1. Module 10 The Role of Government The Canadian Welfare Society and Taxation

2. The Welfare Society The government plays a major role in attempting to ensure the well-being of its citizens. The welfare society in Canada includes a number of government programs (these are the transfer payments mentioned earlier). Although these programs offer many advantages for Canadians, they are criticized for discouraging employment, fostering inequities and abuses, and not sufficiently alleviating poverty.

3. The Welfare Society and Taxation Taxes are imposed by government to provide revenue and also to influence economic conditions The taxation policy must be based on the concepts of equity, neutrality, and efficiency.

4. Principles of Taxation Equity (Social Justice): taxes should be equitable or fair. Ex -- all individuals who are in similar circumstances pay the same amount of tax (horizontal equity). The problem with this is how do you deal with people in unlike circumstances (vertical equity)?

5. Principles of Taxation 3 Approaches to Vertical Equity: Benefits-received approach people should be taxed on the benefits they receive from the government. Those who benefit most from government spending should pay the most taxes. Difficult to determine who benefits the most from government programs. It does work for some taxes (gasoline, liquor, cigarettes)

6. Principles of Taxation 3 Approaches to Vertical Equity: Ability to Pay those who make more money should pay more taxes. The ability to pay could relate to income, personal wealth, or amount of expenditures. In Canada, all 3 forms are used (Income Tax - Income; Property tax - Wealth; Sales Tax - consumption or expenditures)

7. Principles of Taxation 3 Approaches to Vertical Equity: Equal Treatment of Equals equals should be treated equally; persons with equal ability to pay, or enjoying equal benefits, should pay equal taxes.

8. How Should Income Be Taxed? A. Progressive Tax: % of income paid in tax rises with income. This is used in Canada; all sacrifice the same in real terms B. Proportional Tax: % paid in tax remains the same regardless of income. C. Regressive Tax: % paid in taxes declines as income increases.

9. Types of Taxation There are five main types of taxation used by Canadian governments personal income taxes sales taxes excise taxes property taxes corporate income taxes