CH. 11: GOVERNMENT EXPENDITURES & REVENUES

1. CH. 11: GOVERNMENT EXPENDITURES & REVENUES CIE3M M. Nicholson

2. Reasons for Government Involvement in the Economy • Public goods – good or service that everyone benefits from regardless if they have paid for it or not (e.g. national defence) • Externalities – good or bad side effects of production (e.g. golf course vs. pollution)

3. Reasons for Government Involvement in the Economy • Harmful and Beneficial Goods – cigarettes vs. education • Distribution – help make it a fairer world by taking from the rich and giving to the poor • Economic Stability – stable prices and full employment

4. Growth in Government Spending • Government spending has increased greatly since the Great Depression of the 1930s • Canadians have come to expect gov’ts to take care of them to prevent another economic depression from ever occurring again • Canadians are a mostly urban people who are highly specialized & therefore not self-sufficient like their farming ancestors

5. Government Expenditures • Municipal – local roads, sewers, police, garbage disposal, libraries, schools • Provincial – Fed Gov’t transfers money to pay for goods & services such as health & education • frequent deficits have led to large debt and interest payments (1/7th of exp.)

6. Government Expenditures • Federal – massive growth from the late 70s to the mid 90s • transfers to persons – Old Age Security, UI • transfers to other levels of governments – make things even • subsidies – Natives, farmers, international aid • payments to crown corporations (e.g. CBC)

7. Government Expenditures 5. defence – Cold War over so declining 6. government operations – judicial, government departments 7. other – veterans allowances 8. public debt charges – by the mid 90s the largest government expenditure

8. Government Revenues • Taxes are the key source of government revenue and come in many different forms • direct – e.g. HST consumers can see • indirect – e.g. excise tax is hidden in the price of gas • progressive – higher % for higher income • proportional – same % • regressive – lower income pays %

9. Government Revenues • Municipal – property taxes contribute 90% • Provincial – direct taxes (33%), indirect taxes (25%), federal transfers (20%) • Federal – income tax, corporate income tax, UI, GST, excise (luxury/sin) tax, duties, government investment

10. Controlling Federal & Provincial Debts & Deficits • Growth of the Federal Public Debt – 1966 ($27.4 billion)  1995 ($546 billion)  Present Debt • Effects of the Federal Public Debt • redistribution of income • debt held by foreigners • cost of collecting tax • danger of the debt feeding on itself

11. Controlling Federal & Provincial Debts & Deficits • Effects of the Federal Public Debt (cont’d) 5. crowding out investment 6. burden of future taxpayers 7. restrictions on government spending and taxing policy

12. Controlling Federal & Provincial Debts & Deficits • Curbing the Federal Debt and Deficit • cut federal government expenditures – politically unpopular • increase revenues – more taxes (e.g. GST) • rely on economic growth and rising incomes • Provincial Debts and Deficits – peaked in 1993

13. Government & the Circular Flow • Gov’t intervenes in the market system because households & businesses sometimes have extremes in their relationship causing instability (e.g. unemployment, inflation)

14. Government & the Circular Flow

15. Government Regulation of Business • Prevent reduction in competition • Regulate prices and production – Rogers Cable, electricity, eggs, milk • Health, safety and the environment – building codes, restaurants • Crown Corporations - CBC