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Some Basic Facts about Government Expenditures and Taxation in Canada Econ 525 Revenues and Expenditures in Canada • Since we’re studying the role of government in this course it is worth considering some measures of government activity – How big is government? – What does government spend money on? – How does it collect taxes? – At what level of government do different activities occur? – How does Canada compare to other countries? – What are trends in government size? Where does what get done? • As you think about any policy in this course, one question you should ask is “Which level of government should do this?” – e.g. Does it make sense for businesses to be taxed at the local level? Should the federal government decide where to site a local park? Should local government handle redistribution? Management of externalities? Should local schools be funded locally? Or provincially? – Answers to these questions can be complex Why do certain activities occur at certain levels of government? • Often an interesting question – Subject of research on fiscal federalism • As we’ll see – Externalities and public goods often best handled by higher levels of government – Redistribution best handled by higher levels of government – Local governments may better cater to specific demands of local population – Legal constraints play role Other interesting questions • Why do different countries do things differently? – e.g., some rely much more heavily on consumption taxes than income taxes – Some have larger social insurance system • What do effective *systems* of government look like? – e.g., combinations of taxes or expenditure programs within and across levels of government. Some General Trends • Revenues – Federal revs come primarily from income and consumption taxes – Provincial revs come primarily from income taxes, consumption taxes, and federal transfers – Local revs come primarily from property taxes Some General Trends • Expenditures – Federal spending high on protection of persons and property, health, social services, and transfers to provinces • Little direct Federal spending on education – Provincial spending high on health, social services, and education • Spending on health and social services encouraged by large federal grants – Local spending high on protection, education, transportation, and environment • Little spending on social services ShareofTotalGovernmentExpenditures,2008 Federal Provincialand Territorial Local ShareofTotalGovernmentRevenue,2008 Federal ProvincialandTerritorial Local Consolidated Federal,Provincial,andTerritorial ExpendituresbyCategory(% totalexpenditures,2009) Generalgovernment services Protectionofpersonsand property Transportationand communication Health Socialservices Education Resourceconservationand industrialdevelopment Environment Recreationandculture Foreignaffairsand internationalassistance Debtcharges Other ConsolidatedFederalProvincialandTerritorialRevenueby Source (%totalrevenues,2009) Incometaxes Propertyandrelatedtaxes Consumptiontaxes Healthinsurance premiums Contributionstosocial securityplans Othertaxes Salesofgoodsandservices Investmentincome Otherrevenuefromown sources FederalExpendituresbySource(% totalexpenditures,2009) Generalgovernment services Protectionofpersonsand property Health Socialservices Education Resourceconservationand industrialdevelopment Foreignaffairsand internationalassistance Generalpurposetransfers Debtcharges Other FederalRevenuebySource(% totalrevenue,2009) Incometaxes Consumptiontaxes Othertaxes Contributionstosocial securityplans Salesofgoodsand services Investmentincome Otherrevenuesources ProvincialRevenuesbySource(% totalrevenues,2009) Incometaxes Consumptiontaxes Propertyandrelatedtaxes Othertaxes Contributionstosocial securityplans Salesofgoodsandservices Investmentincome Otherrevenuefromown sources Generalpurposetransfers Specificpurposetransfers ProvincialExpendituresbyCategory (%totalexpenditures,2009) Generalgovernment services Protectionofpersonsand property Transportationand communications Health Socialservices Education Resourceconservationand industrialdevelopment Debtcharges Other LocalGovernmentRevenuesbySource (%totalrevenues,2008) Consumptiontaxes Propertyandrelatedtaxes Othertaxes Salesofgoodsand services Investmentincome Otherrevenuefromown sources Generalpurposetransfers Specificpurposetransfers LocalGovernmentExpendituresbyCategory (%totalexpenditures,2008) Generalgovernment services Protectionofpersonsand property Transportationand communication Socialservices Education Environment Recreationandculture 2006(orclosestyearavailable) 1995 OECD29 Mexico Switzerland Australia UnitedStates Spain Canada Norway Greece CzechRepublic Germany Portugal Finland Italy Hungary Sweden GeneralGovernmentExpenditure(alllevels)as%GDP 70% 60% 50% 40% 30% 20% 10% 0% Deficit as a % of GDP 4.0 2.0 0.0 2007 2008 2009 2010 2011 2012 -2.0 Canada -4.0 Japan -6.0 UnitedKingdom -8.0 UnitedStates -10.0 Euroarea(15 countries) OECD-Total -12.0 -14.0 Central Govt Debt as a % of GDP 200 180 160 Canada 140 France 120 Germany 100 Greece 80 Japan 60 UnitedKingdom 40 UnitedStates 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Is Government Bigger in Canada than in US? • While it’s commonly assumed that Canada has “bigger” government than the US, this point is disputed – Ferris and Winer (2007) argue that cross-country differences in national income and product accounting drive much of the apparent difference between Canada and the US – They argue that as of 2004 (the end of their data series) the size of government relative to GDP was approximately the same for the two countries. • After making appropriate adjustments to the data HowProvincesRaiseRevenue BC’sRevenueSources Revenues2011/12: 41.3billion BCexpenditures 2011/1241.9billion