The Role of Government in Business Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Learning Goals Understand the six categories of government activities that can affect business. Trace the historical role of government in the Canadian economy and understand why Crown Corporations were created. Discuss why understanding laws and regulations at all levels of government is critical to business success. Explain how taxation and financial policies affect the Canadian economy. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Government’s Involvement in Business Can be divided into six categories: Crown corporations Laws and regulations Taxation and financial policies Financial aid Government expenditures Purchasing policies Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Some background information: Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

A company that is owned by the federal or provincial government. Crown Corporations A company that is owned by the federal or provincial government. Some Example of these are: Canada Post Canada Mortgage and Housing NB Power CBC Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Why would they set up a Crown Corporation Provide services that were not being provided by businesses (1930 Air Canada) To bail out a major industry in trouble (1919 Canadian National Railway) Provide specialized services that could not otherwise be provided (Atomic Energy of Canada) Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Privatization The process of governments selling off Crown Corporations. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Laws and Regulations Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Laws and Regulations Federal government responsibilities include: Trade regulations Incorporation of federal companies Taxation, both direct and indirect The banking and monetary system National defense Unemployment Immigration Criminal law Fisheries Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Laws and Regulations cont. Provincial government responsibilities include: Regulation of provincial trade and commerce Natural resources within their boundaries Direct taxation for provincial purposes Incorporation of provincial companies The administration of justice Health and social services Municipal affairs Property law Labour law Education Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Laws and Regulations Cont Municipal Government Regulations and laws on places that serve food Community Zoning Laws Speed Limits in the community Building permits, municipal licenses (dog tags, taxes, water) Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Taxation and Financial Policies Taxes (revenue, income and property) are the major bases of tax revenues. Taxes are used a a source of funding for government activities. Sin taxes are used to discourage tax payers from using certain products. For example, cigarettes. Tax credits are given to companies to encourage growth. All businesses pay various taxes (a cost of doing business), which are passed on to the consumer in the form of higher prices. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Taxation and Financial Policies cont. Fiscal Policy: the federal government’s effort to keep the economy stable by increasing or decreasing taxes or government spending. Deficit: created when the government spends more than it gathers in taxes over a specific period of time. National debt: the sum of government debt over time - today Canada’s debt totals less than $500 billion. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Taxation and Financial Policies cont. Federal Budget: a comprehensive report on what the government’s financial policies will be for the following year - how much revenue will be collected and whether there will be a deficit or surplus. Monetary Policy: management of the money supply and the interest rates are controlled by the Bank of Canada. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Financial Aid Direct assistance to business through grants, low-interest loans, loan guarantees, consulting advice and information. Equalization of transfer payments between provinces reduces fiscal disparities between the wealthier and poorer provinces. Marketing Boards control the supply or pricing of some agricultural products in order to stabilize the industry. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Purchasing Policies The government is a very large purchaser and consumer of goods and services. Governments attempt, where possible, to favour local businesses in their purchasing policies including trade barriers between provinces. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson