POLS2250 - Friday, January 11
Roles of Government
1) Owner and Producer
e.g. LCBO, CBC, VIARAIL, TVO, CANADAPOST - crown corporations
(not provided by private or not to extent desired)
*LCBO returns $1.5 billion returns to gov. each year, privatize = ?
*CBC provides Canadian content: necessary or unfairly competing with private
2) Regulator and Supervisor
e.g. CFIA, CAN DAIRY COMMISSION, CRTC, CAN AIR TRANSPORT SECURITY
Issue licenses, pass legislation governing production (quality), packaging,
advertising, safety, content
3) Income Re-distributor
e.g.ATLANTIC CAN OPPORTUNITIES AGENCY, HRSDC, INDUSTRY CANADA
*If left unchecked, free market system will create significant inequality
-Impacted by personal ability/skill-set/property in inheritance/education: entrepreneurs r
ewarded more handsomely, free-market system reward pioneers and innovators
-Impacted by health downfalls/social consequences: East Coast seasonally laid off - decline i
n manufacturing in ON., getting less out of unemployment insurance than East
*Medicare: benefit society as whole (but poor more than wealthy)
-quotas for farmers, as subject to vagaries of environment (pests/poor weather); programs to
improve education; reduce regional income disparities (encourage manufacturing to locate in East
Coast to overcome seasonal businesses)
e.g. DEPT of JUSTICE, SOLICITOR GENERAL, DEPT NATL DEFENCE, BANK OF
CAN, ENV CAN, RCMP, CSIS (Canadian Security Intelligence Service)
*Safe and stable society for Canadians
5) Champion of Other Objectives
e.g. OFFICE OF COMMISSIONER OF OFFICIAL LANGUAGES, CANADIAN
HERITAGE (SPORT CANADA, MULTICULTURALISM), STATUS OF WOMEN
CANADA, INTERGOVERNMENTALAFFAIRS (PCO)
*Pierre Trudeau seize notion make Canada bi-lingual as means provide better opportunities
for Quebecers to bring together 2 solitudes for harmonious co-existence; ensure all policies
adopted minimize negative impacts on women
Size and Growth of Government
Difficult to accurately define size and scope of Government
Blurry overlap private and public sectors: CFIA(all agencies that work there are not all
accounted for), members Canadian Forces are not counted when identifying people who work for
Gov - MISLEADING
-Prior to 2 world wars, size and scope limited, thereafter, expansion...After war:
constriction. Keynesian rationality after 50s - rise of state... Economy: natural peaks and cyclical troughs - inevitable: periods of strong economic growth. So
Keynesian Theory provide rationale for Role of State to intervene and provide spending when
economy entering recession. Spending - stimulate and minimize effects. FLIPSIDE: politicians
forget to SAVE during prosperity for next cyclical downturn = massive public debt. Discredited 80s
and 90s as thought led to massive welfare state. But resurrected in 2008 to help stimulate
construction industry to keep people employed - many shift to right of political spectrum.
#Role of the TAX SYSTEM
Easy by pointing to number government spend per year, but one problem: states use ability to tax or
not tax to SHIFT behavior. Govs. use tax loopholes to influence economy - State allows take
portion of income earned to put into RSP Tax-free, foregoing income tax revenue for students. In
US, home purchasers have to borrow money to purchase home, using mortgage as tax-write off.
Instead of spending directly on public housing - cover what gov really doing.
Offer loans to industrialized countries often not repaid, but not often show up as gov expenditure.
Allow private sector to access capital cheaply than they're able to do on their own. Guelph Sleeman
- set up private-public sector entity: city underwrote private partner loan as City Guelph can borrow
$ at cheaper rate.
Growth of such entities in post-war: vehicle to provide greater flexibility in decision-making
powers, less closely seen by ministers as in traditional org. forms. Or to enforce greater
competition. Or create separate board to oversee to prevent conflict in decision and policy making
over one sector.
Examine Government Expenditures as Percent % of GDP
Calculate as size of economy grows, state expenditures expected to grow, but must maintain % not
too large. Noticeable differences in % of GDP in developed and developing - most GDP come from
subsistence GDP, far fewer free-flowing resources that can be readily taxed.
2010 spending: ~$274.1 Billion, clear growth in G spending
BUT overtime, steady growth in spending... 1994 Brian Moroney - steady reduction of public purse
Growth of Public Sector Employment
Another way to analyze: Federal service Payroll 80s, contraction in public service employees, and
mid-1990s.As population increase in size, better financial picture: liberal government start to
reinvest in public programs, hence more public servants hired.
More than 3.5 million worked for Gov. in 2009.
Explanations for Growth of Government
1. War & Military Expenditures
(Not on D2L): Some explanations for growth - Canadian state entering 1st and 2nd world
war, that was when personal income taxes introduced for wartime manufacturing to assist in
military expenditure. 22% before war, 50% during war. In US: ability to maintain military presence across the globe - hence grapple with fiscal cliff: 16.5
TRILLION dollars debt.
2. Social Conscience/ Entitlement
Social conscience and social entitlement: people feel government should take role to help people
who can't fend or pay for themselves.Also aging demographic: increasing reliance on healthcare
(biggest expense): significant stress on system, as less younger people working to provide the tax
base to support healthcare programs.
3. Technological Change
Technological advancements, require costly state expenditures. e.g. creation of automobile: become
affordable for average person, necessitate construction and maintenance of roadways - responsiblity
for state to provide network of highways.Airlines: necessitate airports, maintenance and security
features. Knowledge-based society, necessitate education and training workforce.
4. Population Growth and Urbanization
Rural and agrarian, now more than 80% live in urban - more people living in cities, more
investment in sewage, hydroelectricity, transport, public housing, police and fire services, roads -
bigger demand on public services.
WEEK 2 - JAN 14: POLS 2250 LECTURE (Continued)
5. Keynesian Theory
Provided underlying rationale for state intervention into economy, natural peaks and troughs, state
help minimize natural cyclical downturn that occurs, strategic state investments to help economy
recover quicker - state politicians neglect during economic peak to save for next cyclical downturn,
no saving during prosperity.
Rise of Neo-Liberalism/Neo-Conservatism and Contraction of Size of State
Thatcherism, Reaganism, Brian Moroney - shrinking of public servants.
1970s: states thinking seriously about economic issues - discredited in mid 1980s to late 1990s, but
new life breathed into Keynesian after 2008 Global Economic Recession. Current situation still
perilous - focus on US fiscal cliff.
6. Government Expenditure Growth Theories
• Wagner's Law -Adolph Wagner: (as economy of state increases, so does a larger portion of
it dedicated to public sector):
• Displacement Effect - Peacock & Wisemen: similar to war & military notion, crises or event
causing Gov to spend more money, once undertake expenditures, become difficult to
displace and more significant expenditures occur as continually displace costs.After 9/11
huge investment in security system.
7. Political Process
(POGO phenomenon) We our selves are the problem, gov grows because citizens continue to
demand more, with respect services and programs.Aggregate demand for enhanced services, more
state intervention ultimately come from different public itnerests groups or political parties.
Pressure groups enhance benefits for memberships they represent, disperse costs onto other groups
and society. Eg. Farmers want better subsidies for agricultural products, businesses want better tax
concession or pay less corporate income tax - rest of society makes up difference.
8. Public Bureaucracy
Public choice theories, many put forth: premise individuals are rational, self-interested political actors, each operating in self interest: politicians - re-election (best way differentiate from
competition by suggest provide better, more luxurious set of services in turn for electoral support).
Bureaucracy side: Budget Maximizer theory: because managers in public sector didn't get same
financial rewards or prestige - maximize budget to enhance their power with more money and
employees at disposal in particular gov. agencies - bureaucracies have tendencies to self-grandize.
Critics of this theory raise questions if politicians are made out to be as ignorant as they are.
Stephen Harper felt liberals needed better estimates of surplus: create new budgetary officer (Kevin
Page independently gather info on Government spending - constantly question policies government
put forth - thorn in Harper's side but does his job) Gov vastly underestimating cost of replacing
Final analysis, can't point to any single on factor, but a combination of all.
Fiscal Situation and GovernmentAgenda
#Government did grow quite Dramatically in Post-Period
◦ More pervasive Government in post-war period, few governments have little time to find
cost associated with providing programs.
#Deficit & Public Debt
◦ Deficit: in a fiscal year, spending more money than bringing in in revenue
◦ Debt: accumulation of all annual deficits (currently: Federal govt public debt in exceess
$600 Billion, USA$16.5 Trillion)
#Debt Peaked at $563 Billion in 1997/98 when CGov balance books and first liberals create surplus
#14.5 cents/ dollar to pay INTEREST debt charges ($33.9 billion each year)
#Era of Post-Deficit Politcs (3 decades of fiscal austerity - no longer able to borrow capital as
cheaply as possible) beginning 1997/1998 we have fiscal surplus
• Various options:
• Increase expenditures (reinvest in social programs)
• Cut taxes (citizens feel relief, also corporate tax: if tax rates not competitive, MNCs
pick up shop and move)
• Pay down public debt
• Some combination of 3 (Cretien's three-pronged approach)
#Global Economic Recession (2008)
• Harper launched fiscal stimulus package (encourage home renovation projects, keep people
in trades employed), deficits accumulated wiped out surplus - return to deficits in 3 years.
Government Priorities 2008-2012
Budget '08: "Responsible Leadership"
Maintain strong fiscal management - liberals are architect of financial woes, Brian Moroney 1998-
1992 sought to curtail spending ministers from wanting to offer services, but not successfully
• @Delivering on tax back guarantee ($34 billion in interest charges): $2 billion in interest
savings by 2009-2010 going to personal income tax deductions - reducing debt, instead of
spending money. • Keep spending focused & Disciplined
• Focus on core federal responsibilities
Strengthening Canada's TaxAdvantage
• in 2008 budget: introduced TFSA(tax free savings account)
• Additional support for small-medium businesses through tax incentives
Investing in People
• Develop best-educated, most skilled & Flexible workforce in world (year after year, have
enhancements to grants and loans to students - $25 million over 2 years for new Canada
graduate scholarships + establish 20 Canada global excellence research chairs)
Investing in Knowledge
• Money for Science and TechnologyApplications
Supporting Communities and Traditional Industries
• Attenuate forestry
Investing in Infrastructure
• Make gas tax fund permanent ($2 Billion/year): Conservative did this
• Capital investment in public transit
• New Crown Corporations - PPP (identify public sectors to partner with private to provide
services to public)
LEadership at Home
• Providing support for vulnerable: aboriginals, health and safety of Canadians (arctic
sovereignty), vision for the north, cleaner & healthier environment (Winter
Olympics), crime & Security
• Significant investment in Canadian forces (cutbacks allows financial house to get in
order, some cuts made to military - hence thought this was problematic - strategic
investments made to refurbish military)
• International assistance:Africa andAfghanistan
• Improve Borders: money to Canada border services agency, high security passport by
2011, support for Nexus card
BUDGET 2009: Canada's EconomicAction Plan
(outlining fiscal stimulus package to attenuate negative ramifications of Canadian
government - some argue waited too long)
• 1) Global Economic Recession
• 2) G20 Commitment: 2% ($30 Billion of Government Spending into canadian economy) of
GDP for economic Stimulus
• 3) Plan: must be a. Timely and b. Targeted and c. Temporary
• ImprovingAccess to Financing, Strengthening the Financial System
◦ Extraordinary Financing Framework ($200 B): improve access to credit for individuals
• Actions to help Canadians stimulate spending
◦ Canadian skills & Transition strategy $8.3B: extending EI benefits to 50 Weeks
(recognizing many losing jobs and help provide support by ensure they can collect
benefits for longer period of time) • Stimulate Housing Construction
◦ Home Reno Tax Credit (up to $1350 tax rebate): insecurity about job = wont entertain
discretionary expenditure on home expenses, affecting home contractors: encourage with
• Build infrastructure
◦ $12 Billion in infrastructure stimulus for municipalities (local governments having
shovel-ready projects that were postponed due to financial climate; federal government
contribute so they continue)
• Support for Biz & Communities
◦ Support for Auto, Forestry, Manufacturing sectors (brauhaha how government can
support certain industry and not others); funding for clean energy
Budget 2011: Low Tax Plan for Jobs & Growth
-Global Economy Recovering
-Unprecedented Fiscal and Monetary Stimulus
-Canada: Strong economic performance but ongoing risk and uncertainty
#On target to eliminate Federal deficit by 2015-2016
#Government remains focused on Economy
• Build on success of 2009 economic stimulus plan
Cornerstone: Eliminating the deficit (spring 2011 election, majority for Conservative: elimination of
subsidies - capped amount corporations can donate to political campaigns and literature:
compensate for reduction in private donations by allowing parties to collect $ from the state.
Conservatives are okay - but liberals, bloc quebecois smaller parties can't cope = backlash)