In 2013 the Canadian government’s debt topped $1.2 trillion dollars. The federal government and every province except Saskatchewan ran a budget deficit in 2012-13 which cumulatively added $42 billion to total government debt. Budgeting in the twenty-first century has become a critical part of the policymaking process. It reflects the national priorities and previous policies of a nation. As Joseph White and Aaron Wildavsky put it, “the budget has been to our era what civil rights, communism, the depression, industrialization and slavery were at other times”. Globalization has helped spread budgetary innovations across international borders. Nations continue to attempt to learn from the successes and failures of others before them. Budget
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If the federal government issues tax increases or makes service concessions to comply with legislation, and the changes affect what the taxable income is it could expand or constrict the tax base of provinces. The federal government could also decide to deliver certain programs directly which have lower expenses, rather than incur the entire cash transfer charge. Examples would be direct federal construction and operation of interprovincial transportation and communications projects. If legislation does not offer adequate flexibility for countercyclical fiscal policy during recessions, it could shift more of the onus for macroeconomic stabilization upon provincial finance ministries. J. Rodden and E. Wibbles conducted a study examining Canadian provinces and six other decentralized federations. Their findings indicated that sub-national governments have less fiscal room for countercyclical policy than central governments. The reason being that own-source revenues and spending are more pro-cyclical for reasons attributed to tax competition, lack of seignorage and economies of scale in tax collection and redistribution. In a country such as Canada, this is amplified due to the fact that most transfers from the federal government are now indexed to GDP and therefore are pro-cyclical. Which means, during downturns, provinces will receive lower federal …show more content…
It is far easier to reduce or postpone direct program expenses than statutory spending programs , as the latter are under formal multi-year agreements or would create significant political repercussions. J. Poterba examined several categories of the U.S. federal government over the seven years following the Budget Enforcement Act of 1990. His findings revealed a sharp decline in discretionary spending from 9.2% of GDP to 6.6%, while statutory programs grew from 10.3% to 11.2%.
A balanced budget requirement could also lead to investment bias, sending spending away from the allocation between operating expenses and capital expenditure that would be chosen based on financial fundamentals. Cameron also notes that in cases where obly operating expenses are restricted, it can form a preference for physical capital, such as purchasing more military equipment rather than hiring and training personnel. Strict budget rules would instead create the incentive for governments to forego the large upfront costs of capital investment. This results in a pushing of the necessary construction and maintenance costs to the future and gives up long run
If the federal government issues tax increases or makes service concessions to comply with legislation, and the changes affect what the taxable income is it could expand or constrict the tax base of provinces. The federal government could also decide to deliver certain programs directly which have lower expenses, rather than incur the entire cash transfer charge. Examples would be direct federal construction and operation of interprovincial transportation and communications projects. If legislation does not offer adequate flexibility for countercyclical fiscal policy during recessions, it could shift more of the onus for macroeconomic stabilization upon provincial finance ministries. J. Rodden and E. Wibbles conducted a study examining Canadian provinces and six other decentralized federations. Their findings indicated that sub-national governments have less fiscal room for countercyclical policy than central governments. The reason being that own-source revenues and spending are more pro-cyclical for reasons attributed to tax competition, lack of seignorage and economies of scale in tax collection and redistribution. In a country such as Canada, this is amplified due to the fact that most transfers from the federal government are now indexed to GDP and therefore are pro-cyclical. Which means, during downturns, provinces will receive lower federal …show more content…
It is far easier to reduce or postpone direct program expenses than statutory spending programs , as the latter are under formal multi-year agreements or would create significant political repercussions. J. Poterba examined several categories of the U.S. federal government over the seven years following the Budget Enforcement Act of 1990. His findings revealed a sharp decline in discretionary spending from 9.2% of GDP to 6.6%, while statutory programs grew from 10.3% to 11.2%.
A balanced budget requirement could also lead to investment bias, sending spending away from the allocation between operating expenses and capital expenditure that would be chosen based on financial fundamentals. Cameron also notes that in cases where obly operating expenses are restricted, it can form a preference for physical capital, such as purchasing more military equipment rather than hiring and training personnel. Strict budget rules would instead create the incentive for governments to forego the large upfront costs of capital investment. This results in a pushing of the necessary construction and maintenance costs to the future and gives up long run