Chapter 3: The Role of Government in Business
Government Affects Business
There are 6 categories of government activities that affect businesses:
1. Crown corporations – a federal or provincial government-owned company
2. Laws and regulations – covers a variety of different aspects including taxation, consumer protection, environmental
controls, working conditions, etc.
3. Taxation and financial policies – all levels of government collect taxes (GST, sales, property, etc.)
4. Government expenditures
5. Purchasing policies – all levels of government are large purchasers of ordinary supplies, services, and materials. The
federal government, as the single largest purchaser in Canada, has policies concerning where to purchase as it has
a major effect on particular businesses and the economy
6. Services – a variety of governmental activities which includes helping companies to go international, bringing other
companies to Canada, training and retraining the workforce, and providing a comprehensive statistics service.
Government Involvement in the Economy
National Policy – government instruction that placed high tariffs on imports from the United States to protect
o developed by the earliest Canadian governments to improve the Canadian economy as (it was back then)
inconvenient for trade and transportation as there weren’t railroads
As a major governmental influence on businesses, crown corporations were set up for several reasons:
provided services not being provided (i.e. Air Canada)
created to help out a major industry in trouble (i.e. Canadian National Railway)
provided some special services that would not have been available (i.e. Bank of Canada)
The Financial Role of Two Special Provincial Crown Corporations
The Alberta Heritage Savings Trust Fund (1970), handle funds provided by governmental revenues and to make
decisions to benefit Alberta. Developing during the time Alberta was prospering.
Caisse de depot et placement du Quebec (Quebec Deposit and Investment Fund), handle funds collected by the
Quebec Pension Plan and other funds to help guide Quebec’s economic development.
The Role of Government
Since the 1990s, the Canadian government (federal and provincial) have since started to take measures to reduce the role
of government in the economy, such as selling large corporations like Air Canada, the Canadian National Railway, and
others such as the management of airports, ports, ferries, etc.
Privatization – selling off Crown corporations to private companies. Currently used as an attempt to lower governmental
costs and improve efficiencies. Laws and Regulations
Canada’s powers to make laws are recognized through the British North America Act, 1867 which also outlined the
different responsibilities per level of government. In 1982, the pariation of Canada led to the integration of the BNA Act
with the new Constitution Act, 1867. Businesses are affected on the policies in which the legislature enacts.
The federal government influences businesses in many ways; the main function to ensure that there is fair competition.
Agriculture is a vital component to Canada’s economy – when farmers flourish, communities’ cash flow increases as well as
the transportation industry, when farmers suffer, all of these sectors suffer as well.
There are marketing boards established to help regulate the effects of agriculture on our economy.
Marketing Boards – organizations that control the supply or pricing of certain agricultural products in Canada
Designed to give some stability to an important area of the economy (agriculture) that is normally very volatile, due
to conditions that are unique and have a great impact on their business and on our food supply (i.e. weather)
Agriculture industry fluctuates greatly depending on the supply in other major grain-exporting countries and
Under criticism as it does not allow normal competitive conditions not operate in agriculture thus distorting the
industry and raising domestic
Taxation and Financial Policies
Taxes often used to discourage additional consumption i.e. sin tax for cigarettes, alcohol, etc. There are two ways through
taxation and financial policies to benefit the economy that is used by the government:
Using fiscal policy to stabilize the economy
Fiscal policy – federal effort to stabilize economy by taxes or government spending:
o Increasing taxes slow down inflation by remitting the money from private sector back to the government while
discouraging business ownership
o Decreasing taxes stimulate the economy
o Often used by federal and provincial governments to stimulate specific geographic and industrial areas, such as
unemployment for tax credit for income
o Government can gain a deficit when they spend more money than they make (called a fiscal year)
o To lessen deficits, cut down