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POSTED AT 4:41 PM EST    Monday, December 10
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Economy: Infrastructure spending to spur job growth
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The Prime Minister congratulates Finance Minister Paul Martin on his budget in the House Monday. Photo: Tom Hanson/CP


TERRY WEBER
Globe and Mail Update

Ottawa — The federal government said Monday it will set aside $2-billion for a new infrastructure foundation aimed at helping fund large-scale projects to stimulate job growth and improve the Canadian economy's long-term potential.

The new fund — called the Strategic Infrastructure Foundation — will be launched with the commitment of a minimum of $2-billion in federal money to fund large-scale projects.

"Whether it is highways, urban transit or fishing harbours, Canada must have the physical infrastructure it needs to succeed," Mr. Martin told the House of Commons.

"Investments in infrastructure will stimulate job creation in the short and medium term and make the economy more productive and competitive in the long term."

Canada's economy has been hard hit by the impact of the Sept. 11 terrorist attacks, which left the world on the brink of a recession. Canada's gross domestic product — the widest measure of economic activity — contracted in the third quarter and is widely expected to post an even worse performance in the fourth quarter. If that happens, the country would meet the technical definition of a recession — two consecutive quarters of negative growth.

Already this year, the Bank of Canada has cut its benchmark overnight rate nine times in an effort to stimulate the economy. Most economists widely expect another cut in January, particularly after a Statistics Canada report last week that showed rising unemployment and falling full-time job growth.

In Monday's budget, Mr. Martin relied heavily on infrastructure spending to stimulate the country's flagging economy. The newly created infrastructure foundation — which will operate at arms length from the federal government — will provide assistance for large infrastructure projects, including highways, sewage treatment facilities, convention centres and urban transit systems.

The costs will be shared with provincial and municipal governments. Ottawa's initial allocation will come from this year's surplus funds.

Similarly, a new $600-million program was announced for border infrastructure projects, including highways and commercial vehicle processing centres.

Not surprisingly, the budget didn't contain new tax cuts, with Ottawa instead relying on the $100-billion in reductions announced last year to do the heavy lifting.

However, small businesses will get a bit of a tax holiday. For those businesses, Ottawa will defer its corporate tax for January, February and March next year.

That move, the government said, will defer a total of about $2-billion in taxes for small businesses until next year.

In a similar vein, Ottawa also said it would enhance the Canada Study Grants program for students with disabilities and provide universities with a one-time payment of $200-million to support research costs.

"Research today is the source of new jobs tomorrow," Mr. Martin said.

Mr. Martin also said, while weaker conditions are expected for the balance of this year, a stronger second half is likely in 2002 as exports recover and consumer and business confidence return.

On average, he said, private forecasters are expecting the country's economy to grow by 1.3 per cent this year, followed by 1.1 per cent growth over all in 2002.

"That being said, we can take nothing for granted given the extent of global uncertainty," Mr. Martin said.

"Therefore, the government, while very confident for the medium and longer term, will remain cautious in its planning."

Economists were quick to point out the strengths and the shortcomings of Monday's budget.

"The government has not set aside its traditional $3-billion contingency reserve, not only for the current fiscal year but for the fiscal years going ahead," Marc Lévesque, senior economist with Toronto-Dominion Bank, told globeandmail.com

"It is an achievement that even in a recession we've got a balanced budget," said Sherry Cooper, chief economist at BMO Nesbitt Burns.

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