Chapter 5 - government roles in business
• Government activities that affect business may be divided into six categories: crown corporations, laws and regulations, taxation
and financial policies, government expenditures, purchasing policies and services.
• Canadian economic system is mixed economy: an economic system in which some allocation of resources is made by the market
and some is made by the gov't.
• National policy: gov't directive that placed high tariffs on imports from the US to protect Canadian manufacturing, which had higher
• The policy placed high tariffs on imports from the US to protect Canadian manufacturing, which had higher costs.
• An important aspect of the role of gov't is expressed through crown corps. These are companies that are owned by the
• Like power companies.
The role for Government
• Reduce the role of gov't in the economy.
• This disposal of gov't assets and companies signalled a minor revolution in Canadian history.
• The process of selling publicly-owned corporations is called privatization.
• Everywhere you look, gov't agencies, life for-profit organizations, are looking at ways to lower costs and improve efficiencies.
Laws and regulations
• Some think the gov't should have more say in business, while others think that less gov't intervention is best.
• Laws are derived from four sources: the constitution, precedents established by judges, provincial and federal statutes, and federal
and provincial administrative agencies.
• As a business person, you will be affected by current (and potential) laws and regulations.
Federal gov't responsibilities
• Trade regulations
• Incorporation of federal companies
• The banking and monetary system
• National defence
• Criminal law • Fisheries.
• There are also laws that give consumers the right to cancel contracts or return goods within a certain period of time. It isn't
impossible to go through a day and not find an instance where laws have helped in you in some way
• In Canada, we have a special system of marketing boards that control the supply or pricing of certain agricultural products.
• Marketing boards: organizations that control the supply or pricing of certain agricultural products in Canada
• This supply management is designed to give some stability to an important area of the economy that is normally very volatile.
• Farmers are subject to conditions that are unique and have great effect on their business and on our food supply. Weather and
disease are major factors in the operation of farms and are beyond the control of the individual farmer. So are unstable prices and
changes in supply.
• To fix these conditions, and to ensure a steady supply of food to consumers at reasonable prices, six gov't agencies have been set
up to control wheat and barley, dairy products, and poultry.
• Cdan dairy commission controls the output and pricing of milk and dairy products. Cdan egg marketing agency, chicken farmers of
Canada, the cdan turkey marketing agency, and the cdan broiler hatching egg marketing agency consist of representatives from
the provinces that produce these items.
• The marketing boards has been under attack by various organizations because it doesn't permit normal competitive conditions to
operate in this field. This they argue, distorts the whole industry and raises prices to Canadian consumers. Defenders of the
system argue that other countries have different systems that have the same effect as our marketing boards but are just less
Provincial gov't responsibilities
• Regulation of provincial trade and commerce
• Natural resources within their boundaries
• Direct taxation for provincial purposes
• Incorporation of provincial companies
• Licensing for revenue purposes
• The administration of justice
• Health and social services
• Municipal affairs
• Property law
• Labour law
• Education - federal and provincial gov'ts
• While the federal gov't is responsible for health care, it's still up to the provinces to implement these policies, and their co-operation
is critical for success. Municipal Gov't responsibilities
• Municipal gov'ts - cities, towns, villages, counties, districts, and metropolitan regions.
• Also play a role in consumer protection, regulations and laws regarding any establishment that serves food.
• There are similar laws (called zoning laws) about noise, odours, signs, and other activities that may affect a neighborhood.
• Zoning requirements also limit the height of the buildings and define how far they must be set back from the road.
In summary, each level of gov't has its own roles and responsibilities. Sometimes there is overlap and in other instances, there is
downloading of responsibilities.
Taxation and financial policies
• Taxes are how all levels of gov't redistribute wealth. The revenue that is collected allows gov'ts to discharge their legal obligation.
This revenue is used to pay for public services.
• In other, the government may encourage business to hire new employees or to purchase new equipment by offering a tax credit. A
tax credit is an amount that can be reduced from a tax bill.
Stabilizing the economy through fiscal policy
• Fiscal policy refers to federal gov'ts effort to keep the economy stable by increasing or decreasing taxes or gov't spending.
• The first half of fiscal policy involves taxation. THEORETICALLY, high tax rates tend to slow the economy because they draw
money away from the private sector and are remitted to the gov't. High tax rates may discourage small business ownership
because they decrease the profits
• THEORETICALLY, low tax rates would tend to give the economy a boost. Gov't can use taxation to help move the economy in a
• Federal and provincial gov't constantly use the lever of fiscal policy to stimulate specific geographic and industrial areas. They offer
special tax credits to companies that open plants in areas of chronically high unemployment, such as Cape Breton or
Newfoundland and Labrador.
• The second half involves gov't spending.
• If the gov't spends over and about the amount it gathers in taxes for a specific period of time, the it has a deficit. Deficits occur
when a gov't spends over and above the amount it gathers in taxes
• To lessen deficits, is to cut gov't spending.
The national debt (federal debt)
• This is the accumulation of gov't surpluses and deficits over time.
• Cutting expenses and cash outlays, reducing transfers to the provinces to pay health care, education, and welfare...helps to reduce
• The gov't reduced employment insurance payments by raising eligibility standards, paying for shorter periods, and paying smaller
amounts. The gov't has also laid off thousands of people and reduced pension payments to wealthier senior citizens.
• These reductions in spending contributed to Canada's slow recovery from the recession. Increased gov't borrowing and spending
stimulates an economy, while cuts in spending have the opposite effect - they slow down the economy. • Financial security is critical to a country's investment in its people and businesses. A lower debt means that less money will need to
go toward paying down the national debt and any outstanding interest.
• Reducing gov't spend