Budget, debt and economic Budget, debt and economic policiespolicies

What are the main sources of income What are the main sources of income and expenditures for the goverment in and expenditures for the goverment in Canada?Canada?

Sources of income:Sources of income:-Taxes (individual and corporate)-Taxes (individual and corporate)-Taxes on goods and services-Taxes on goods and services

Sources of expenditure:Sources of expenditure:-Programs and Operations-Programs and Operations-public investment-public investment

What is the relationship between What is the relationship between government income and real GDP?government income and real GDP?

When GDP is rising, incomes of economic When GDP is rising, incomes of economic agents are also increasing, which agents are also increasing, which increases government revenues.increases government revenues.

When GDP is declining, incomes of When GDP is declining, incomes of economic agents are also declining, which economic agents are also declining, which reduces government revenues.reduces government revenues.

What is the relationship between What is the relationship between public expenditure and real GDPpublic expenditure and real GDP ? ?

When real GDP is down, more people When real GDP is down, more people dependent on government transfers and dependent on government transfers and this increase government spending.this increase government spending.

When real GDP is rising, fewer people When real GDP is rising, fewer people dependent on government transfers and dependent on government transfers and this reduce government spending.this reduce government spending.

Why should governments make Why should governments make economic forecasts before making economic forecasts before making their budgettheir budget??

The forecasts of real GDP growth allow The forecasts of real GDP growth allow governments to anticipate their governments to anticipate their income and expenses.income and expenses.

How does one assess the balance How does one assess the balance of expenditure and government of expenditure and government revenuerevenue??

The operating balance =The operating balance =Income - program expenditures Income - program expenditures

Budget balance =Budget balance =Operating balance - debt serviceOperating balance - debt service

ExempleExemple

Income taxes Income taxes = 500$Corporate taxes = 100$Sales taxes = 50$

Program expenditues = 600$Debt service = 80$

The operating balanceThe operating balance = 50$ (650$ - 600) = 50$ (650$ - 600)

Budget balance Budget balance = - 30$ (50$ - 80$)= - 30$ (50$ - 80$)

X

Government budget balance can Government budget balance can be:be:

Positive (surplus)Positive (surplus)

Negative (deficit)Negative (deficit)

Zero (balanced budget)Zero (balanced budget)

Where does the canadian federal Where does the canadian federal government debt comes fromgovernment debt comes from??

The federal government has been in deficit The federal government has been in deficit for 27 consecutive tax years (1970-1996). for 27 consecutive tax years (1970-1996). The addition of these deficits created the The addition of these deficits created the federal debt.federal debt.

From 1997 to 2007, the government had From 1997 to 2007, the government had surpluses and the debt decreased.surpluses and the debt decreased.

Since 2007, the government budget is in a Since 2007, the government budget is in a deficit status.deficit status.

Revenues and expenditures of the Revenues and expenditures of the federal government (1970 to 2000)federal government (1970 to 2000)

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How do we assess the importance How do we assess the importance of public debtof public debt??

The absolute amount of debt does The absolute amount of debt does not mean anything. Always take into not mean anything. Always take into account the country's ability to pay account the country's ability to pay that debt.that debt.

The ability of a country to pay its The ability of a country to pay its debt is related to the GDP, because debt is related to the GDP, because GDP generates revenues for the GDP generates revenues for the State: Always look at the Debt / GDP State: Always look at the Debt / GDP ratioratio

Net public debt relative to GDP between Net public debt relative to GDP between 1970-1971 and 2000-20011970-1971 and 2000-2001

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What are the main consequences of What are the main consequences of an increase in the public debtan increase in the public debt ? ?

Crowding out effect (Crowding out effect (Effet d’éviction) Effet d’éviction) (see at the end of this theme)(see at the end of this theme)

Decreasing flexibility of the governmentsDecreasing flexibility of the governments

Loss of confidence of the financial Loss of confidence of the financial marketsmarkets

What is the Laffer curve ?What is the Laffer curve ?

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