business day following the holiday.

o "Coming Into Force" Provisions for Amendments to Regulations: The legislation
will provide that a regulation may come into effect earlier than when published
in the Canada Gazette if the regulation gives effect to a budgetary or public
announcement, has a relieving effect only, corrects an ambiguous or defective
provision or is consequential to a previously announced amendment to the
legislation. This measure will come into force on Royal Assent.

o Date Interest Begins to Accrue in the Case of an Amendment: The legislation
will be amended, effective on Royal Assent, to provide that, if a legislative
amendment is proposed and that amendment is to come into force on, or applies as
of, a day before it receives Royal Assent, interest will be calculated with
respect to the amendment as though it had been assented to on that earlier day.

The budget proposes the following change to the non-GST provisions of the Excise
Tax Act except Part I (insurance premiums tax):

o Fiscal Months: The Minister of National Revenue may currently authorize a
person to make a return and pay tax in respect of accounting periods, which may
range from 21 to 35 days, rather than calendar months. In such cases, the return
is to be filed and the tax paid by the end of the following accounting period.
These accounting periods will be harmonized with the fiscal months under the
goods and services tax, which can range from 28 to 35 days. This measure will
apply to accounting periods that, under the current rules, begin after June
2003.




                                      348



                                     ANNEX 9

The budget proposes the following changes to the Income Tax Act as well as to
the non-GST provisions of the Excise Tax Act:

o Minimal Amounts Owing: Where the total amount owed by the Crown to a person
does not exceed $2, it will not be paid but may be applied against an existing
liability. If the total amount owed by a person to the Crown is less than $2,
the person would not be required to pay that amount. Currently, an amount owing
is neither paid nor collected if it is less than one dollar. This measure will
apply to amounts that are owing after June 2003.

o Interest Payments on Refunds/Rebates: Under the Income Tax Act, interest on a
refund payable to an individual begins to accrue only on the later of the day
that is 45 days after the taxpayer's balance-due day, and the day that is 45
days after the return claiming the refund is filed. This period will be reduced
to 30 days. For corporations, interest on a refund begins to accrue on the later
of the day that is 120 days after the corporation's taxation year, and the day
on which the return claiming the refund is filed. A 30-day period for which
interest does not accrue is proposed in cases where a corporate return is filed
late. These amendments will be effective for taxation years that end after June
2003. The budget also proposes that, under the Excise Tax Act, the period before
interest on a refund or rebate begins to accrue be reduced from 60 to 30 days.
This measure will apply to filing periods that end after June 2003.

o Date Interest Begins to Accrue When Penalty or Interest Amounts Paid are then
Cancelled under CCRA's Fairness Initiative: Currently, under the Income Tax Act,
where a taxpayer has paid an amount of interest or a penalty that is
subsequently cancelled after the taxpayer has made an application under the
CCRA's Fairness Program, interest on the resultant refund begins to accrue on
the day after the day that the Minister of National Revenue received the
application. The budget proposes that such interest begin to accrue only 30 days
after the application is received. There is no provision under the non-GST
portions of the Excise Tax Act allowing for the payment of interest on penalty
or interest amounts that are paid and subsequently cancelled. The budget
proposes that such interest begin to accrue 30 days after the application for
cancellation is received. These measures will apply to applications received
after June 2003.

o Interest-Free Grace Period: Consistent with current practice, if the Minister
of National Revenue sends a notice to a person specifying an amount owed by them
and the person complies with the notice within the period specified by the
Minister as a grace period during which additional accrued interest would not be
payable, no interest will be payable on that amount in respect of that period.
This measure will apply after June 2003.

o Write-off of Small Amounts of Penalty and Interest: Currently, under the
Excise Tax Act, no penalty or interest is payable in respect of an amount of tax
owing if, at the time the tax is paid, the total of that penalty and interest




                                      349


                              THE BUDGET PLAN 2003


is $10 or less. Under the Income Tax Act, if interest applicable to instalment
payments does not exceed $25 for a taxation year, that interest is not charged.
It is proposed that the Minister of National Revenue be authorized to cancel any
penalty or interest on an amount owed under either of those Acts if the total
amount of penalty and interest is $25 or less. This measure will apply after
June 2003.

The budget proposes the following changes to the Income Tax Act:

o Balance-Due Day for Taxes on Corporations: All taxes imposed on corporations
under the Income Tax Act will become due on the corporation's balance-due day.
Currently, different due days exist for taxes under various parts of the Act.
This measure will apply to taxation years that begin after June 2003.

o Instalment Threshold for Cooperative Corporations and Credit Unions: The
instalment threshold provisions for cooperative corporations and credit unions
will be harmonized with those for other corporations. Currently, the income tax
instalment threshold for cooperative corporations and credit unions differs from
that for other corporations. This measure will apply to taxation years beginning
after June 2003.

o Effect of Carry-back of Loss: Currently, interest begins to accrue the day an
application for a loss carry-back is received. It is proposed that interest
accrue starting 30 days after an application is received. This measure will
apply to applications received after June 2003.

o Time for Filing Extended: Currently, the Minister of National Revenue may
extend the time for the filing of a return. If a person files their return by
this extended filing deadline, no penalty for filing a late-filed return is
assessed. The budget proposes to clarify that, if a person files their return
later than the extended deadline, the penalty will apply based upon the normally
required deadline.

FIRST NATIONS TAXATION

In successive budgets since 1997, the Government has expressed its willingness
to put into effect taxation arrangements with interested First Nations. To date,
the Government has entered into taxation arrangements allowing nine First
Nations to levy a tax on sales on their reserves of fuel, tobacco products and
alcoholic beverages. Canada and the eight self-governing Yukon First Nations
have also entered into personal income tax collection and sharing agreements.
Based on this experience, some First Nations have expressed an interest in being
able to levy a more broadly based tax, similar to the goods and services tax.
The Government is once again expressing its willingness to discuss and put into
effect direct taxation arrangements with interested First Nations.


                                      350





TAX MEASURES TO SUPPORT
ECONOMIC AND
SOCIAL OBJECTIVES,
ENHANCE TAX FAIRNESS AND
IMPROVE THE TAX STRUCTURE







                              THE BUDGET PLAN 2003


Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
BROAD-BASED PERSONAL INCOME TAX RELIEF
- ------------------------------------------------------------------------------

1998
 o Introduced a supplement to the basic personal, spousal and
   equivalent-to-spouse amounts by $500 each for low-income Canadians.
 o Eliminated the 3-per-cent general surtax for taxpayers with incomes up to
   about $50,000 and reduced the amount for those with incomes between $50,000
   and $65,000.

1999
 o Extended the $500 supplement to the basic personal, spousal and
   equivalent-to-spouse amounts to all tax filers, and increased each by an
   additional $175, for a total increase of $675.
 o Eliminated the 3-per-cent general surtax for all taxpayers.

2000
 o Restored full indexation as of January 2000.
 o Reduced all personal income tax rates effective January 2001:
   - The 17-per-cent rate was reduced to 16 per cent;
   - The 24-per-cent rate -- reduced from 26 per cent on July 1, 2000 -- was
     reduced further to 22 per cent;
   - The 29-per-cent rate was reduced to 26 per cent on income between $61,509
     and $100,000; and
   - The deficit-reduction surtax -- which had been eliminated for income up to
     about $85,000 on July 1, 2000 -- was completely eliminated.
 o Legislated to provide that by 2004:
   - the basic personal amount will be at least $8,000;
   - the spousal amount will be at least $6,800;
   - the second bracket threshold will be at least $35,000;
   - the third bracket threshold will be at least $70,000; and
   - the fourth bracket threshold will be at least $113,804.



                                      352



                                     ANNEX 9


Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
FAMILIES WITH CHILDREN
- ------------------------------------------------------------------------------
1996
 o Introduced new tax treatment of child support payments, with payments
   non-deductible for the payer and non-taxable for the recipient.
 o Announced a two-step $250-million enrichment of the Working Income
   Supplement(WIS) of the Child Tax Benefit (CTB).

1997
 o Announced a new Canada Child Tax Benefit (CCTB) by simplifying and enriching
   the current CTB starting July 1998 with an $850-million supplement for
   low-income families.
 o Enriched the WIS from the $125 million announced in the 1996 budget to $195
   million and restructured it from a per-family to a per-child basis,
   increasing the maximum WIS from $500 per family to $605 for the first child,
   $405 for the second child and $330 for each additional child.

1998
 o Increased the child care expense deduction limits to $7,000 for children
   under age 7 and $4,000 for children age 7 and over.
 o Enriched the supplement under the CCTB by another $425 million on July 1,
   1999, and a further $425 million on July 1, 2000.

1999
 o Set the design for the increase in the CCTB supplement amount announced in
   the 1998 budget.
 o Enriched the CCTB by $300 million in July 2000 to enhance benefits for
   modest-and middle-income families.
 o Ensured that the maximum goods and services tax credit (GSTC) supplement is
   provided to low-income single-parent families.

2000
 o Increased the CCTB base benefit by $70 per child in July 2000.
 o Increased the National Child Benefit (NCB) supplement by $300 per child for
   July 2001.
 o Increased the income threshold at which the NCB supplement is fully phased
   out and the base benefit begins to be phased out to $32,000 in 2001.

                                      353



                              THE BUDGET PLAN 2003


Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
FAMILIES WITH CHILDREN (cont'd)
- ------------------------------------------------------------------------------
o Legislated that by 2004:
   - the amount of family net income at which the CCTB phase-out begins will be
     at least $35,000; and
   - the phase-out rate of the base benefit of the CCTB will be reduced from 5
     percent to 4 per cent (from 2.5 per cent to 2 per cent for families with
     one child).

2003
 o Proposing to increase the annual NCB supplement for low-income families by
   $150 per child in July 2003, an additional $185 in July 2005, and a further
   $185 in July 2006.
 o Proposing to introduce, as a supplement to the CCTB, a new $1,600 Child
   Disability Benefit for low- and modest-income families with a disabled child.



                                      354



                                     ANNEX 9

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
TAX-ASSISTED RETIREMENT SAVING
- ------------------------------------------------------------------------------

1996
 o Replaced the seven-year limit with an unlimited carry-forward of unused
   registered retirement savings plan (RRSP) room.

1997
 o Introduced the pension adjustment reversal (PAR) to restore lost RRSP room
   for those leaving pension plans before retirement.

1998
 o Removed contributions to RRSPs and registered pension plans (RPPs) from the
   base for the alternative minimum tax.

1999
 o Allowed greater flexibility to transfer RRSP and registered retirement income
   fund (RRIF) proceeds to financially dependent children upon the death of the
   RRSP/RRIF owner.
 o Introduced a GST/HST rebate for multi-employer pension plans to provide
   comparable sales tax treatment relative to single-employer pension plans.

2003
 o Proposing to increase the annual RRSP contribution limit to $18,000 by 2006
   (with corresponding RPP limit increases).
 o Proposing to allow money purchase RPPs to pay pension benefits in the form of
   the same income stream permitted under a RRIF.
 o Proposing to increase the maximum pension accrual rate to 2.33 per cent for
   fire fighters who are members of defined benefit RPPs that provide benefits
   integrated with the Canada Pension Plan or the Quebec Pension Plan.



                                      355



                              THE BUDGET PLAN 2003

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
EDUCATION AND SKILLS
- ------------------------------------------------------------------------------

1996
 o Increased the amount used to establish the education credit from $80 per
   month to $100 per month.
 o Raised the annual limit on the transfer of the tuition and education amounts
   to those who support students from $4,000 to $5,000.
 o Increased the annual limit on contributions to registered education savings
   plans (RESPs) from $1,500 to $2,000, and the lifetime limit from $31,500 to
   $42,000.
 o Broadened eligibility for the child care expense deduction to assist parents
   who undertake education or retraining.

1997
 o Doubled the amount used to establish the education credit over two years to
   $200 per month.
 o Made ancillary fees, such as health services and athletics, eligible for the
   tuition credit.
 o Allowed a carry-forward of unused tuition and education credits.
 o Increased annual contribution limits for RESPs from $2,000 to $4,000.
 o Allowed transfers of RESP funds to an RRSP or to the contributor.

1998
 o Provided a Canada Education Savings Grant of 20 per cent on annual
   contributions of up to $2,000 to an RESP, along with carry-forward
   flexibility.
 o Introduced a tax credit for interest on student loans.
 o Allowed RRSP withdrawals for lifelong learning.
 o Enhanced tax support for part-time education through the education credit and
   the child care expense deduction.

2000
 o Increased the partial annual exemption from $500 to $3,000 for scholarship,
   fellowship or bursary income.
 o Doubled the amount used to establish the education credit from $200 per month
   to $400 per month for full-time students and from $60 per month to $120 per
   month for part-time students.



                                      356



                                     ANNEX 9

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
EDUCATION AND SKILLS (cont'd)
- ------------------------------------------------------------------------------

2001
 o Exempted from income tax government tuition assistance for adult basic
   education.
 o Extended the education tax credit to individuals who receive taxable
   assistance for post-secondary education under certain government programs,
   including employment insurance.
 o Allowed apprentice vehicle mechanics to deduct a portion of tool expenses
   incurred as a condition of apprenticeship.



                                      357



                              THE BUDGET PLAN 2003

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
CHARITIES AND PUBLIC INSTITUTIONS
- ------------------------------------------------------------------------------

1994
 o Lowered the threshold at which charitable donations begin to earn the
   29-per-cent tax credit from $250 to $200.

1995
 o Removed the income limit for tax credits on donations of ecologically
   sensitive lands.

1996
 o Increased the limits on charitable donations eligible for tax credits from 20
   per cent to 50 per cent of net income, and to 100 per cent of net income in
   the year of death and the preceding year.
 o Allowed most charitable and public organizations to raise funds without
   collecting and remitting GST on sales.
 o Provided a 100-per-cent GST rebate on books purchased by public libraries,
   educational institutions and other specified bodies.

1997
 o Provided a half-inclusion rate on capital gains arising from donations made
   before 2002 of certain publicly traded securities.
 o Raised the income limit for donations from 50 per cent to 75 per cent.
 o Allowed 25 per cent of capital cost allowance (CCA) recapture of donated
   property to be included in the net income limit.
 o Sanctioned a new method of valuation for easements of ecologically sensitive
   lands.
 o Simplified GST accounting, reporting and remittance requirements for
   charities.

1998
 o Increased tax-free allowances for emergency service volunteers.
 o Allowed designated charities to treat certain services they supply to
   business customers as GST/HST taxable, thereby allowing charities to compete
   on an equal footing with other suppliers.



                                      358



                                     ANNEX 9

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
CHARITIES AND PUBLIC INSTITUTIONS (cont'd)
- ------------------------------------------------------------------------------

2000
 o Reduced tax on employment benefits in respect of donations of shares acquired
   through stock option plans to parallel treatment for donations of certain
   publicly traded securities.
 o Extended the charitable donations tax credit to donations of RRSP, RRIF and
   insurance proceeds that are made as a consequence of direct beneficiary
   designations.
 o Reduced capital gains income inclusion by one-half in respect of gifts of
   ecologically sensitive land and related easements, covenants and servitudes.

2001
 o Made permanent the 1997 measure providing a half-inclusion rate on capital
   gains arising from donations of certain publicly traded securities to public
   charities.



                                      359



                              THE BUDGET PLAN 2003

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
PERSONS WITH DISABILITIES AND TAX TREATMENT OF MEDICAL EXPENSES
- ------------------------------------------------------------------------------

1996
 o Enriched the tax credit for infirm dependants.
 o Expanded zero-rating of orthopaedic and orthotic devices under the GST.
 o Extended GST relief on purchases of vehicle modifications necessary for
   people with disabilities.

1997
 o Expanded the list of eligible expenses under the medical expense tax credit
   to include:
   - 50 per cent of the cost, up to $1,000, of an air conditioner necessary to
     help an individual cope with a severe chronic ailment, disease or disorder.
   - 20 per cent of the cost, up to $5,000, of a van that is adapted or will be
     adapted for the transportation of an individual using a wheelchair.
   - Sign language interpreter fees.
   - Expenses incurred for moving to accessible housing.
   - Reasonable expenses relating to alterations to the driveway of the
     residence of an individual with a severe and prolonged mobility impairment
     to facilitate that individual's access to a bus.
   - An increase in the part-time attendant care limit from $5,000 to $10,000.
 o Removed the limit on the attendant care deduction.
 o Introduced a refundable medical expense tax credit supplement for earners.
 o Broadened the definition of preferred beneficiary for trusts benefiting
   persons with disabilities.

1998
 o Introduced a new tax credit for caregivers for in-home care of related
   seniors and persons with disabilities.
 o Broadened the Home Buyers' Plan so that persons with disabilities or their
   relatives may buy a home that is more accessible for, or better suited for
   the care of, the disabled individual, even if the purchaser is not a
   first-time home buyer.
 o Added training expenses for caregivers to the list of expenses eligible for
   the medical expense tax credit.
 o Allowed certification for the disability tax credit (DTC) by occupational
   therapists and psychologists.
 o Exempted respite care services from the GST/HST.



                                      360



                                     ANNEX 9

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
PERSONS WITH DISABILITIES AND TAX TREATMENT OF MEDICAL EXPENSES (cont'd)
- ------------------------------------------------------------------------------
1999
 o Expanded the list of eligible expenses under the medical expense tax credit
   to include:
   - The care and supervision of persons with severe and prolonged impairments
     living in a group home.
   - Therapy for persons with severe and prolonged impairments where prescribed
     by a medical doctor, psychologist, or occupational therapist, but not
     administered by a qualified therapist or medical practitioner.
   - Tutoring for persons with learning disabilities (or other mental
     impairments).

2000
 o Extended eligibility for the DTC to individuals requiring extensive therapy.
 o Expanded the list of relatives to whom the DTC can be transferred.
 o Provided additional tax assistance for families caring for children with
   severe disabilities by introducing a $2,941 supplement amount for children
   eligible for the DTC. The amount was then increased to $3,500 for the 2001
   tax year.
 o Increased the maximum child care expense deduction available in respect of
   persons eligible for the DTC from $7,000 to $10,000.
 o Extended income tax assistance for expenses relating to the costs of adapting
   a new home to the needs of a disabled person.
 o Expanded the attendant care deduction to include the cost of an attendant
   required by a person with a severe and prolonged impairment in order to
   attend school.
 o Announced an increase in the DTC amount from $4,293 to $6,000 for the 2001
   tax year.
 o Announced an increase in the caregiver tax credit amount from $2,386 to
   $3,500 for the 2001 tax year.
 o Announced an increase in the infirm dependant tax credit amount from
   $2,386 to $3,500 for the 2001 tax year.
 o Added speech-language pathologists to the list of occupations that can
   certify individuals for the DTC.



                                      361



                              THE BUDGET PLAN 2003

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
PERSONS WITH DISABILITIES AND TAX TREATMENT OF MEDICAL EXPENSES (cont'd)
- ------------------------------------------------------------------------------
2003
 o Proposing to introduce, as a supplement to the CCTB, a new $1,600 Child
   Disability Benefit for low-and modest-income families with a disabled child.
 o Proposing to increase the level of income used to determine financial
   dependence of an infirm child or grandchild for the purpose of RRSP/RRIF
   rollovers.
 o Proposing to expand the list of eligible expenses for the medical expense tax
   credit to include real-time captioning, the cost of note-taking services, and
   the incremental cost of gluten-free food products for individuals with celiac
   disease who require a gluten-free diet.
 o Proposing to set aside $80 million per year to enhance tax measures for
   persons with disabilities, drawing on a forthcoming evaluation of the DTC and
   the expert advice of a technical advisory committee.
 o Proposing to clarify the DTC eligibility criteria with respect to the
   activity of "feeding and dressing" oneself to ensure that the DTC continues
   to be provided to those who need it most.



                                      362



                                     ANNEX 9

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
JOBS, GROWTH, ENTREPRENEURSHIP AND INNOVATION
- ------------------------------------------------------------------------------
1999
 o Reduced the corporate tax rate applying to electrical generating activities.

2000
 o Reduced the capital gains inclusion rate from three-quarters to two-thirds,
   and then to one-half.
 o Introduced a rollover of capital gains on the disposition of qualified
   small business investments.
 o Introduced deferral of the income inclusion from exercising qualifying stock
   options until disposition.
 o Reduced the corporate tax rate on income between $200,000 and $300,000
   earned by a Canadian-controlled private corporation from an active business
   carried on in Canada from 28 per cent to 21 per cent.
 o Legislated a schedule for reducing the general corporate income tax rate
   from 28 percent in 2000 to 21 per cent by 2004.
 o Improved the capital cost allowance (CCA) system for certain rail assets;
   manufacturing and processing equipment; certain electrical generating
   equipment; and heat/water production and distribution equipment.
 o Allowed self-employed individuals to deduct the portion of Canada Pension
   Plan and Quebec Pension Plan contributions representing the employer's share,
   beginning January 2001.
 o Introduced a new export distribution centre program to relieve the GST/HST
   cash-flow burden.
 o Introduced a GST rebate, equal to 2.5 percentage points of tax, for newly
   constructed, substantially renovated or converted residential rental
   accommodation not eligible for an existing rebate.
 o Introduced a temporary 15-per-cent mineral exploration tax credit for
   flow-through share investors.

2001
 o Deferred the January, February and March 2002 corporate tax instalments for
   small businesses.
 o Removed tax-related impediments to venture capital investment in Canada
   through the use of partnerships by Canadian pension plans and by foreign
   investors.
 o Allowed full deductibility of meals provided at temporary construction work
   camps.



                                      363



                              THE BUDGET PLAN 2003


Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
JOBS, GROWTH, ENTREPRENEURSHIP AND INNOVATION (cont'd)
- ------------------------------------------------------------------------------
2003
 o Proposing to increase the small business deduction limit from $200,000 to
   $300,000 over four years.
 o Proposing to further enhance the small business capital gains rollover
   measure introduced in 2000 by removing the original investment and
   reinvestment limits, and extending the length of time available to make a
   qualifying reinvestment.
 o Proposing to improve the automobile expense and benefit provisions.
 o Proposing to phase out the federal capital tax over a period of five
   years-eliminating it in 2004 for medium-sized corporations with capital up to
   $50 million.
 o Proposing to further remove impediments to the use of qualifying limited
   partnerships as investment vehicles for Canadian venture capital funds.
 o Proposing to improve the tax structure for the resource sector.
 o Proposing to extend the temporary mineral exploration tax credit.
 o Proposing to enhance the film or video production services tax credit.



                                      364



                                     ANNEX 9

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
SUSTAINABLE DEVELOPMENT
- ------------------------------------------------------------------------------
1994
 o Expanded the range of renewable energy and energy conservation equipment
   eligible for accelerated capital cost allowance to include environmentally
   positive activities such as electrical energy from geothermal and solar
   energy and the collection of landfill and digester gas.

1996
 o Improved access to financing for the renewable energy and energy conservation
   sector by relaxing the specified energy property rules and expanding
   eligibility for flow-through shares.

1997
 o Extended the mining reclamation trust rules to environmental trusts for waste
   disposal and quarries for the extraction of aggregates.
 o Expanded the range of renewable energy and energy conservation expenses
   eligible for full deductibility to include the costs of acquiring and
   installing test wind turbines.
 o Expanded the range of renewable energy and energy conservation equipment
   eligible for accelerated capital cost allowance to include certain
   acquisitions of used equipment and a reduced qualification threshold for
   photovoltaic systems.

1999
 o Expanded the range of renewable energy and energy conservation equipment
   qualifying for accelerated capital cost allowance to encourage the productive
   use of flare gas.

2001
 o Extended the existing intergenerational income-tax-deferred rollover for farm
   property to commercial wood lots operated in accordance with a prescribed
   forest management plan.
 o Expanded the range of renewable energy and energy conservation equipment
   eligible for accelerated capital cost allowances to include small
   hydroelectric facilities.



                                      365



                              THE BUDGET PLAN 2003


Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
SUSTAINABLE DEVELOPMENT (cont'd)
- ------------------------------------------------------------------------------
2002
 o Improved the definition of test wind turbines and extended the time period
   for making eligible expenditures related to flow-through share financing of
   renewable energy and energy conservation projects.

2003
 o Proposing to remove the 4-cent federal excise tax on diesel fuel from
   bio-diesel fuel and from the bio-diesel portion of blended diesel fuel, where
   the bio-diesel fuel is of abiological non-fossil fuel origin.
 o Proposing to expand the class of renewable energy and energy efficient
   equipment eligible for accelerated capital cost allowances to encourage the
   use of renewable fuels (e.g. fuel cells, bio-oil)



                                      366



                                     ANNEX 9

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
PERSONAL INCOME TAX MEASURES TO ENHANCE FAIRNESS
AND IMPROVE THE TAX STRUCTURE
- ------------------------------------------------------------------------------
1994
 o Eliminated the $100,000 lifetime capital gains exemption.
 o Extended the base for the alternative minimum tax.
 o Restricted the use of tax shelters.
 o Extended the taxation of employer-paid life insurance premiums to the
   first $25,000 of coverage.
 o Introduced income testing of the age credit.

1995
 o Eliminated tax advantages available through trusts.
 o Reduced the over contribution allowance for RRSPs from $8,000 to $2,000.
 o Eliminated retiring allowance rollovers for years of service after 1995.
 o Eliminated double claims of personal credits in the year of personal
   bankruptcy.

1996
 o Announced new rules on taxpayer migration to ensure that gains that accrue
   while a taxpayer is a resident of Canada are subject to Canadian tax.
 o Further constrained tax shelters relying on a mismatch of income and
expenses.

1999
 o Introduced a measure to prevent income splitting with minors.
 o Introduced special rules for the treatment of retroactive lump-sum payments.

2000
 o Removed the $1,000 deemed adjusted cost base and proceeds of disposition for
   personal-use property acquired as part of an arrangement in which the
   property is donated.



                                      367



                              THE BUDGET PLAN 2003

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
BUSINESS INCOME TAX MEASURES TO ENHANCE FAIRNESS
AND IMPROVE THE TAX STRUCTURE
- ------------------------------------------------------------------------------
1994
 o Reduced the deduction for business meals and entertainment expenses from 80
   percent to 50 per cent to better reflect the personal consumption element of
   these expenditures.
 o Increased the rate of tax on corporate dividends received by private
   investment corporations.
 o Implemented measures to ensure that the income of financial institutions is
   measured appropriately for tax purposes.
 o Reduced regional investment tax credits.
 o Modified the basis upon which insurance companies may claim reserves for
   income tax purposes.
 o Ensured corporations cannot avoid paying tax when selling assets through
   "purchase butterfly" transactions.
 o Tightened the rules applicable to foreign affiliates.
 o Tightened the rules applicable on forgiveness of debt.

1995
 o Eliminated the deferral of tax on unincorporated business income.
 o Eliminated the deferral advantage for investment income earned by private
   holding companies.
 o Replaced the film tax shelter mechanism for certified Canadian films with a
   tax credit.
 o Tightened the rules relating to non-arm's-length contract SR&ED.

1996
 o Reduced tax assistance for labour-sponsored venture capital corporations
   (LSVCCs).
 o Repealed joint exploration corporation rules.
 o Restricted eligibility of various expenses for flow-through share treatment.
 o Limited SR&ED benefits for non-arm's-length salaries and wages.

1997
 o Replaced tax shelters used to finance non-Canadian films with a tax credit.



                                      368



                                     ANNEX 9

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
BUSINESS INCOME TAX MEASURES TO ENHANCE FAIRNESS
AND IMPROVE THE TAX STRUCTURE (cont'd)
- ------------------------------------------------------------------------------
1998
 o Allowed deductibility of countervailing duties and anti-dumping charges.
 o Prevented unintended benefits under the SR&ED regime.
 o Improved a range of international taxation rules.

1999
 o Updated rules governing LSVCCs to ensure consistency with provincial programs
   and address issues relating to corporate restructuring.
 o Proposed changes to improve the rules governing the taxation of income earned
   through investments in foreign-based investment funds and non-resident
   trusts.
 o Clarified status of non-resident funds that retain Canadian service
   providers.

2000
 o Modified the thin capitalization rules to work more effectively.
 o Repealed the non-resident-owned investment corporation provisions.
 o Modified the treatment of provincial deductions for SR&ED that exceed the
   actual amount of the expenditure.
 o Clarified the treatment of weak currency borrowing as equivalent to a direct
   borrowing in the currency that is used by the taxpayer to earn income.
 o Clarified foreign tax credit rules and rules regarding the deductibility of
   foreign exploration and development expenses.

2003
 o Proposing to extend the tax shelter registration requirements to arrangements
   involving tax credits.



                                      369



                              THE BUDGET PLAN 2003

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
SALES AND EXCISE TAX MEASURES TO ENHANCE FAIRNESS
AND IMPROVE THE TAX STRUCTURE
- ------------------------------------------------------------------------------
1996
 o Tightened the GST rules governing the claiming of input tax credits and
   rebates by large businesses and exempt entities.
 o Reinforced the GST rules relating to trusts, estates and partnerships to
   ensure fair and consistent treatment of similar businesses that are organized
   differently.
 o Tightened the GST real property rules to ensure that all builders of
   multiple-unit residential buildings are treated equitably.

2000
 o Reduced the annual exemption from the excise tax on tobacco exports from 2.5
   percent to 1.5 per cent of production.

2001
 o Introduced a new tobacco tax structure, including a two-tiered export tax
   regime for exported Canadian tobacco products.



                                      370



                                     ANNEX 9

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
SIMPLIFYING AND IMPROVING TAX ADMINISTRATION AND ENFORCEMENT
- ------------------------------------------------------------------------------
1994-97
 o Strengthened outreach and education programs.
 o Enhanced easy-to-understand automatic telephone information systems.
 o Met with special tax filer groups such as senior citizens and immigrants to
   help them comply.
 o Established a single Business Number for streamlining registration for GST
   remitters, employers, corporations and importers/exporters.
 o Introduced a "Business Window" initiative to provide one-stop service for
   small businesses.
 o Simplified payroll reporting for small businesses.
 o Reduced compliance costs for small and medium-sized businesses by
   coordinating GST, income tax and excise tax audits.
 o Streamlined procedures to simplify and expedite Customs clearance.
 o Implemented a new approach to large business audits including audit protocol.
 o Reinforced measures to target the underground economy.
 o Implemented earlier identification of abusive tax avoidance and tax shelter
   schemes.
 o Continued to improve sophisticated risk models to identify areas of high risk
   and a sector approach to compliance for small and medium-sized businesses.
 o Introduced forgiveness of penalties on voluntary tax disclosures to encourage
   taxpayers to comply voluntarily.
 o Implemented exchange of information provisions to help deal with tax havens.
 o Implemented new rules requiring residents of Canada to file an information
   return when they own foreign assets in excess of $100,000 in value.
 o Required adequate documentation of transactions relating to transfer pricing
   and introduced new penalty provisions related to Revenue Canada
   reassessments.
 o Increased resources for Revenue Canada for transfer pricing audits.
 o Increased resources for Revenue Canada to enhance information and compliance
   from charities.



                                      371



                              THE BUDGET PLAN 2003

Tax Measures to Support Economic and Social Objectives,
Enhance Tax Fairness and Improve the Tax Structure
By Year of Announcement: 1994-2003
- ------------------------------------------------------------------------------
SIMPLIFYING AND IMPROVING TAX ADMINISTRATION AND ENFORCEMENT (cont'd)
- ------------------------------------------------------------------------------
1998
 o Introduced mandatory reporting of federal and construction contracts.

1999
 o Allowed corporations to offset interest on corporate tax overpayments and
   underpayments.
 o Provided for civil penalties for misrepresentations of tax matters by third
   parties.
 o Improved tax administration by sharing limited information with provinces.
 o Proposed measures to reduce tobacco contraband.

2000
 o Authorized the Minister of National Revenue to obtain judicial authorization,
   in certain circumstances, to take immediate action to protect GST/HST
   revenues.
 o Allowed the Canada Customs and Revenue Agency to provide relevant taxpayer
   information to the police for investigation purposes.
 o Extended tax penalties to persons who interfere with an official performing a
   collection duty.
 o Empowered the Minister of National Revenue to waive or cancel interest, or
   a penalty calculated in the same manner as interest, that is otherwise
   payable under the non-GST/HST portions of the Excise Tax Act.
 o Refined the rules related to the electronic filing of GST/HST returns by
   removing the requirement to apply to the Minister of National Revenue for
   approval, provided established criteria are satisfied.

2001
 o Instituted a new procedure to revoke or deny registered charitable status for
   charities that support terrorist activities.
 o Improved the responsiveness of the GST credit effective July 2002.
 o Proposed a new legislative and administrative framework for the taxation of
   spirits, wine and tobacco.

2003
 o Proposing to harmonize interest, penalty and related administrative and
   enforcement provisions of the Excise Tax Act (non-GST), and Income Tax Act.



                                      372



NOTICES OF WAYS
AND MEANS MOTIONS







                                     ANNEX 9



NOTICE OF WAYS AND MEANS MOTION
TO AMEND THE INCOME TAX ACT

That it is expedient to amend the Income Tax Act to provide among other things:


CANADA CHILD TAX BENEFIT - NATIONAL CHILD
BENEFIT SUPPLEMENT

     (1) That the provisions of the Act relating to the National Child Benefit
supplement payable under the Canada Child Tax Benefit be modified in accordance
with proposals described in the budget documents tabled by the Minister of
Finance in the House of Commons on February 18, 2003.


CANADA CHILD TAX BENEFIT - CHILD DISABILITY
BENEFIT SUPPLEMENT

     (2) That the provisions of the Act relating to benefits payable under the
Canada Child Tax Benefit be modified to add a Child Disability Benefit
supplement of $1,600 in accordance with proposals described in the budget
documents tabled by the Minister of Finance in the House of Commons on February
18, 2003.


RRSP/RRIF ROLLOVER TO AN INFIRM CHILD

     (3) That an amount of $6,180 (indexed after 2003) be added to the income
threshold used for determining the eligibility of a financially dependent infirm
individual to receive, on a tax-deferred basis, proceeds from a registered
retirement savings plan or registered retirement income fund of the individual's
parent or grandparent who has died after 2002.


MEDICAL EXPENSE TAX CREDIT

     (4) That, for the 2003 and subsequent taxation years, there be added to the
list of expenses eligible for the medical expense tax credit,

     (a) amounts paid on behalf of an individual with a speech or hearing
     impairment for real-time captioning services if the payment is made to a
     person who is in the business of providing such services;



                                      375



                              THE BUDGET PLAN 2003





     (b) amounts paid, on behalf of an individual with a mental or physical
     impairment, for note-taking services if

         (i) the payment is made to a person who is in the business of
         providing such services, and

         (ii) the individual has been certified by a medical practitioner to be
         an individual who, because of that impairment, requires those services;

     (c) the cost of voice recognition software used by an individual with a
     physical impairment if the individual has been certified by a medical
     practitioner to be an individual who, because of that impairment, requires
     that software; and

     (d) the incremental cost, to an individual who suffers from celiac disease,
     of acquiring gluten-free food products as compared to the cost of
     comparable non-gluten-free food products, if the individual has been
     certified by a medical practitioner to be an individual who, because of
     that disease, requires a gluten-free diet.


DISABILITY TAX CREDIT

     (5) That, for the 2003 and subsequent taxation years, for the purpose of
the disability tax credit

     (a) the phrase "feeding and dressing" in subparagraphs 118.3(1)(a.2)(iii)
     and 118.6(3)(b)(iii) of the Act be replaced with the phrase "feeding or
     dressing", and that the phrase "feeding and dressing oneself" in
     subparagraph 118.4(1)(c)(ii) of the Act be replaced with the phrase
     "feeding oneself or dressing oneself";

     (b) subsection 118.4(1) of the Act be amended to clarify that the term
     "feeding oneself" excludes

         (i) any of the activities of identifying, finding, shopping for or
         otherwise procuring food, and

         (ii) the activity of preparing food, to the extent that the time
         associated with the activity would not have been necessary in the
         absence of a dietary restriction or regime; and

     (c) subsection 118.4(1) of the Act be amended to clarify that the term
     "dressing oneself" excludes any of the activities of identifying, finding,
     shopping for or otherwise procuring clothing.



                                      376



                                    ANNEX 9


PENSION AND RRSP LIMITS

     (6) That, for the purpose of applying after 2002 the rules relating to
registered pension plans, deferred profit sharing plans and registered
retirement savings plans,

     (a) the money purchase limit be increased

         (i)   for 2003, to $15,500,

         (ii)  for 2004, to $16,500,

         (iii) for 2005, to $18,000, and

         (iv)  for each year after 2005, to $18,000 indexed after 2005 in
         accordance with section 147.1 of the Act; and

     (b) the RRSP dollar limit be increased

         (i) for 2003, to $14,500, and

         (ii) for each year after 2003, to the money purchase limit set out
         under subparagraph (a) for the preceding year.

MONEY PURCHASE RPPS

     (7) That, effective after 2003, the provisions of the Act relating to money
purchase provisions of registered pension plans (RPPs) and registered retirement
income funds (RRIFs) be modified to allow

     (a) the payment of retirement income under a money purchase provision of
     an RPP in the same manner as is permitted under a RRIF; and

     (b) the transfer of an amount from the RRIF of a former member of an RPP to
     a money purchase provision of the RPP for the member's benefit.


CAPITAL GAINS ROLLOVER

     (8) That, in respect of dispositions that occur after February 18, 2003,
the mechanism in section 44.1 of the Act which allows an individual (other than
a trust) to defer the recognition of capital gains in respect of eligible small
business investments be amended

     (a) to eliminate the $2,000,000 original investment limit for each
     eligible small business corporation or related group;



                                      377



                                  THE BUDGET PLAN 2003



     (b) to eliminate the $2,000,000 qualifying cost limit for replacement
     shares in an eligible small business corporation or related group; and

     (c) to extend the time for acquiring replacement shares to any time in the
     year in which the disposition is made or within 120 days after the end of
     that year.


STANDBY CHARGE

     (9) That, for the 2003 and subsequent taxation years, the provisions of the
Act allowing the standby charge, in respect of the availability for personal use
of an employer-provided automobile, to be pro-rated where personal use is less
than 1000 kilometres per month and all or substantially all of the use of the
automobile is in connection with or in the course of performing the duties of
the office or employment be amended to provide that the pro-ration be available
where

     (a) the automobile is used primarily in connection with or in the course
     of performing the duties of the office or employment; and

     (b) personal use is less than 1,667 kilometres per month (20,004
     kilometres per year).


EXTENDED CAB PICK-UP TRUCKS

     (10) That, for taxation years that begin after 2002, the definition
"automobile" be amended to exclude extended cab pick-up trucks used primarily
for the transportation of goods, equipment or passengers in the course of
earning or producing income at one or more worksites that are at least 30
kilometres from the nearest urban community having a population ofat least
40,000 persons.


EMERGENCY POLICE AND FIRE VEHICLES

     (11) That, for the 2003 and subsequent taxation years, the definition of
"automobile" be amended to exclude clearly marked police and fire
emergency-response vehicles.



                                      378



                                     ANNEX 9


SMALL BUSINESS DEDUCTION

     (12) That the rules in subsections 125(2) to (4) of the Act determining the
business limit of a Canadian-controlled private corporation (CCPC) be modified
for taxation years that end after 2002 such that

     (a) the business limit of a CCPC for a taxation year be, subject to
     subparagraphs (b) and (c), the total of

         (i) that proportion of $200,000 that the number of days in the taxation
         year that are before 2003 is of the number of days in the taxation
         year,

         (ii) that proportion of $225,000 that the number of days in the
         taxation year that are in 2003 is of the number of days in the taxation
         year,

         (iii) that proportion of $250,000 that the number of days in the
         taxation year that are in 2004 is of the number of days in the taxation
         year,

         (iv) that proportion of $275,000 that the number of days in the
         taxation year that are in 2005 is of the number of days in the taxation
         year, and

         (v) that proportion of $300,000 that the number of days in the taxation
         year that are after 2005 is of the number of days in the taxation year;

     (b) for the purposes of subsection 125(3) of the Act, associated CCPCs
     allocate the business limit for a taxation year amongst themselves as
     follows:

         (i) designate a percentage or percentages for one or more of the
         associated CCPCs that total 100%,

         (ii) calculate, for each of those associated CCPCs, the amount that
         would, if it were not associated with any other corporation and if the
         Act were read without reference to subsections 125(5) and (5.1) of the
         Act, be its business limit for the taxation year in accordance with
         subparagraph (a), and

         (iii) calculate, for each of those associated CCPCs, its actual
         business limit for the taxation year by multiplying the percentage
         designated for it by the amount calculated for it in accordance with
         clause (ii); and



                                      379



                              THE BUDGET PLAN 2003


     (c) if the Minister of National Revenue is required to allocate an amount
     under subsection 125(4) of the Act for a taxation year, of a corporation
     that is a member of a group of corporations that are associated in the
     taxation year, that ends in a calendar year, the total of the amounts so
     allocated to the members of the group for each of their taxation years that
     end in the calendar year be equal to the amount that would be the business
     limit in accordance with subparagraph (a) for the member of the group whose
     taxation year first ends in the calendar year if it were not so associated
     in the taxation year.

     (13) That subsection 123.4(3) of the Act providing for accelerated access
to the 21% corporate income tax rate for a CCPC's active business income in
excess of its business limit for a taxation year and not exceeding $300,000 be
amended for taxation years that end after 2002 and begin before 2004 to reflect
the increases in the business limit set out in Clause (12) of this Motion.

     (14) That, in applying subsection 127(10.2) of the Act for taxation years
that end after 2002

     (a) the formula in subsection 127(10.2) concerning a corporation's
     expenditure limit for a particular taxation year be replaced with the
     formula "($4,000,000 - 10A) x B/C";

     (b) C be defined as the corporation's business limit for the particular
     taxation year as determined under subparagraph (12)(a) of this Motion or,
     where applicable, the total of the amounts allocated in accordance with
     subparagraph (12) (b) or (c) of this Motion in respect of the corporation
     and one or more other corporations with which the corporation is associated
     in the taxation year;

     (c) the reference to "$4,000,000" in that formula be replaced, for those
     taxation years that follow taxation years that end after 2002, with a
     reference to "$5,000,000"; and

     (d) the reference to "$200,000" in the description of A in that formula be
     replaced, for those taxation years that follow taxation years that end
     after 2002, with a reference to "$300,000".

   (15) That the references in the description of M in the definition "specified
partnership income" in subsection 125(7) of the Act to $200,000 and $548,
respectively, be replaced for fiscal periods of a partnership

     (a) that end in 2003, with references to $225,000 and $617, respectively,

     (b) that end in 2004, with references to $250,000 and $685, respectively,



                                      380



                                     ANNEX 9


     (c) that end in 2005, with references to $275,000 and $754, respectively,
     and

     (d) that end after 2005, with references to $300,000 and $822,
     respectively.


ELIMINATION OF THE FEDERAL CAPITAL TAX

     (16) That

     (a) in its application to the 2004 and subsequent taxation years of a
     corporation, the 0.225% rate of tax specified under subsection 181.1(1) of
     the Act be read (other than for the purposes of subsection 125(5.1) of the
     Act and the definition "unused surtax credit" in subsection 181.1(6) of the
     Act) as the total of

         (i) that proportion of 0.225% that the number of days in the taxation
         year that are before 2004 is of the number of days in the taxation
         year,

         (ii) that proportion of 0.200% that the number of days in the taxation
         year that are in 2004 is of the number of days in the taxation year,

         (iii) that proportion of 0.175% that the number of days in the taxation
         year that are in 2005 is of the number of days in the taxation year,

         (iv) that proportion of 0.125% that the number of days in the taxation
         year that are in 2006 is of the number of days in the taxation year,
         and

         (v) that proportion of 0.0625% that the number of days in the taxation
         year that are in 2007 is of the number of days in the taxation year;
         and

     (b) in its application to the 2004 and subsequent taxation years, the
     capital deduction under section 181.5 of the Act be increased to
     $50million, except that for the purposes of applying subsection 125(5.1) of
     the Act, the definition "unused surtax credit" in subsection 181.1(6) of
     the Act and subsection 225.1(8) of the Act, a corporation's capital
     deduction be considered to be that proportion of $10 million that its
     capital deduction otherwise determined for the year is of $50 million.



                                      381



                              THE BUDGET PLAN 2003


TAX SHELTERS

     (17) That, after February 18, 2003,

     (a) in respect of property acquired and representations made, after that
     date, subparagraph (a)(ii) of the definition "tax shelter" in subsection
     237.1(1) of the Act be amended to take into account an amount represented
     to be deductible in computing tax payable, or to be refundable, under the
     Act;

     (b) in respect of property acquired and representations made, after that
     date, the definition "tax shelter" in subsection 237.1(1) of the Act apply
     in respect of an arrangement under which it can reasonably be considered
     that property acquired pursuant to the arrangement will be the subject of a
     gift referred to in section 110.1 or 118.1 of the Act or a contribution
     referred to in subsection 127(4.1) of the Act;

     (c) in respect of gifts and contributions, and representations, made after
     that date, an arrangement in respect of the making of a gift referred to in
     section 110.1 or 118.1 of the Act or a contribution referred to in
     subsection 127(4.1) of the Act be deemed to be a tax shelter if it may
     reasonably be considered that, having regard to representations made
     concerning the arrangement, a person will incur an indebtedness in respect
     of which recourse is limited; and

     (d) for gifts and contributions made after that date pursuant to an
     arrangement described in subparagraph (c), the amount of the gift or
     contribution be reduced by the amount of any associated indebtedness in
     respect of which recourse is limited, and the value of any repayment of the
     limited recourse debt be treated as a gift or contribution in the year the
     repayment is made.


HARMONIZATION OF ADMINISTRATIVE PROVISIONS
(STANDARDIZED ACCOUNTING)

     (18)That the provisions of the Act relating to accounting, interest,
penalties and administration and enforcement be modified in accordance with the
harmonization proposals described in the budget documents tabled by the Minister
of Finance in the House of Commons on February18, 2003.


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                                     ANNEX 9

FILM OR VIDEO PRODUCTION SERVICES TAX CREDIT

     (19) That, for expenditures incurred after February 18, 2003, the reference
in subsection 125.5(3) of the Act to "11%" be replaced with a reference to
"16%".


EXTENSION OF TAX CREDIT FOR FLOW-THROUGH MINING EXPENDITURE

     (20) That the definition "flow-through mining expenditure" in subsection
127(9) of the Act be extended to include expenses otherwise described in that
definition that are incurred, or deemed by subsection 66(12.66) of the Act to
have been incurred, by a corporation in 2004.


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                              THE BUDGET PLAN 2003


NOTICE OF WAYS AND MEANS MOTION
TO AMEND THE EXCISE TAX ACT

That it is expedient to amend the Excise Tax Act to provide among other things:


BIO-DIESEL AND E-DIESEL

     (1) That the excise tax on diesel fuel not apply to bio-diesel fuel
produced from waste materials, or feedstocks, of biological, non-fossil-fuel
origin.

     (2) That the excise tax on diesel fuel not apply to that portion of a
blended diesel fuel that is equal to the percentage, by volume, of the blended
fuel that constitutes bio-diesel fuel produced from waste materials, or
feedstocks, of biological, non-fossil-fuel origin.

     (3) That the excise tax on diesel fuel not apply to that portion of an
ethanol-diesel or methanol-diesel fuel blend that is equal to the percentage, by
volume, of the fuel blend that constitutes ethanol or methanol that is made from
biomass or renewable feedstocks and not from petroleum, natural gas or coal.

     (4) That any enactment founded on any of paragraphs (1) to (3) be
applicable to fuel sold or imported after February 18, 2003.


FUEL EXCISE TAX REFUND CLAIMS

     (5) That the rebate of excise tax on goods exported from Canada not apply
to fuel transported out of the country in the fuel tank of the vehicle that is
used for that transportation.

     (6) That any enactment founded on paragraph (5) apply to applications for
rebates of excise tax received by the Minister of National Revenue on or after
February 18, 2003.


SCHOOL TRANSPORTATION SERVICES

     (7) That section 5 of Part III of Schedule V to the Act be amended to
provide that a supply of a service of transporting elementary or secondary
school students to or from a school that is operated by a school authority is an
exempt supply under the goods and services tax/harmonized sales tax when the
supply is made by a school authority to any person other than another school
authority, and that this provision be deemed to have come into force on December
17, 1990.


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                                     ANNEX 9


     (8) That, if a school authority's net tax for a reporting period determined
under the Act as amended by any enactment founded on paragraph (7) is different
from the amount that would be the authority's net tax for the period if that
amendment were not enacted, and the Minister of National Revenue has assessed
the net tax for the period, the Minister may reassess the net tax or an amount
payable under section 230.1 of the Act to take into account that difference, on
or before the later of the day that is one year after the day on which the
enactment is assented to and the last day ofthe period otherwise allowed under
section 298 of the Act for making the reassessment, notwithstanding that section
and notwithstanding any decision of a court in respect of that reporting period
of the authority that is rendered after December 21, 2001.


CONTRACTED MUNICIPAL SERVICES

     (9) That section 21 of Part VI of Schedule V to the Act be amended to
provide that a supply of a municipal service (other than a service specifically
excluded under that section) made by or on behalf of a government or
municipality is an exempt supply under the goods and services tax/harmonized
sales tax when the supply is made to a recipient who is the owner or occupant of
real property situated in a particular geographic area and who is not the
municipality or the government, if

     (a) the owner or occupant has no option but to receive the service; or

     (b) the service is supplied because of a failure by the owner or occupant
     to comply with an obligation imposed under a law.

     (10) That any enactment founded on paragraph (9) be deemed to have come
into force on December 17, 1990 except that, in applying section 21 of Part VI
of Schedule V to the Act, as amended by that enactment, to supplies for which
all of the consideration became due before April24,1996 or was paid before that
day without having become due, it be read without reference to paragraph (b)
thereof.


HARMONIZATION OF ADMINISTRATIVE PROVISIONS
(STANDARDIZED ACCOUNTING)

     (11)That the provisions of the Act relating to accounting, interest,
penalties and administration and enforcement be modified in accordance with the
harmonization proposals described in the budget documents tabled by the Minister
of Finance in the House of Commons on February 18, 2003.


                                      385




                              THE BUDGET PLAN 2003


NOTICE OF WAYS AND MEANS MOTION TO AMEND
THE CUSTOMS TARIFF, THE EXCISE TAX ACT AND
THE EXCISE ACT, 2001

That it is expedient to amend the Customs Tariff, the Excise Tax Act and the
Excise Act, 2001 to provide among other things:


CUSTOMS TARIFF

     (1) That the duty under subsection 21(2) of the Customs Tariff be levied at
the rate of $0.075 per cigarette, $0.055 per tobacco stick, and $0.05pergram of
manufactured tobacco other than cigarettes and tobacco sticks.


EXCISE TAX ACT

     (2) That the excise tax on tobacco products under section 23.11 of the
Excise Tax Act be imposed at the following rates:

     (a) $0.0475 per cigarette;

     (b) $0.03665 per tobacco stick; and

     (c) $31.65 per kilogram of manufactured tobacco other than cigarettes and
     tobacco sticks.

     (3) That the excise tax on tobacco products under section 23.12 of the Act
be imposed at the following rates:

     (a) $0.075 per cigarette;

     (b) $0.055 per tobacco stick; and

     (c) $0.05 per gram of manufactured tobacco other than cigarettes and
     tobacco sticks.

     (4) That the excise tax on tobacco products under subsection 23.13(1) of
the Act be imposed at the following rates:

     (a) $0.075 per cigarette;

     (b) $0.055 per tobacco stick; and

     (c) $50.00 per kilogram of manufactured tobacco other than cigarettes and
     tobacco sticks.



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                                     ANNEX 9


     (5) That the excise tax on tobacco products under subsection 23.13(2) of
the Act be imposed at the following rates:

     (a) $0.1475 per cigarette;

     (b) $0.08165 per tobacco stick; and

     (c) $81.65 per kilogram of manufactured tobacco other than cigarettes and
     tobacco sticks.

     (6) That Schedule II to the Act be amended to provide for the following
rates of excise tax:

     (a) Cigarettes: $0.25888 for each five cigarettes or fraction of five
     cigarettes contained in any package;

     (b) Tobacco sticks: $0.03965 per stick;

     (c) Manufactured tobacco other than cigarettes and tobacco sticks: $35.648
     per kilogram; and

     (d) Cigars: the greater of $0.065 per cigar and 65 per cent.


EXCISE ACT,2001

     (7) That the rate of duty set out in paragraph 1(a) of Schedule 1 to the
Excise Act, 2001 be amended to be $0.374875 for each five cigarettes or fraction
of five cigarettes contained in any package.

     (8) That the rate of duty set out in paragraph 1(b) of Schedule 1 to the
Act be amended to be $0.396255 for each five cigarettes or fraction of five
cigarettes contained in any package.

     (9) That the rate of duty set out in paragraph 2(a) of Schedule 1 to the
Act be amended to be $0.054983 per tobacco stick.

     (10) That the rate of duty set out in paragraph 2(b) of Schedule 1 to the
Act be amended to be $0.057983 per tobacco stick.

     (11) That the rate of duty set out in paragraph 3(a) of Schedule 1 to the
Act be amended to be $49.983 per kilogram of manufactured tobacco other than
cigarettes and tobacco sticks.

     (12) That the rate of duty set out in paragraph 3(b) of Schedule 1 to the
Act be amended to be $53.981 per kilogram of manufactured tobacco other than
cigarettes and tobacco sticks.



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                              THE BUDGET PLAN 2003


     (13) That the rate of additional duty on cigars set out in Schedule 2 to
the Act be amended to be the greater of

     (a) $0.065 per cigar; and

     (b) 65%, computed on

         (i) the sale price, in the case of cigars manufactured in Canada, or

         (ii) the duty-paid value, in the case of imported cigars.

     (14) That section 1 of Schedule 3 to the Act be amended to provide for the
following rates of special duty:

     (a) $0.075 per cigarette, in the case of cigarettes;

     (b) $0.055 per stick, in the case of tobacco sticks; and

     (c) $0.05 per gram, in the case of manufactured tobacco other than
     cigarettes and tobacco sticks.

     (15) That section 2 of Schedule 3 to the Act be amended to provide for the
following rates of special duty:

     (a) $0.075 per cigarette, in the case of cigarettes;

     (b) $0.055 per stick, in the case of tobacco sticks; and

     (c) $0.05 per gram, in the case of manufactured tobacco other than
     cigarettes and tobacco sticks.

     (16) That section 3 of Schedule 3 to the Act be amended to provide for the
following rates of special duty:

     (a) $0.075 per cigarette, in the case of cigarettes;

     (b) $0.055 per stick, in the case of tobacco sticks; and

     (c) $50.00 per kilogram, in the case of manufactured tobacco other than
     cigarettes and tobacco sticks.

     (17) That section 4 of Schedule 3 to the Act be amended to provide for the
following rates of special duty:

     (a) $0.095724 per cigarette, in the case of cigarettes;

     (b) $0.042 per stick, in the case of tobacco sticks; and

     (c) $46.002 per kilogram, in the case of manufactured tobacco other than
     cigarettes and tobacco sticks.



                                      388



                                     ANNEX 9


     (18) That any enactment founded on any of paragraphs (1) to (17) be
effective after June 17, 2002.

     (19) That, for the purposes of applying the provisions of the Customs Act
and the Excise Tax Act that provide for the payment of, or liability to pay,
interest in respect of any amount, the amount be determined and interest be
computed on it as though any enactment founded on any of paragraphs (1)to (17)
were assented to on June 18, 2002.



                                      389