The Economic Overview

Debt Management Strategy At the Forefront of Cautious Optimism

The federal government is moving forward with a three part "Plan Aî in this budget. That is, there are no new taxes, no significant spending cuts and targeted financial stimulus to better support Canada's unemployed, develop innovation and stimulate spending by businesses on energy projects and clean energy generation. This is all based indications that Canada has returned to economic growth after a brief but deep recession.

However, there are many unknowns for Canada due to the fragile state of global economic recovery, and therefore the budget proposes an ambitious plan to bring its $56 Billion budget deficit back to balance in five years, in advance of any other G7 Nation, with a Debt Management Strategy.

Specifically, the deficit is projected to decline to $27.6 billion in 2011ñ12, $17.5 billion in 2012ñ13 and $1.8 billion in 2014-15.

Deficit reduction will be accomplished largely through projected increases in budget revenues as the economy grows, largely coming from a 30% increase ($34.6 Billion) in personal income taxes, as well as $17.6 Billion in spending cuts, an increased revenues from Employment Insurance.

In addition several tax loopholes being closed: the removal of the deferral of taxation on stock option benefits, the removal of cosmetic procedures from the medical expense credit and a change to the payment of interest by the government to corporations on overpaid taxes will provide significant savings for government. For more information see Tax Changes, below.

PRIVATE SECTOR FORECASTS

Of particular interest to investors and their advisors are the private sector forecasts, which show significant economic indicators now until 2014:

• Real GDP growth averaging 2% over the period, but rising to 3.2% in 2011
• A GDP and CPI inflation rate averaging 1.7% now to 2014, but rising to 2.1% by 2014
• a 3 month treasury bill rate rising to 4.4% by 2014
• a 10 year bond rate rising to 4.5% by 2014
• Canadian dollar close to par with the US dollar starting in 2011.
• An unemployment rate of 7.9% in 2011, dropping to 6.6% by 2014.

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