Chapter 4The Role of Government in Business

Government Involvement in the Economy • Canada has a mixed economy – our various levels

of governments play a large very role in our economy

• From the start in 1867 the National Policy was to force trade to flow East-West

• Tariffs were used to deter the natural North-South flow of goods

• A railroad was built with government assistance to achieve national unity!

• Americans have less government involvement in their economy – more goods and services are provided by the private sector.This changed recently with the terrorist attacks as the government allocated funds to New York City and the airlines.

Government’s Involvement in Business

1. Crown corporations2. Laws and regulations3. Taxation and financial policies4. Financial aid5. Government expenditures6. Purchasing policies7. Services

1. Crown Corporations• Governments own companies -

these are called Crown Corporations

• Examples – CBC, Canada Post, Bank of Canada

• Some provinces use crown corporations to invest in the province – NB Liquor and NB Power is an example

• The recent trend is towards privatization, i.e., NBTel = Aliant

Registration, Reporting and Information

• Companies must register “Articles of Incorporation” with the government to create a separate legal entity – the company

• The legal entity (new company) must file tax returns and financial statements with the government

• Companies must file statistical data with the government as requested

2. Laws and Regulationso Federal government responsibilities

include:• Trade regulations• Incorporation of federal companies• Taxation, both direct and indirect• The banking and monetary system• National defense• Unemployment• Immigration• Criminal law• Fisheries

Laws and Regulations cont.o Provincial government responsibilities

include:• Regulation of provincial trade and commerce• Natural resources within their boundaries• Direct taxation for provincial purposes• Incorporation of provincial companies• The administration of justice• Health and social services• Municipal affairs• Property law• Labour law• Education

3. Taxation and Financial Policies

• Sin taxes are used to discourage tax payers from using certain products. For example, cigarettes.

• Tax credits are given to companies to encourage growth.

Taxation of Companies• The federal government relies on

income tax and other tax revenue to fund its activities

• The provincial governments rely on income tax and sales tax for revenue

• Municipal governments rely on property taxes for their revenue

• All businesses pay various taxes ( a cost of doing business), which are passed on to the consumer in the form of higher prices

Taxation and Financial Policies cont.

• Fiscal Policy: the federal government’s effort to keep the economy stable by increasing or decreasing taxes or government spending.

• Deficit: created when the government spends more than it gathers in taxes over a specific period of time.

• National debt: the sum of government debt over time• Federal Budget: a comprehensive report on what the

government’s financial policies will be for the following year - how much revenue will be collected and whether there will be a deficit or surplus.

• Monetary Policy: management of the money supply and the interest rates are controlled by the Bank of Canada.

4. Financial Aid• Direct assistance to business through grants, low-

interest loans, loan guarantees, consulting advice and information.

• Equalization of transfer payments between provinces reduces fiscal disparities between the wealthier and poorer provinces.

• Marketing Boards control the supply or pricing of some agricultural products in order to stabilize the industry.

5. Government Expenditures• Strangely enough, provincial

governments put up interprovincial trade barriers (i.e., Quebec & NB) New Brunswick and Quebec increase co-operation (08/10/03)

• Provincial governments spend billions on health, education and services - these funds are directed to local companies

• The federal government has programs to assist business in depressed regions

6. Purchasing Policies• The government is a very large purchaser

and consumer of goods and services.• Governments attempt, where possible, to

favour local businesses in their purchasing policies including trade barriers between provinces.

7. Serviceso Industry Canada offers a variety of programs to

help businesses get started and to promote businesses internationally.

• Canada’s Innovation Strategy is a policy formed by the federal government to help Canada become more competitive by 2010.

• The National Research Council supports research and technology in areas such as aerospace, biotechnology, engineering and construction, industry support and communications technology and manufacturing.

• Department of Foreign Affairs and International Trade offers support to those businesses wishing to trade internationally.

Progress Assessment

• What are six categories of government involvement with business?

• What are Crown corporations? Why were they created?

• What does privatization refer to? Can you cite any examples?

Progress Assessment

• What are four responsibilities of the federal government?

• What are three responsibilities of the provincial government?

• Why are there interprovincial trade barriers?• What is the impact to the government’s

revenues if it announces a decrease in taxes? Who might be affected by such a decision?

Progress Assessment

• How does the government manage the economy using fiscal policy?

• What is Canada’s national debt? Has it been increasing or decreasing over the past six years?

• Explain the purpose of the federal budget.• What does the term monetary policy

mean? What organization is responsible for Canada’s monetary policy?

Progress Assessment

• Explain how governments in Canada spend tax dollars to help Canadians.

• Give two examples of how government has provided financial aid to businesses.

• What two groups benefit from equalization transfer payments?

• What are marketing boards?