Thank you very much. It is a pleasure to be here with Benoit Robidoux and my other colleagues.
I thought what I would do very briefly, just to open up the session and provide some context for our discussion, is give you a very quick overview of how the Department of Finance estimated the 220,000 jobs maintained or created by the action plan that we had published in the budget and in subsequent reports. We have a short presentation that we can go through fairly quickly.
At the outset, it's important to recognize that we say “maintained or created”, because in a recession what we're largely talking about is maintaining or protecting jobs as opposed to new job creation.
The first major point is that the approach we've taken is a model-based approach. While I think it's fair to say there's no consensus on how to go about estimating jobs and output impacts of these types of policy changes, by and large, when we look around the world, the consensus seems to be that a model-based approach is the way to go. That is for two primary reasons. First, models allow one to isolate the impact of the specific policy measures against everything else that's happening in the economy—for example, in the current context, changes to monetary policy, changes in the status of external demand in other countries. Second, the models allow us to capture the various channels of influence that fiscal policy has on the economy, which includes not only the direct influences—that is to say, for example, direct stimulus to housing, which feeds one for one into output—but also indirect impacts on other industries and the induced effects that these types of policies generate, particularly in recession periods, via their impact on incomes.
The various avenues of effect are summarized, on page 2 of the handout, in something that we refer to as output multipliers. You've probably seen these not only in our work but in work that the Congressional Budget Office and the Council of Economic Advisers in the U.S. have put out.
Essentially what we're trying to do here is provide you with an estimate of what a dollar spent on any one particular area translates into in terms of output, and then employment. For example, one dollar in infrastructure in the first year translates into about one dollar of output, and by year two, once the indirect and induced impacts build, that's about $1.05.
At the bottom of the table, you see personal income taxes. Generally speaking, one dollar in personal income tax cuts translates into about 40¢ of economic activity in the first year, building to 0.9 in the second year, and then that effect would build over subsequent years. Of course, the reason for the difference between, in this case, personal income taxes and infrastructure is that a portion of that tax reduction is initially saved and not spent. Over time, as the effects build through the economy, so does the overall impact.
Using these multipliers, then, we're able to estimate an overall impact on output, and then based on historical relationships between changes in output and employment, we have come to the conclusion that it's reasonably prudent to assume that for every 1% increase in output, you get a 0.6% increase in employment. The combination of that approach leads us to the conclusion that the plan will create or maintain roughly 220,000 jobs.
I'll just point out in passing that the 220,000 number doesn't really include much of the impact from the work-sharing program, which has seen a large take-up.
In broad terms, that is the approach we used.
There is another consideration. When we look at recent economic developments, we come to the conclusion that, in general, those recent developments more or less correspond to what we were expecting from the package. Essentially, we are looking at an increase of about 220,000 jobs.
Page 3 shows consumer and business confidence. One of the main objectives of the package was to boost this confidence at a time when the world economy and the Canadian economy were in significant decline. You can see that consumer and business confidence has been restored.
On page 4, we see that government investment in the last two quarters of 2009 has increased markedly, with increases of 16% and 25%.
On page 5, we see that residential investment, which was one of the targets of the plan, has been very high recently, especially in renovation activity.
Page 6 shows that, overall, the domestic economy, which was the main objective of the package, remains stronger in Canada than elsewhere.
Finally, page 7 shows that, since March, employment seems to have stabilized in Canada, especially as compared to the United States. The unemployment rate is actually about 1.6% lower than in the United States.
That is the work and the follow-up that we have done since we examined the budget.
Thank you very much.
