How a government can have influence over business:
-Government can be a really important stakeholder for some and can be a marginal stakeholder for others.
-It will ultimately depend on the industry. Whether that government body is putting a lot of roadblocks
and constraints and extra costs in your way or whether they are actually providing some good supports
and incentives. You have to closely monitor and be aware of what is happening.
1: If the Government is your customer (positive):
-Some businesses see them as very steady, stable customers that pay their bills.
-Governments like various services and spend billions of dollars every year. Everything from office
supplies to vehicles to buildings and all sorts of stuff. For some businesses, their government is really
their core customer. They may not be such an important customer because they take long to deal with but
ultimately they can be very positive.
2: For some industries, the government can be your competitor:
-Example: If you’re UPS or Fed Ex, you’re competing against Canada Post. If you’re delivering
packages, then the government is your competitor. If you’re Global Television or any of the other private
television and radio stations, you’re competing against the CBC in Canada.
3: Government as a regulator:
-For some businesses, governments are their core customers.
-Our government touches every single industry by regulation. The government has a number of different
laws in place and acts that will influence and regulate business activity. The CRTC is one example of a
legislative group where a commission has been setup. This is the organization that approves the
broadcasting licenses and approves how much Canadian content can be on radios/TVs.
Why do they regulate so much of our business activity and regular activity in a country?
1. The government wants to promote healthy amounts of competition. They want to see healthy
amounts of competition in most industries. They say that benefits the end consumer. Competition
Act, for example, ensures that banks cannot merge so that customers have a variety of choices.
2. Keep consumers safe and informed. Many of the acts surround our products. Ex: Hazardous
Products Act requires that harmful products be properly labeled. TobaccoAct prohibits cigarettes
from being advertised. InAustralia, they are trying to make it less appealing. There is a Weights
and Measures Act that ensures the measurement and the weighing of products and goods are
consistent and accurate. Our textile and clothing and very specific labels that tell us about where
it was made and where the components have come from. Food and DrugAct in Canada/US in
order to not have products that has not been thoroughly tested and is safe.
3. Try to promote social goals of a government. In Canada, at the end of the day, all of our political
parties generally subscribe to the same goals: universal healthcare, education. That of course
takes some coordination between some businesses and governments to provide that. To ensure
that they are accessible to everyone.Alot of different acts and legislation in place to try and
protect the environment. Example: Water Act and FisheryAct to monitor and hopefully prevent
further damage to the environment. 4. TaxationAgent: Not many industries can escape. People and industries are going to be subject to
this 4 method. Taxation is collected by 3 levels of government: Federal, Provincial and
Municipal.All have different tax that they apply. The influence on the business will sometimes
will be very direct because it is a specific sales tax/property tax that’s applied to that business.
Their costs are immediately impacted. Sometimes it is a bit more indirect, because the
government increases income taxes on individuals and now because of that more sales taxes on
individuals and because of that, individuals have less discretionary income. Therefore, individuals
have less ability to buy the products and services that businesses sell. It will definitely influence
a business whether is less direct or more direct. The government is collecting these taxes so that
they can provide many of the services we want. Taxes typically fall into these 3 categories:
1. Progressive Taxes: The tax rate goes up according to the levels of income. In Canada, our
personal income tax system is called a “Progressive Tax System” because higher levels of
income are charged progressively higher levels of tax rates. The myth here is that: If someone
makes $100,000 and one makes $30,000, the thinking is, the person that makes $100,000
pays a higher tax rate on ALL of their $100,000 dollars, and that is NOT true. Yes, their
taxable will be much higher because they make more money, but the first $30,000 dollars that
the person earns $100,000 is taxed at the EXACT SAME RATE that the other person the
other earns. It is just the levels of income that makes progressively higher tax rates.
2. Regressive Taxes: Completely INDEPENDENT of income levels. Our sales tax in Ontario
is considered a Regressive Tax. When you go to buy your computer, or a pair of jeans, you
are not asked how much you earned last year. It has nothing to do with your level of income.
You pay 13% and everybody else does. But because of that, you have to think about a lower
income earner. That is a higher proportion of their income that goes towards that sales tax. So
when it has nothing to do with your levels of income, it is thought of as a “Regressive Tax”,
because that tax takes a higher proportion of a low income earner.
3. Restrictive Tax: In place by the government, to discourage certain activity, so it is there as a
very clear influence as to what they want us to do, or less of. Examples: Gasoline,Alcohol
and Cigarette Tax. Some people call them “Sin Taxes” because they’re trying to make us slow
down and think of how much we want to consume that certain product. In theory, I’d like to
think this also allows some money to go towards compensating for excessive consumption of
those goods. So if in theory, the tax money that is applied to alcohol and cigarettes goes back
into our health care system that would mean that it is actually helping compensate the
consequences of too much consumption.
5. Aprovider of incentives/financial assistance: Sometimes the government tries to encourage
certain activity and remove some barriers and remove some costs. There are different industries,
such as the film industry, where a particular product has certain grants and subsidies in place to
attract film makers to come and setup and shoot films here. The point is: If I give you a good
enough break, if I give you that money or reduce your taxes, you therefore will operate your
business in our province or municipality. Hopefully, the government spending a little bit of
money will attract more people and earn more revenue in the form of taxes from your operation,
the employees that you employ (they then spend money in that area). So subsidies to certain
industries and tax breaks…Certainly a lot of different municipalities will make some adjustments to property taxes in order to attract new businesses to locate in their city. Even support services,
small help centers and the export support services will be there to try to attract companies to
doing business and support them.
6. Bailouts: Did not necessarily see that many or that often up until the last couple of years where
there were way more bailouts then we are used to. Why did the US/Canadian Governments
bailout the automotive sect? If we let them go bankrupt, several people will lose their jobs and
not just the people that worked for GM and Ford but also their suppliers, manufacturer supply
companies and have a ripple effect. What they see is that those people are burning income, and
now we have a huge loss of revenue going forward. They made the decision to provide some
really significant bailouts. Those companies have repaid back all their loans, and seem to have
learned their lessons.
7. Provider of Essential Services: Governments in Canada provide a number of essential services
and that of course provides businesses with highways, police services, health services which in
turn help those businesses in turn attract employees to Canada because those services are being
provided. The thinking all along are that these are social imperatives. We can’t risk having private
companies provide these services and then shortcut the level of service. Example: If a fire
department was privatized, the thinking is that they might save some costs, and do not really need
to be in the fire department on Thursday nights. At this point in time, we’ve seen some services
begin to be privatized, but generally, we a have a number of essential services that the
government provides to us. Those services, again cost a lot of money, and we pay a lot of money,
but in return, you won’t have to take out a mortgage to have a baby.
How businesses influence government?
1. Lobbyists: An individual, that their full time paid position, is to work the government officials
and network with them and influence them to create strong relationships so that they either pass
legislation or approve legislation that is favourable to that business or make sure that legislation
that is threatening to them is not put into place. The lobbyist is really being an advocate of a
business and being paid by that business to do that job. In Canada we have a very clear Lobbying
Act so if your full time job is being a lobbyist, on behalf of a particular company, you have to
disclose that that is indeed exactly what you are doing and there are some very clear rules in
terms of accountability and transparency of your interactions with the government. So when you
have certain meetings, you can see who the lobbyists are and who is paying them. Make sure that
they are in there, and getting their opportunities maximized and threats neutrali