How Does Canada's Federal System Affect Economic Policy in the Recovery? Term Paper

Pages: 4 (1705 words)  ·  Bibliography Sources: 4  ·  Level: College Junior  ·  Topic: Economics

¶ … Canada's Federal system affect economic policy in the recovery?

In answering this question, you might consider the following (though you should NOT treat them as a series of short answer questions):

What is the most important economic priority for Jim Flaherty, the Federal Minister of Finance? Why is it important to him?

What is the most important economic priority for Dwight Duncan, the Minister of Finance for Ontario? Why is it important to him?

How might Flaherty's policies increase Canadian competitiveness? How might Duncan's policies increase Ontario's competitiveness?

What are the advantages to having different economic policies at the Provincial and Federal level? Disadvantages?

QUESTION 1

The most important economic priority for Jim Flaherty, the Federal Minister of Finance is to insulate Canada from further economic shocks and prevent it from sliding further into debt. He hope to do this by encouraging private investment enterprises, the liberating the government to focus its tax dollars elsewhere and, to, hopefully, start repaying its debt and settling its arrears. The debt specter is gripping many European Union countries and America, a nation whose economy is closely linked with that of Canada is, Mr. Flaherty feels in a worse situation than Canada is. He fears that Canada, by allying itself with America for external business products and goods may be detrimentally impacted. In that manner, too, private investment may be a preferable option. Many other countries are more seriously hurt, such as Ireland, Greece, or Asia. Mr. Flaherty hopes that their influence won't impact Canada negatively, and that Canada should do all that it can to insulate itself from further global economic shocks by making deficit and debt reduction a top priority, and by making itself independent from these countries, i.e. By not relying on them through building up her own resources and strengths. As Howlett and Curry ( 2010) reported:

Canada will enter 2011 on a different path to economic recovery from the United States, trading stimulus spending for a renewed focus on debts and deficits. Finance ministers pledged on Monday to insulate the country from further global economic shocks by making deficit and debt reduction a top priority.

For Dwight Duncan, the Minister of Finance for Ontario, the most important economic priority is to balance his books by 2018. With Ontario's deficit of $18.7 billion for fiscal year 2010-2011, Mr. Duncan feels that Mr. Flaherty is out of touch with reality and is underestimating the extent of the problem when he calls for completion of debt repayment by 2015. (Duncan, in fact, complained that "his federal counterpart should do a better job of getting his own affairs in order before telling others how to manage theirs." (Howlett & Curry, 2010)). Apparently, Ontario, represented by Mr. Duncan, is demonstrating worse arrears than most other provinces since almost every other province expects to fulfill Mr. Flaherty's requirements and be debt-free by 2015, whilst Saskatchewan, Newfoundland, and Labrador even aim to post surpluses in the current fiscal year. Alberta's Finance Minister, Ted Morton agrees with Mr. Duncan regarding the severity of Ontario's circumstances - Ontario "accounts for 40% of the Canadian economy [and] could drag down the entire country " (ibid.) but, nonetheless, considers Mr. Flaherty's agenda to curb debt as being auspicious to alleviating the problem.

Flaherty, likewise, intends to place an emphasis on private business investment and to encourage private investment with tax breaks. This would shift the gear from public government investment -- which increases sliding into debt -- to the onus being on the private sector moving in to provide the demand. This would, simultaneously, relieve the Federal government to a significant extent, since people's tax dollars could then be directed elsewhere including to paying off the accumulated debt. As the Canadian Bank's monetary policy report stated "the expansion will shift from being driven by consumer and government spending to exports and business investment." (Howlett & Curry, 2010)

It is in this way that Flaherty's policies will increase Canadian competitiveness: stimulation will come from private rather than public sectors, and will be particularly helpful to Canada since, until now, Canada has been relying on the United States for 63% of its trade (Bloomberg, 2010). This is a deleterious situation, specifically since the U.S. has its own challenges including a stumbling economy and exceedingly high unemployment rate (higher than that of Canada), and a steep recession in its housing market. The more competitive Canada is, and the further it can distance itself from economies whose relationship with Canada may only imperil its economy, the stronger Canada will be. This is Mr. Flaherty's conception. His policies will further increase Canadian competitiveness by inhibiting Canadian spending. The dual prospective therefore: Inhibition of spending and increase of homegrown investment is the Federal System's objective for economic recovery. Mr. Flaherty's initial push was for all provinces, including Ontario to balance their books by 2015. Mr. Duncan, however, wishes to draw it out still longer and says that he will be only able to accomplish the task by 2018.

The advantages to having different economic policies at the Provincial and Federal level is the fact that the spirit of a constitutional democracy is maintained with the salubrious effect of a system of balances and checks. In other words, the Federal government will be delimited from unrestrictedly going its way; there is a healthy spirit of opposition in the country. On the other hand, the disadvantage is that during a time of crisis -- as right now -- the country needs to be in harmonious agreement regarding possible strategies and ideas to save them from their dilemma. A conflict and disagreement in directions between Federal levels and Provincial levels can only prove harmful to the country. Decisiveness is what Canada needs right now, rather than indecisiveness and chaos.

Question 3

QUESTION 3.

Choose a non-government business in Ontario that you know well. Evaluate the policies you have discussed above in light of their impact on this business.

Which economic policies are more likely to impede their recovery? Why?

Which economic policies are more likely to support their success in recovering from the recession?

My non-government business in Ontario is the book-selling business. I will take 3 R's Used Books, 68 Canby Street, Port Robinson, Ontario as a specific example. I will relate the prior discussed policies to this business evaluating its impact, as well as touching upon related policies that were formulated, in 2009, by the Ontario Chamber of Commerce in order to alleviate their tremendous debt and support their recovery.

In 2009, the Annual General Meeting & Convention of the Ontario Chamber of Commerce had determined 17 key strategies for economic revitalization. Many of these policies are still relevant today.

1. A commitment to reducing Ontario's regulation on private businesses

2. Modernized infrastructure facilitated by an efficient and smooth-going approval procedure.

3. Skills development for all workforce participants, particularly focusing on areas that are most needed in the transitioning economy.

4. Steps to ensure that all jobs, investments and economic strength are retained in Canada and Ontario

5. Fairness of Ontario's workers in terms of Employment Insurance benefits and training (Ontario Chamber of Commerce. Economic renewal and Business Competitiveness, 2009 [online]).

Taking a 3 R's Used Books, private book-selling business located in Ontario, as example, it seems as though 3 R's Used Books will partially be aided by these new policies in that it will receive a tax break in machinery and equipment that may likely include paraphernalia such as computers, software, and other machinery conducive to its trade. If 3 R's Used Books also wishes to invest in further enterprises, or to expand its store it will certainly profit in that it will be given tax breaks. Thus the larger the store and, possibly, the more ambitious its intentions, the more it will profit from Mr. Flaherty's policies.

3 R's Used Books will, certainly, profit from reduced government interference with its regulation, as well as from the fact that its employees and the store, as a whole, will profit from skills development. This is, particularly, so if Ontario pays for this. On the other hand, if the store is constrained to pay, this may well be a disadvantage, since the store may not afford the extra expense. Similarly too, emphasis on Employment Benefits to all workers may prove to be a mixed package.

Greater reliance on Canadian products rather than on foreign imports, may mean the bookstore being compelled to seek out more domestic authors and creators rather than importing from another country, although it is more likely that Mr. Flaherty's intention to wean Canada away from foreign dealings will not extend to the bookstore industry, and certainly not to the extent that it refers to other industries.

Caution with debts and deficits may also place a hamper on the budget of 3 R's Used Books likely forcing the store to evaluate its purchase of material closely and, potentially, reducing some of its business by prohibiting it from fully satisfying its customers. In a… [END OF PREVIEW]

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