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 (1/7 th of exp.)

6. Government Expenditures  Federal – massive growth from the late 70s to the mid 90s 1. transfers to persons – Old Age Security, UI 2. transfers to other levels of governments – make things even 3. subsidies – Natives, farmers, international aid 4. 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 DebtPresent Debt  Effects of the Federal Public Debt 1. redistribution of income 2. debt held by foreigners 3. cost of collecting tax 4. 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 1. cut federal government expenditures – politically unpopular 2. increase revenues – more taxes (e.g. GST) 3. 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