Transcript taxes

Chapter 11
Government Expenditures
and Revenue
Economics 11
June 2013
 http://www.ctv.ca/CTVNews/TopStories/20
110920/harper-government-cutsconsultant-ottawa-federal-spending110920/
 Governments
influence the economy in
four major ways:
 By
spending
 By taxing
 By regulating
 And by directing Crown Corporations
By spending
 When
government increases its spending
on schools and hospitals, then more
schools and hospitals are built
By taxing
 Through
taxation, government raises the
money it needs to function
 Governments
may also use taxes to
discourage the consumption of certain
goods or services
 as a result, the prices of these
goods and services will increase and less
will be consumed.
By regulating
 Government
regulations influence the
economy through laws.
 For
example, the law that requires all
young Canadians to go to school means
that schools must be built, teachers must
be paid and teaching resources provided.
By directing Crown corporations
 For
example the CBC (Canadian
Broadcasting Corporation) has a policy of
favouring Canadian content
 This
results in more Canadian performers
and technicians finding work
Reasons for Government
Involvement in the Economy
1. Public Goods
2. Externalities
3. Harmful and Beneficial Goods
4. Distribution
5. Economic Stability
1. Public Goods

A public good is a good where the benefits go to
the public and not to the individual who
purchases it.

Public goods are provided by the government.

An example of a public good is National
Defence.

Government can make sure that the general
public pays for the production of these goods.
2. Externalities
 An
externality is a good or bad side effect
of production or consumption.
 For
example, an externality is produced
when a factory pollutes the air or water,
this is obviously a negative externality.
2. Externalities
 Another
example is if owners of a golf club
decide not to sell their land to developers.
 A positive externality of this decision is
that people around the club will breathe
cleaner air and enjoy a more beautiful
view than if the land were developed.
3. Harmful and beneficial goods
 Harmful
goods include such products as
addictive drugs – cocaine, heroine,
cigarettes
 Government
reaction to such products
may include outright prohibition (cocaine)
or warnings about the dangers of using it
(cigarettes)
3. Harmful and beneficial goods
 A beneficial
good is education,
governments provide free education in
elementary and secondary schools and
cover some of the cost of post-secondary
education.
4. Distribution
 The
market distribution of goods and
services does not always agree with our
view of economic justice.
 Therefore
government is involved in the
distribution of goods and services to the
economically disadvantaged.
5. Economic Stability
 Government
works to promote stable
prices and full employment.
Growth in Government Spending
Federal government:

Defence, international trade and foreign
affairs that affect the nation as a whole
Provincial/municipal government:

Police, fire protection, schools, roads,
education (affairs that affect the individual
citizen more directly)
Municipal Government
Expenditures

Building and
maintenance of local
roads, sewers,
sidewalks,
streetlights, and the
services of the local
police, garbage
collection, and fire
departments
Provincial Government
Expenditures

Interest payments on
the provincial debt

Salaries for
government
employees

education
Federal Government Expenditures

National defence
 International trade and
commerce
 Foreign relations
 Construction of railways
 Federal court system
 Highway construction
 Income security programs
 Retirement and disability
programs
Government Revenues - taxes
taxes – obligatory payments made by
individuals and corporations to
government
direct tax – one that is levied on a person
that cannot pass the tax along to someone
else
• Provincial Sales Tax (PST) is an example of a
direct tax
Government Revenues - taxes
indirect tax – a tax that can be passed on
to other people
For example: anyone who imports Japanese cars into
Canada for sale to Canadians has to pay the federal
import tax.
The import tax is an indirect tax that can simply be added
to the final cost of the car so that the consumer, not the
importer, ultimately pays the tax.
Government Revenues - taxes
•
In Canada, personal income taxes are
progressive.
•
With a progressive tax, as income increases
the tax rate also increases
•
•
With a proportional tax, the tax rate remains
unchanged as income increases
With a regressive tax, the tax rate diminishes as
income increases.
Municipal Government Revenues

Local property taxes provide approximately 90%
of the tax revenue of municipalities
• These taxes are based on the assessed value of the property

Grants from provincial governments provide
local governments with their other major source
of revenue

A relatively small amount of revenue comes from
fines, parking meters, parking tickets, and
building permits.
Provincial Government Revenues
 The
bulk of provincial government
revenues comes from direct taxes from
persons (about 1/3), indirect taxes
(about ¼), and federal government
transfers (about 1/5)
Federal Government Revenues
 The
federal government has a much wider
range of taxes than the provincial
government
 The
federal government has five major
sources of revenues:
•
•
•
•
•
1. Federal income tax
2. Corporate income tax
3. EI contributions
4. GST
5. Excise taxes
Federal Government Revenues
1.
Federal income tax

The most important source of federal
government revenues
Federal Government Revenues
1.
Federal income tax

The amount of income tax paid by an
individual is a complicated process but here is
the simplified version:

First, total income from all sources (wages, interest,
rent, dividends, profits) from all places inside and
outside of Canada is calculated.
Federal Government Revenues
Federal income tax
1.

Second, allowable deductions are
subtracted from total income to get taxable
income.
•
Examples of allowable deductions would be
charitable donations, expenses connected with
employment like union dues or professional
association fees.
Federal Government Revenues
Federal income tax
1.

Third, taxes payable are calculated from a
schedule or table that shows the different
tax rates based on the different income
ranges
Federal Government Revenues
2. Corporate income tax
 The
tax is paid on the profits of the
corporation
Federal Government Revenues
3. Employment Insurance Contributions
 Contributions
are made by employees and
employers
include the self – employed,
some part-time workers, and workers over
the age of 65
 Exceptions
Federal Government Revenues
4. Goods and Services Tax (GST)
 In
1991, the GST replaced the FST
(Federal Sales Tax)
 The
tax base of the FST was much
narrower than that of the GST – services
for example were excluded
Federal Government Revenues
5. Excise taxes and duties
 Imposed
on the sale of many luxury or
non-essential items, such as tobacco,
liquor, and playing cards.
 Customs
duties are collected on goods
that are brought into the country
Controlling the debt
 There
are several ways the federal
government can try to control the deficit:
• Cut federal government expenditures
• Increase revenues
• Rely on economic growth and rising incomes
 Mike
Maloney- Biggest Scam
 https://www.youtube.com/watch?v=iFDe5k
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