a . I - 1 . Pre-Budget Consultations December 5, 2016 Canad?' Budget 2016 Budget 2016 set the stage for the Government’s plan ▪ Actions taken in Budget 2016 and in subsequent months set out an ambitious agenda for inclusive Innovation Agenda and sustainable growth: – Middle Class Tax Cut – Indexed Canada Child Benefit – Important commitments to indigenous peoples, veterans, and seniors – Major infrastructure funding – Canada Pension Plan enhancement – Immigration levels plan ▪ The Fall Economic Statement further advanced this plan: – Investing in Canada Infrastructure Plan – Attracting Investment and Global Skills Strategy 2 Economic Situation and Outlook Canadians are feeling better about the economy but they remain concerned about their economic future… Consumers are worried about their employment prospects Canadians now more optimistic about the current state of the economy Opinion of Canadians on the current state of the economy per cent 68 60 Expected Employment Conditions, Conference Board of Canada Consumer Confidence Index Good Poor 52 balance of opinion 0 -5 48 45 -10 -15 32 -20 30 -25 -30 15 -35 0 January 2016 August 2016 Source: Abacus Data, August 30, 2016. Note: Survey data are based on the question: “How would you rate the current state of the economy in Canada?” -40 Source: Conference Board of Canada Note: Values shown are 12-month moving averages of the balance of opinion. Last 3 data point is November 2016. Economic Situation and Outlook … and not without reason. Growth has been slow and disappointing IMF has repeatedly revised down growth Growth in Canada has also fallen well short of expectations IMF Global Real GDP Growth Outlook Canadian Nominal GDP Outlook billions of dollars per cent 5.5 2,300 April 2011 2,200 5.0 2,100 4.5 2,000 April 2012 Cumulative shortfall of about $430 billion, or $23,500 per worker Budget 2011 outlook 4.0 2016 Fall Economic Statement outlook 1,900 3.5 April 2013 3.0 April 2015 April 2014 April 2016 October 2016 1,800 Actual 1,700 1,600 2.5 2010 2011 2012 2013 2014 2015 2016 2017 Sources: International Monetary Fund World Economic Outlook, Department of Finance calculations 2010 2011 2012 2013 2014 2015 2016 Source: Department of Finance calculations based on Budget 2011 and 2016 Fall Economic Statement databases. 4 Economic Situation and Outlook Low oil prices are still weighing on the Canadian economy, with weaker-than-expected boost from the lower dollar Investment in the Canadian oil and gas sector continues to decline Our competitors’ currencies have depreciated by as much or even more against the U.S. dollar Canadian Oil and Gas Capital Expenditures Change in Exchange Rates Against the USD Since Mid-2014 billions of dollars, annualized 100 2014 average: $78B Mexican peso -37 80 U.K. pound 60 -27 $37B 40 euro -23 20 Canadian dollar -21 0 2014 Q1 2014 Q3 2015 Q1 2015 Q3 2016 Q1 2016 Q3 -40 -30 -20 -10 0 per cent Source: Statistics Canada. Note: Last data point is 2016Q3. Source: Haver Analytics. Note: Change between July 1, 2014 and November 25, 2016. 5 Economic Situation and Outlook Household debt levels and job growth will constrain future consumption Full-time employment gains have been disappointing Household indebtedness remains elevated Household Debt-to-Income Ratio Average Monthly Change in Employment, Overall and Full-Time per cent thousands 170 20 160 16 150 15.9 Total Full-time 14.9 14.6 13.0 12.3 140 12 130 120 8 110 4 100 0 90 80 1990 1995 Source: Statistics Canada. Note: Last data point is 2016Q2. 2000 2005 2010 2015 -1.9 -4 2011-2014 2015 2016 (Jan to Nov) Source: Statistics Canada. 6 Economic Situation and Outlook Moreover, structural factors are weighing on future growth prospects The world’s population is aging Productivity growth has slowed across the OECD Number of working-age people per elderly person 12 Actual Productivity growth Projected OECD countries 10 1996-2000 8 World 6 2001-2007 Canada 2008-2014* 4 Canada 2 0 1970 1980 1990 2000 2010 2020 2030 2040 Sources: United Nations Population Division, Statistics Canada U.S. 0 1 2 per cent 3 Sources: OECD Productivity Database Note: Average OECD productivity growth is based on 34 OECD countries, all member countries except Estonia. Average OECD growth is a weighted average based on total hours worked. 1995 is the earliest year for which OECD data is 7 available for all 34 countries.* Growth for Canada extends to 2015. Economic Situation and Outlook Our challenge is to boost economic growth… Real GDP growth will slow as our workforce ages and shrinks Canadian Real GDP Growth Average annual growth rate (per cent) Historical Projections Average: 5.1% 5 4 5.1 Average: 2.8% 5.1 3 Average: 1.8% 2 4.1 2.8 2.3 2.1 2.3 1.9 1 1.7 0 1950-1959 1960-1969 1970-1979 1980-1989 1990-1999 2000-2009 2010-2015 2016-2019 2020-2029 Sources: Statistics Canada and Department of Finance 8 A New Growth Strategy … in a way that is inclusive, innovative and fiscally sustainable Innovation Agenda Inclusive Innovative Fiscally sustainable ▪ Create opportunities for everyone in society ▪ Develop bold new ideas, and consider new approaches to implementation and delivery ▪ Maintain flexibility to deal with recessions and pressures from an aging population 9 A New Growth Strategy Canada is well positioned to act, but fiscal room is limited and we’ll need to make difficult choices among many priorities ▪ Need to act boldly and focus on game- Canada’s net debt-to-GDP ratio is the lowest in the G7 IMF Forecast for Total Government Net Debt-to-GDP Ratios, 2015 Canada changing initiatives: Talent & Labour Markets Germany G7 average U.S. Innovation U.K. France Capital Investment & Capital Investment Infrastructure & Infrastructure Italy Japan 0 50 per cent of GDP 100 150 Notes: The total government net debt-to-GDP ratio is the ratio of total liabilities, net of financial assets of the central, state and local levels of government, as well as those in social security funds, to GDP. For Canada, total government includes the federal, provincial/territorial and local government sectors, as well as the Canada Pension Plan and the Quebec Pension Plan. Source: IMF, April 2016 Fiscal Monitor. Competitive Markets 10 Consulting with Canadians Guiding Questions for Discussion 1. What opportunities should new graduates look forward to? 2. In general, how confident are you that Canadian businesses are well placed to compete around the world? 3. In your opinion, what are the biggest barriers to business innovation in Canada? 4. How can the Government of Canada attract more investment to Canada? 11 a . I - 1 . Pre-Budget Consultations December 5, 2016 Canad?'