Chapter 4 - Role of Governments Textbook Notes

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Accounting & Financial Management
AFM 131
Robert Sproule

Chapter4-RoleofGovernment Government Affects Business The 6 categories of government involvement in business:  Crown corporations - their role in the economy, sometimes competes with for-profit private businesses  Laws and regulations – taxation and consumer protection to environmental controls, working conditions and labour-management issues  Taxation and financial policies - collect taxes, to achieve certain goals and effect certain policies  Government expenditures - provide direct and indirect aid: tax reductions, grants, loans and loan guarantees  Purchasing policies - single largest purchaser, huge effect on industry and economy as a whole  Services - direct and indirect activities: helping companies globalize, training and re-training the workforce Government Involvement in the Economy  We have a mixed economy in Canada which relates to the allocation of resources by both the market and the government  We have been over-shadowed by the U.S. economy- developed faster with products either not made in Canada or not available because of a weak east/west distribution system  Led the federal government to the development of the National Policy – high protective tariffs  Government intervention direct towards creating a stable economy (trade agreements) Crown Corporations  Reasons they were created: provided services not being provided by businesses (Air Canada), bailed out a major industry in trouble (CNR), and provided special services that were not otherwise available (Bank of Canada)  Many crown corporations have been privatized (reducing government involvement in business) to lower prices to consumers through, in part, improved efficiencies  Other private industries have been deregulated – withdrawal of certain laws and regulations that seem to hinder competition  Issues with the privatization of the Liquor Control Board of Ontario: o Customer convenience o Revenue sources – ownership versus alcohol taxes o Sin tax as a deterrent to consumption Laws and Regulations  Laws derived from: the Constitution, precedents established by judges, provincial and federal statutes, and federal and provincial administrative agencies  Constitution defines the powers that can be exercised by the federal and provincial government Federal Government Responsibilities  Primary: ensure and support the country’s economic performance o Includes overseeing important industries – aeronautics, shipping, railways, telecommunications and atomic energy  Responsibility overlap with provinces on health - federal government responsible but provincial government implements (large and growing transfer payments)  Industry Canada: administers a variety of laws affecting businesses and consumers o Competition Act: control large mergers and foreign buyouts to ensure fair competition o Discriminatory pricing, price fixing, misleading advertising, and labelling laws o Hazardous Products Act, Weights and Measure Act, Food and Drugs Act o Competition Bureau: Charges and fines have been imposed on a number of companies regarding price fixing on retail gasoline (identical prices in and of themselves are not evidence of price fixing)  Marketing boards control the supply or pricing of certain agricultural products – give stability to important areas of the economy that are normally volatile (weather, disease, unstable prices and impact of large agri-business companies and millions of independent farmers) o Criticisms: does not permit normal competition, raises prices for consumers o Canadian Wheat Board (lost their monopoly late in 2012), markets wheat and barley while other Boards control production through quotas  Now farmers are free to sell however much to whoever they want Provincial Responsibilities  Primary responsibility: issues that impact provincial residents specifically o Health care and education o PPPs – Public-Private Partnerships in health care with private business doing the design, build, and operations of the facilities while the governments in turn lease  Issue: may not be necessarily cheaper or more efficient  Private profit from public health care budget, eventual erosion of quality service  The Agreement on Internal Trade (provincial free trade) agreed to reduce and eliminate barriers to the free movement of persons, goods, services, and investment within Canada o More efficient, increased market access for Canadian companies, facilitating worker mobility (ex: recognizing certification from other provinces) Municipal Responsibilities  Authority defined by provincial legislatures  Provide services such as: wager supply, sewage and garbage disposal, roads, sidewalks, street lighting and building codes  Also play a role in consumer protection –food safety inspectors and zoning laws (noise, odours, and signs)
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