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Thanks for visiting my Padlet , I hope you have learned the importance of Sound Fiscal Policy.  Mahatma Gandhi once said "Live as if you were to die tomorrow, learn as if you were to live forever".

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1. I was surprised to find that we were spending upwards of 30 billion in tax revenue just to pay interest in debt.

2. Fiscal policy affects me daily, both at the micro and macro level. As a beneficiary of “free healthcare” I feel good about not paying upfront for a surgery or going to see the doctor, but at the same time I realize that my future tax dollars will be going to pay for such services.

3. I found government spending very interesting. Debt correlates to Government spending, a few weeks ago when looking into debt I realized that it was a manmade problem, we try to tackle climate change and it is usually the center of the liberal agenda, but we never seem to talk about debt both personal if any and collective debt, we the people own the debt not the government. The magnitude of the debt is colossal yet we ask for more and more government services. Are we leaning towards communist practices or is the basis of the free market an underlying issue?

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As the Canadians age many more people will be getting old and retiring, 7.5 billion dollars were spent on social transfers, 27.9 billion on the elderly, and a whopping 15.2 billion on health transfer. Our healthcare system costs are increasing rapidly. Since the government has a very rigid policy on privatization the sector is very small. We need privatization of healthcare to bring down the cost of the system and overall reduced government spending in the sector.

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Image 2 : Anti-Competitive tax brackests

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Image 2 : Anti-Competitive tax brackests

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Many times government tries to tax their way through budget shortfalls. Canada has some of the highest income tax brackets in the world. We are anti-competitive when we land in the top 20 tax brackets when compared to the U.S our biggest competitor. A combined 54 percent for the highest bracket is astonishing. How does the Canadian government expect to keep money in the country when we have such excessive tax brackets? Money laundering, tax evasion and corruption ensues. We need to lower our income tax brackets if we want to grow the economy and attract new capital.

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When we compare debt we compare our debt to the U.S debt, so we can feel good about our debt, we fail to realize the magnitude of the American economy and that they could essentially wipe out their debt with the strike of a pen. The U.S dollar is a universal currency giving the U.S special powers that we don’t have. Our debt is important and affects all Canadians greatly. At one point in time we had the opportunity of paying off all of our debt but we choose to pay interest to the parties that invested in Canada. Close to 37 billion dollars are spent yearly on interest payments! On what? Debt! We have nearly combined federal and provincial debt of 1.3 TRILLION dollars, and Ontario has the largest non-federal debt in the WORLD. Think we don’t have a problem? Think again, as more and more deficits are run year over year we will essentially be pay more interest from taxes and burrowing more money so we can make good and honour the creditors.

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Master plan the liberals are playing right now will be catastrophic for Canadians in the future, if you look at history the Liberal government has always spent money and run deficits year over year, the conservative government has to fix the excessive spending made by the liberals so they can at least balance the books.  When the government tries to claw back some of the benefits or stop increased spending there is an uproar in Canada. At the micro level, for instance, the conservative government in 2015 decided to not give pay increases for the teachers and hold pay constant for two years. Two years prior to that when the teachers got an excessive pay increase there were no complaints. The government was not reducing the pay but just limiting the increase in pay for a few years and the teachers threatened to walk out and not conduct any extracurricular activities, they went to the extent of not writing notes on report cards. The cost of such lavish spending carries great burden.

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With the global economic recession of 2008-09, and the various attempts by the Canadian government and its counterparts around the world to address their economic difficulties, the issue of fiscal policy has come to the fore, earning significant public attention. This article provides an introduction to Canadian fiscal policy at the federal level of government. Topics include an overview of fiscal policy as a concept, the operation of Canadian federal fiscal policy, a brief historical review of fiscal policy in Canada, and a discussion of trends in federal policy stemming from the global economic recession.

An Introduction to Fiscal Policy
What is government fiscal policy?
Government and Economic Policy

In defining fiscal policy, it is first useful to discuss the broader idea of government economic policy. Commonly we think of governments as delivering key political 'goods' in society, such as law and order, national defence, and social programs. Another component of government activity falls within the economic realm. Governments, for example, issue currency, enforce rules concerning the production and sale of goods and services, and even operate businesses themselves (for example, crown corporations).

Governments, moreover, attempt to influence the behaviour of the overall economy, which is commonly referred to as economic or macro-economic policy. In this context, governments will introduce specific policies and actions to promote stable economic growth over the long term, and to protect the country from sudden recessions and depressions (or extremely severe, protracted recessions, such as those that occurred 1873-78 and 1929-33).

Key issues in modern government economic policy include controlling inflation (the rate at which the price of goods and services increase), maintaining high levels of employment for citizens, promoting growth in personal and household income, and ensuring growth in the general economic activity of the nation (that is, the overall production and sale of goods and services).

Fiscal versus Monetary Policy

Fiscal policy represents a particular area of economic policy. More specifically, it involves the use of government finances to influence the overall behaviour of the national economy. Of particular importance to fiscal policy is a government's budget, or annual levels of spending, taxation, and borrowing. In this context, the budget functions not just as a process by which the government collects revenues to pay for goods and services for its citizens, but as a mechanism for promoting economic stability over the short- and long-terms.

Fiscal policy can be contrasted with another area of economic policy, commonly referred to as monetary policy. As the name suggests, monetary policy focuses on the management of money; in particular, its supply and cost. The supply of money refers to the total amount or stock of money in circulation in the economy, which the government can influence by engaging in such activities as printing new currency notes or stockpiling pre-existing money. The cost of money, by contrast, centres on the interest rate or the amount charged by public and private banks and financial institutions when they lend money. In this context, a government attempts to influence the cost of borrowing by pushing interest rates upwards or downwards.

Instruments of Fiscal Policy

As briefly noted above, there are two basic instruments of fiscal policy. The first is government spending, that is, the money a government spends on programs and services for its citizens. The second involves taxation, or the money a government collects from its citizens. In attempting to achieve economic stability through fiscal policy, a government will strategically use these powers of spending and taxation, not only by managing their total levels (i.e. increasing or decreasing the total amount of spending or taxation), but also by directing their focus (the sorts of activities government spending and taxation is applied).

Bearing these instruments in mind, fiscal policy may be divided into different sorts of general stances: neutral, expansionary or contractionary. Expansionary fiscal policy refers to when a government intentionally seeks to spend more money than it collects through taxation. This may be pursued by increasing spending, reducing levels of taxation, or some combination of both. Annual deficits and government borrowing usually occur with this sort of fiscal stance. Contractionary fiscal policy, by contrast, refers to when a government intentionally seeks to bring in more money than it spends. This is done by reducing spending, increasing taxation or some combination of both. In this case, annual government surpluses are the result. Finally, neutral fiscal policy occurs when a government intentionally decides not to use its powers of taxation and spending to directly influence economic growth. Neutral fiscal policies will often have a focus on producing balanced budgets, in which the government seeks to bring in just enough money to fully cover its spending.

Operation of Federal Fiscal Policy in Canada
Key processes and actors in federal fiscal policy
Canadian Federalism and Fiscal Policy

It is important to immediately note that fiscal policy in Canada is pursued by a plurality of governments. This is due to Canadian federalism and the existence of different levels of government: a federal (or national) level and a provincial/territorial (or regional) level. Accordingly, both federal and provincial/territorial governments enjoy the power to decide their own budgets and levels of spending, taxation, and borrowing.

Accordingly, when examining fiscal policy in Canada on the whole, one must recognize that it is not a single, homogeneous system. It is, instead, a very fragmented system constituted by many governments, each with their own fiscal priorities and stances. Moreover, it is often the case that different governments have their own fiscal priorities and strategies, which may even conflict with one another. This, however, is not to suggest that federal and provincial/territorial governments pursue fiscal policy completely independently of one another. Often they will attempt to coordinate their efforts, particularly in times of great economic crisis and instability.

Responsibility for Federal Economic Policy

The remainder of this section examines the operation of fiscal policy at the federal level alone. In this context, no single component of the federal government can be deemed responsible for the development and implementation of federal economic policy. Instead, different elements of the state have particular roles and areas of responsibility.

Federal fiscal policy, for example, is largely dictated by the political executive, in particular, the prime minister, cabinet, and central agencies. This stems from the political executive's authority over the federal budgetary process (see below for more information). Monetary policy, by contrast, largely falls under the purview of the Bank of Canada, the nation's public central bank. The Bank is mandated to regulate credit and currency in the best interests of economic life of the nation and, in so doing, is intended to operate with considerable independence from the political executive.

This is not to suggest that the two operate in complete isolation from one another. The prime minister and cabinet are responsible for appointing the Governor of the Bank of Canada and, as such, may choose someone who holds views on economic policy similar to their own. Moreover, the Bank and the political executive may work together closely to coordinate efforts in their particular areas of responsibility, especially in times of economic crisis.

Fiscal Policy and the Budgetary Process

As discussed earlier, fiscal policy is interrelated with the federal government's budgetary process. The budget is simply the government's financial plan for upcoming fiscal year. Just as individuals and businesses use a budget to determine their income and spending and more effectively plan for the future, so too does the federal government.

The federal government actually has two budgets that it prepares or 'brings down' every year. The first is the revenue budget, which is an estimate of how much money it expects to collect through such means as taxes. The second is the expenditure budget; it outlines how much money the government expects to spend during the next fiscal year. Each year the government prepares and presents these budgets to Parliament for review and approval.

For more information on the federal budget in Canada:

These annual budgets also announce the government's fiscal and economic targets, its policy priorities, and any new initiatives it wishes to highlight to the public. In announcing a budget, the government will often include predictions about future economic conditions, and set out fiscal strategies for dealing with those conditions.

It is important to note, however, that the government's budgets are not formulated solely on economic and fiscal priorities. In fact, the budgetary process is usually highly influenced by the partisan-political interests of the government, such as securing the support of Canadian voters. As such, annual budgets tend to represent a balance between the government's partisan goals/constraints and its economic and fiscal strategy.

Federal Political Executive and Fiscal Policy

As the head of government and most powerful member of the political executive, ultimate responsibility for fiscal policy falls to the Prime Minister. This, however, does not necessarily mean the Prime Minister develops policy goals and strategies independently him/herself. Instead, the Prime Minister often shares or delegates responsibility for fiscal policy to an individual minister or cabinet committee that specializes in economic and fiscal issues. Moreover, the Prime Minister and his/her Cabinet will rely on the central agencies of the public service in developing and implementing the government's fiscal policies.

In this context, the Minister of Finance and his/her ministry, the Department of Finance, typically play a central role, as the Minister of Finance has primary responsibility for preparing the Government of Canada's annual budgets. In so doing, the Minister usually consults widely with other cabinet ministers in identifying general fiscal priorities, in addition to working closely with his/her or staff in preparing the actual budget document. Final decisions concerning the budget, however, are usually made by the Prime Minister and Minister of Finance alone.

Within the Department of Finance, the Economic and Fiscal Policy Branch plays a particularly important role, performing two key functions. On the one hand, it acts as a research and forecasting agency, providing the finance minister with information on federal, provincial and international economic and fiscal trends. On the other hand, the Branch acts as a source of policy development, advising the Minister on possible strategies for dealing with current or future economic conditions. In addition, the Branch usually takes the lead in the federal budget-making process.

Other central agencies, such as the Privy Council Office and the Treasury Board and its Secretariat, also play important roles in fiscal policy. There precise role, however, depends on the government's fiscal agenda, degree of closeness between the prime minister and minister of finance, and the degree to which decision-making and priority setting are centralized by a particular prime minister. As a mechanism for policy coordination within the federal government, the Privy Council Office may assist in ensuring the various departments and agencies are aware of the government's fiscal priorities, and are working towards meeting specific targets. The Treasury Board and its Secretariat, moreover, may help identify ways in which specific fiscal targets may be met. For example, in cases where the government wishes to reduce spending, the Treasury Board can identify and advise on cuts to specific programs or departments.

Parliamentary Review and Public Consultation

While federal fiscal policy tends to be developed within the confines of the political executive, there exist some mechanisms for parliamentary and public input. With respect to Parliament, a number of parliamentary committees review government actions relating to financial and fiscal policy. These include the Senate Committee on National Finance, as well as the House of Commons committees on Finance, Public Accounts, and Government Operations and Estimates. These parliamentary committees, comprised of government and opposition members, study key government documents (such as drafts of the annual budget), interview government officials, and provide reports to their respective legislatures with recommendations to improve government policy on financial matters.

The Parliamentary Budget Officer (PBO) is another mechanism for the parliamentary review of government fiscal policy. The PBO is an independent officer of parliament who reports to the speakers of the House of Common and the Senate. The Parliamentary Budget Officer's mandate is to support Parliament in holding the government accountable for its stewardship of public resources and, in so doing, provides independent analysis regarding the state of the nation's finances, government financial estimates, and trends in the national economy. These analyses are provided in regular reports which the PBO submits to both legislatures of Parliament.

In addition to parliamentary review, public consultations also represent an important component of the federal government's budgetary process. During the preparation of the annual budget, the Department of Finance will release documents covering the economic and fiscal outlook and prospective fiscal and expenditure targets, and begin consultations with the general public, the provinces/territories, and other relevant stakeholders. The purpose of these consultations is to encourage wider participation in the budget process.

It is important to note that the government is not obliged to adopt any recommendations stemming from these mechanisms of review and consultation. At the end of the day, the government, and in particular the prime minister and minister of finance, has the final say on the budget and fiscal policy. As such, the government may choose to incorporate input from parliamentary reviews and public consultations, or develop fiscal policy independently.

That said, there are some situations in which the government is highly motivated to take external input seriously ― in the case of minority governments, for example, where the governing party does not enjoy a majority in the House of Commons. Under such circumstances, the government may be forced to adopt opposition priorities and policies to ensure its budget prevails, and in turn, that the government itself, is not defeated. An example of this is the 2009 federal budget, when the minority government of Conservative Prime Minister Stephen Harper included considerations of importance to the opposition parties in its budget-making in order to ensure the budget's safe passage.

For more information on minority governments:

History of Federal Fiscal Policy in Canada
Summary of federal fiscal policy from early-1900s to 2007
Early Federal Fiscal Policy in Canada

Prior to 1945, fiscal policy did not play a significant role in government action regarding the economy. This was due to a number of factors. First, the government sector represented a relatively small component of the overall Canadian economy. As such, any year-to-year changes to government fiscal policy tended to have only minimal impact on economic growth and employment. Second, the dominant view of economists and governments at the time was that swings in the economy were largely small and self-correcting. As a result, Canadian governments tended to leave the economy to freely expand and contract, with only some use of monetary policy to prevent excessive changes in consumer prices (Grady, 2009).

In the 1930s, several events challenged this traditional approach to government spending and taxation. Beginning in the late 1920s, Canada and the world was struck by the Great Depression, a prolonged and severe downturn in economic activity, employment, and household income. The depth and length of the depression brought into question the view that swings in the economy were small and self-correcting. Another important event was the rise of a new economic theory, developed by the British economist John Maynard Keynes. Referred to as Keynesian Economics, this theory advocated strong government fiscal intervention to moderate swings in economic activity. In the context of the Great Depression, Keynes argued that governments should pursue expansionary fiscal policies to spur economic growth. Over the next several decades, Keynesian Economics came to dominate western academic and governmental approaches to economic policy.

The third important event was the Second World War, which significantly altered the economic role of government and perceptions of the state. During the War, the Canadian government became a large component of the overall economy, as it spent billions of dollars on military goods. Moreover, the government significantly managed economic production and employment to promote the war effort. As a result, the perception arose, both inside government itself and within society in general, that the state could be used to pursue broad social goals, such as long-term economic growth.

Rise of Keynesian Fiscal Policy in Canada

Following the end of the Second World War, the Canadian federal government committed to maintaining high and stable levels of employment and income. Moreover, in pursuing this goal, the government placed a great deal of emphasis on fiscal policy and Keynesian economic principles (Grady, 2009). Of particular concern for the government was maintaining consumer demand to avoid the type of economic slump that occurred after the First World War (Dodge, 1998). In this context, the federal government focused on swiftly moving from a war-time to peace-time economy, shifting public spending from the military to investments in human capital and housing.

During the 1950s and 60s, Canadian economic and fiscal policy continued to be guided largely by Keynesian fiscal principles (though attention to monetary policy reappeared in the late 1950s). In this context, the Canadian government adjusted its budgetary position to accommodate business cycles, with expansionary policies in slowdowns and contractionary policies when the economy overheated. Throughout this period, the Canadian economy enjoyed considerable success, with high levels of real growth, rising personal disposable income, and strong levels of employment. Governments became increasingly confident that they knew how to manage economic stabilization policy (Dodge, 1998). Moreover, academics and government officials became convinced that high levels of employment could be achieved at the cost of slight, but manageable, increases in inflation or a rise in the prices of goods and services (Dodge, 1998; Grady, 2009).

It is also important to note that the government sector became a much greater factor in the overall Canadian economy during this period, as public spending increased significantly. This was due to increasing tax revenues, which rose as the economy expanded and personal incomes gained, and the growth of the state through the implementation of social-welfare programs. Between 1950 and 1970, the federal government's share of the national Gross Domestic Product (GDP) rose sharply, from 9.5 to 18.5 percent (Dodge, 1998).

Stagflation, Debt and Fiscal Policy in the 1970s and 80s

Events in the 1970s and 80s severely undercut previous approaches to economic and fiscal policy. In the early1970s, Canada faced both a recession and a large spike in oil prices. Relying in large part on Keynsian economic principles, the federal government pursued both a stimulative monetary policy and an expansionary fiscal policy to cushion the oil price shock and, at the same time, stabilize the economy. While the policies were somewhat successful, an important consequence was a sharp increase in inflation, as government stimulus efforts (in conjunction with rising energy costs) led to higher prices for goods and services.

In the latter part of the 1970s, the Government of Canada attempted to address the inflation problem by introducing wage and price controls. In addition, the government pursued tighter monetary and fiscal policies in an attempt to stall rising prices for goods and services. On the monetary side, this included substantial increases in interest rates, resulting in high borrowing costs for consumers and businesses.

The outcome of these economic policies during the 1970s was twofold. During the late 1970s, Canada faced stagflation, a combination of weak economic output, high unemployment, and accelerating inflation. While inflation was brought under some measure of control by the end of the decade, the tight monetary and fiscal policies contributed to the 1981-82 recession, the deepest economic downturn the country had faced since the Great Depression of the 1930s (Grady, 2009).

These outcomes, in turn, called into question the traditional approaches to fiscal policy. Governments no longer enjoyed the confidence of the 1950s and 60s that they could manage economic stabilization policy. In addition, the idea that governments could use fiscal policy to maintain high levels of employment with little inflationary costs was challenged.

Another important factor during this period was increased concern over government deficits and debt. While the federal government had attempted to bring in some contractionary fiscal policies during the late 1970s, it had nevertheless run consecutive fiscal deficits since 1976, with particularly large increases in the 1982-85 period. This deficit spending was due, in large part, to rising costs associated with federal contributions to social-welfare programs for citizens. In addition, as the annual deficits mounted, the federal government was faced with rising debt charges, which placed further strain on its finances. By the mid-1980s, federal government debt levels had risen sharply relative to the economy's total output.
New Directions in Fiscal Policy: 1985-2007
Beginning in the late 1980s, and continuing into the new millennium, Canadian federal economic policy was largely influenced by two goals: 1) eliminating the federal deficit and reducing the total debt relative to economic output, and 2) maintaining control over inflation. In pursing these goals, the federal government largely abandoned an activist Keynesian approach to fiscal policy, particularly in the 1990s and the early years of the new millennium. The government's new approach was based on the premise that sustained economic growth and low unemployment is best achieved through controlled levels of inflation, relatively low interest rates, and healthy government finances (Grady, 2009). Fiscal policy, therefore, no longer emphasized direct stabilization of the economy through expansionary and contractionary tactics. It focused, instead, on creating an environment for sustainable economic growth through the elimination of the deficit and the reduction of the debt relative to economic output.

Consequently, federal fiscal policy during this period was largely neutral in nature, with the goal of returning the nation's finances to health. During the late 1980s, the federal government introduced a number of tax and expenditure measures to reduce the deficit to a more manageable level. These advances, however, were wiped out in the early 1990s, as Canada again went into recession, resulting in a decline in tax revenues. Beginning in 1995, however, a new government introduced a series of tough budgets, which contained major expenditure cuts. As a result, the federal government achieved a balanced budget in the fiscal year 1997-98, the first in nearly 30 years. This, in turn, led to a string of government surpluses during the late 1990s and into the next decade.

With the arrival of budgetary surpluses, the Government of Canada was faced with the decision of how to allocate the fiscal dividend. Accordingly, the government focused on three goals: increased spending (in particular, on social programs); tax reductions; and debt reduction. Of the three, the greatest portion of the surplus was oriented towards increased spending, with an emphasis on increased federal transfers to the provinces/territories and individuals. The election of a new government, of a different political stripe, in 2006, did not result in a substantial alteration of overall federal fiscal goals and policy ― at least in the short term. The new government, however, did place greater emphasis on using budgetary surpluses for tax reduction. In 2006 and 2007, the federal government announced significant tax cuts, including a reduction of the federal Goods and Services Tax (GST) from seven to five percent.

Canadian Fiscal Policy and the 2008-09 Global Recession
Trends in contemporary federal fiscal policy
Financial Crisis and the Global Recession

In the latter part of 2008, the global economy entered into a severe recession, caused in large part by a financial crisis and loss of confidence (International Monetary Fund, 2009). The economic downturn was precipitated by the collapse of the housing bubble in the United States, and the resultant crisis among financial institutions in many major world economies. Additional components of the economic downturn included significant declines in world financial markets, weaker commodity prices, and a collapse in global trade.

While the global recession was most acutely felt in the United States, it was also severe in Europe and the advanced economies of Asia. It has been estimated that the advanced economies of the world experienced an unprecedented 7.5 percent decline in real Gross Domestic Product (GDP) in the fourth quarter of 2008 alone (International Monetary Fund, 2009). Like other major economies, the Canadian economy suffered a major decline in the latter part of 2008, which continued into the next year. In the first quarter of 2009, Canada's real GDP fell by 5.4 percent (at annual rates), the largest quarterly drop since 1991 (Bank of Canada, 2009).

The Canadian economy did not suffer from the financial crisis that struck many major economies in the world. Nevertheless, as an exporter of commodities and manufactured goods, Canada was negatively affected by weaker commodity prices and the drop in global trade, particularly in relation to the American market.

Early Fiscal Responses to the Global Recession

In November 2008, the Conservative minority government, helmed by Prime Minister Stephen Harper, released an economic and fiscal statement, titled Protecting Canada's Future. In the document, the government recognized that the United States and several other world major economies had entered into recession. Moreover, the government outlined its general economic and fiscal response to the new conditions.

Central to the government's economic strategy was a continued adherence to the basic fiscal approach of the 1990s and early years of the new millennium, which emphasized healthy government finances as the key to long-term economic stability. As the statement asserts: "strong fiscal management is the foundation of the Government's economic strategy and the means to a higher standard of living for Canadian today and in the future." In this context, the statement stressed the government's past commitment to reducing the federal debt and its intention to balance the federal budget over the next five years. The statement, however, did not rule out the possibility of a federal deficit.

In order to maintain a balanced budget, the statement announced several expenditure reduction policies. This included action to reduce the cost of government, the introduction of legislation to stabilize federal public sector wages, and initiatives to control costs associated with the federal Equalization Program. In addition, the government suggested that previously announced tax reductions and increased federal spending on infrastructure would have a major stabilizing effect on the economy (the government estimated that its tax cuts would amount to $31 billion in the fiscal year 2009-10).

The fiscal policy contained in the 2008 statement, however, was short-lived. This was due to a number of domestic and international factors. Domestically, the statement was rejected by federal opposition parties, who went as far as to initially threaten to defeat the Conservative minority government and form a coalition government. While the objections of the opposition were grounded in part on political issues, such as the proposed elimination of public financing for federal political parties, a major factor was the government's general fiscal policy. The Opposition parties rejected the government's contention that past tax reductions and infrastructure spending programs would be sufficient to stabilize the economy. Instead, they asserted the federal government should pursue an aggressive economic stimulus package ― one that would include broad new spending measures to encourage employment and economic activity.

For more information on the opposition response to the government's initial fiscal strategy:

At the same time, pressure to introduce an expansionary fiscal policy and stimulus spending measures was mounting internationally. In November 2008, the G-20 (of which Canada is a member), released the Washington Declaration, in which countries agreed to use fiscal measures to rapidly stimulate domestic demand, while maintaining fiscal sustainability. Beginning in late 2008 and early 2009, the United States, Western European nations, and advanced economies in Asia, announced major domestic economic stimulus packages to stabilize their respective economies.

2009 Budget and Expansionary Fiscal Policy

In January 2009, the Conservative federal government released its budget for the fiscal year 2009-10, titled Canada's Economic Action Plan. While the 2009 budget still contained a commitment to fiscal management as the key to long-term economic stability, it nevertheless introduced a shift to expansionary fiscal policy and stimulus spending to stabilize the Canadian economy, at least in the short term.

Central to the 2009 budget was a robust stimulus package, which involved a combination of personal income tax reductions, targeted tax credits, and new spending initiative to encourage demand in the Canadian economy. Highlights of the package included $8.3 billion for the Canadian Skills and Transition Strategy, to provide support for workers who have lost their jobs and are seeking skills and training development. In addition, the government provided $7.8 billion in the form of tax credits and spending initiatives to stimulate housing construction. The budget further included $12 billion in new infrastructure stimulus funding over two years, and $7.5 billion in additional support for sectors and communities especially affected by the recession, included targeted support for the auto, forestry, and manufacturing sectors.

With these new stimulus initiatives, in conjunction with the expected declines in revenues due to the deteriorating economy, the federal government projected that it would incur consecutive annual deficits between the fiscal years 2009-10 and 2012-13. The government estimated these deficits to total $83.8 billion over this period, with the largest annual deficits to occur in 2009-10 and 2010-11.

Temporary Measures or Structural Shift in Fiscal Policy?

In the 2009 budget document, the federal government characterizes the expansionary fiscal policy, and resulting annual deficits, as an extraordinary and temporary measure to stabilize the economy in the face of the global recession. As discussed above, the budget retains the federal government's previous commitment to fiscal management and balanced budgets as a key plank of long-term economic policy. Moreover, many of the spending and tax credit initiatives announced have time limitations. As such, the budget predicts that the government will return to annual surpluses in the fiscal year 2013-14.

While it may that the federal government continues to be philosophically committed to this fiscal approach, concern has been raised over the structural implications of the government's budgetary direction. In June 2009, for example, the TD Bank released a report in which it challenged the government's deficit estimates. The report concluded that the annual deficits between 2009-10 and 2013-14 would total approximately $170 billion (twice as much as the government projected). This, in turn, would increase the federal government's debt from $463 billion (29 percent of GDP) in 2008-09 to $630 billion (35 percent of GDP) in 2013-14.

Moreover, the report called into question the ability of the federal government to escape this deficit situation, even after economic conditions improve. In this context, the report highlights recent trends in federal annual spending growth, which has run at a trend rate of 6 to 8 percent since the late 1990s. According to the report, the federal government would have to reduce to this rate to 0 to 2 percent to return to surpluses within a reasonable timeframe. The report further notes that many programs have explicit or implicit indexation to inflation, and that program costs tend to rise with population growth over time. As such, reductions in annual spending growth may require significant changes to program parameters.

The basic contention is as follows: the current fiscal approach, which emphasizes neutral fiscal policy and healthy public finances, may be unattainable unless the federal government implements substantial structural changes to its fiscal position. As such, in the years ahead the Government of Canada may be faced with the choice of introducing some combination of large spending cuts and increased levels of taxation to realize a return to balanced budgets and a neutral fiscal stance.

Sources and Links to More Information
List of article sources and links to more on this topic
Sources Used for this Article

Links to More Information on this Topic

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Federal Fiscal Policy in Canada: History, Operation, and Trends in the Global Recession | Mapleleafweb.com

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With the global economic recession of 2008-09, and the various attempts by the Canadian government and its counterparts around the world to address their economic difficulties, the issue of fiscal policy has come to the fore, earning significant public attention. This article provides an introduction to Canadian fiscal policy at the federal level of government.

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To have a stable economy, rather than an economy in which one year it is expanding and the next two years it is contracting, is essential. Growth is great but when the economy starts to grow at a rate unphatomed, for instance before 1929 Stock market crash most sectors where experiencing growth, and spending and burrowing and financing to cash in on the market. Growth is great but it can only last a certain period, after which the economy shrinks again and many people are not ready for it, from a growing economy into a recession the effects are sometimes worse. Governments try to mitigate these issues by forecasting and having long term polices that will try to stabilize markets.

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The Four Major Functions of Fiscal Policy

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Fiscal policy plays an important role in influencing the economic direction of the United States. When speaking of fiscal policy, the federal government generally is referring to two major governmental economic activities, taxation and spending. The national budget is the major fiscal instrument by which the federal ...

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The liberal government is running budget deficits for the next four years and plans to run budget deficits, far into the future. This is great, the people living now will experience the benefits, but with every experience is a cost and the next generation will be on the hook for such extravagant expenses. Politics and money seem to work well and behind all the smoke there is nothing. The liberal government has ambitious plans to increase infrastructure spending, increase transfer payments, purchase new aircrafts, introduce new arts programs, and spend in goodwill on other impoverished nation. In 2015, 2016 the conservative government finally balanced the budget, but because they did not increase spending they did not come to power. The budget has no plans to balance the books in the near future and start paying some of the debt.

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Keynesian economics play a vital role in government policies. Kane believed that government spending to stimulate the economy and to make up for reduced spending in the private sector was the fastest most efficient way for government to go about. All though this works in the short run it poses a great problem, he said everybody that benefits will be dead, in other words to eat the food and leave the bill for the next guest waiting to eat. During the recession of 2008 and 2009, government greatly reduce taxes and increases spending to put people and idle machinery back to work.

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Fiscal Policy and Stimulus: Crash Course Economics #8

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Video 2 : The power of the Canadian economy or the lack of?

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Video 2 : The power of the Canadian economy or the lack of?

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Canada has a robust economy due to its sound fiscal and monetary policies. It is one of the fastest growing G8 countries. A major portion of government spending, consists of government purchases. The government buys facilities, has crown corporations like Canada Post, and buys from the private sector for its military needs, highway construction, and many services. Reducing government purchases is a very tough process in which many public sector employees get upset so government tries to tweak the taxes in many polices rather than reduce government purchases.

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Fiscal sanity and political success: Canada proves you can have it all Part I

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In the 1990s, Canada suffered from the same economic malaise that plagues the U.S. today: slow economic growth, heavy government spending and a rising national debt. Canada's remarkable turnaround relied relatively little on raising taxes; instead, federal program spending was cut by nearly 10 percent over a two-year period to restore its budget to balance.

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In a nutshell, fiscal policy is a method by which the government taxes and spends on its citizens. It is easier said than done, many complications arise because to see improvements in increased or decreased levels of spending can take years for the effects of the benefits to trickle down.

There are two types of policy expansionary fiscal policy, in which government tries to grow the economy in times of economic depression and contractionary fiscal policy by which the government tries to reduce spending and increase taxes in a robust economy or when an inflationary gap is present.

There are three concepts to the theory taxes, spending and transfer payments. Taxes are a way for government to raise the funds needed to fund the public sector. Many types of taxes including but not limited to; income tax, government sales tax, corporate tax, and excise tax. Spending occurs either through the funds raised from the taxes or through financing and burrowing. And finally, transfer payments in which government transfers money to five main categories, the largest being to persons, elderly transfer payments, EI payments, and Child care benefits, Canada social, equalization programs and other.

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The Student Budget Consultation is a civic education and financial literacy program for high school students across Canada. The process gives young people an opportunity to learn about government and current affairs, debate varying viewpoints about public policy and offer their own opinion on the priorities of the federal budget.

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Welcome all, thank you for visiting my padlet. here you  will learn about fiscal policy, how it works, what it is, and the importance of fiscal policy in an every changing economy and  why Canada has got it all wrong.