FEDERAL ECONOMIC STATEMENT

May 17, 2001

More than 40% of our Gross Domestic Product (GDP) is generated by exports.

Last year, the U.S. economy started growing at an annual rate of 5%. This was reduced to a 1% annual rate by the end of 2000. U.S. growth is expected to be 2% for 2001, reducing our exports to the U.S.

Canada's balance of payments has improved from a negative $28 billion in 1993 to a positive $19 billion in 2000.

There has been a decline in our foreign indebtedness helping to reduce our payments to international creditors and keep interest rates lower.

The October 2000 statement estimated the 2001-2002 Budget Surplus would be $8.3 billion. This estimate has been reduced to $7.2 billion.

The $100 billion in tax cuts will be carried out.

The taxable portion of Capital Gains was reduced to 50% in October 2000 from 75% on January 1, 2000.

Corporate Income Tax Rates have been reduced by 1% as of January 1, 2001 and will be further reduced by 2% in each of the next three (3) years.

In January 2001:

(i) Personal Income Taxes were reduced at all levels
(ii) Personal tax credits have been indexed
(iii) Personal tax brackets have been indexed

This means an individual does not pay more tax by being put into a higher tax bracket as a result of inflation.

A five-year Health Accord was announced with the Provinces last September to which the Federal government contributed $21.1 billion.

The inflation target has been extended for five (5) years to remain between 1% and 3%. This is to keep interest rates low and have continued growth.

As the fiscal year ended March 31, 2001 generated greater revenue than expected, the Deficit was reduced by $15 billion for that year. $33 billion of debt has been retired in the last four (4) years, saving Canadians close to $2 billion annually in interest.

The unemployment rate has dropped from 9.5% at the beginning of 1997 to 6.8% in 2000.

Real per capita personal disposable income:

(i) fell by 0.4% per year from 1992 to 1996
(ii) averaged 1.7% per year growth since 1996
(iii) rose to 2.9% for 2000

Manufacturing inventories built up in the second half of 2000 in automobiles and the communication technology sectors. This resulted in a cutback of production. The U.S. economic growth decreased to 1.6% in the last half of 2000. With inventories now being reduced, it is expected the U.S. economic growth will be 2% in 2001.

Sector growth has been shown in 2001:

(i) aerospace - 10.1%
(ii) energy - 8.6%
(iii) construction industries - 8.7%
(iv) service industry - 3.25% (the service industry is close to 2/3 of total economic activity in Canada)

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