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7.1: Government in Canada

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    The total government sector in Canada includes the federal, provincial, and municipal governments, as well as hospitals. Table 7.1 shows total outlays by the government sector in 2015. These totaled $758 billion. Of this total, 31.2 percent was expenditure on government employees and 22.4 percent for the goods and services that provided government services to Canadians. The remaining 46.1 percent was transfer payments to persons, business, and non-residents, and interest paid on the outstanding public debt.

    Table 7.1 Total government expense in Canada, 2015
    Total Compensation Use of Consumption Subsidies Social Other Interest
    Expense of Goods & of Fixed & Grants Benefits Expense
    (billions employees Services Capital
    $) % % % % % % %
    790.9 30.5 21.6 8.5 2.2 0.6 24.3 4.3
    Source: Department of Finance, Fiscal Reference Tables, 2016, Table 34

    To provide some perspective, Table 7.2 compares the size of the government sector in Canada, relative to GDP, with the average for the G7 group of industrial countries (Canada, the United States, Japan, the United Kingdom, Germany, France, and Italy) in 2007 and 2015. These data illustrate two aspects of recent government budget activity that are of particular interest. The first is the size of the government sector in each country as measured by revenue, expenditure, budget balance and net public debt, all reported as a percent of GDP. The second is the change in government sector finances from 2007 to 2015, the period of the financial crisis, recession and prolonged recovery.

    On the first point the 2007 data show expenditures by Canada's government sector—the combined federal, provincial, and local governments—on goods, services, and transfers were 38.6 percent of GDP. This was less than the average for G7 countries. The difference reflects national political choices about the role the government sector plays in the economy.

    Table 7.2 The general government sector in Canada vs. the G7 countries
    Total Revenues Total Outlays Budget Balance Net Public Debt
    % GDP % GDP % GDP % GDP
    2007 2015 2007 2015 2007 2015 2007 2015
    Canada 40.1 38.6 38.6 40.3 1.5 –1.7 27.0 26.7
    G7 Average 37.3 36.4 39.9 39.8 –2.6 –3.4 49.7 83.0
    Source: Canada: Department of Finance, Fiscal Reference Tables, 2016, Tables 51-54

    In 2007, Canada differed from the G7 average in terms of their government sector budget balances. Canada operated with a budget surplus (revenues were greater than expenditures), while the other countries had budget deficits. Canada's budget surplus was the latest in a series of annual government-sector budget surpluses over the period from 1997 to 2007. These budget surpluses reduced the outstanding public debt and reduced Canada's ratio of net public debt to GDP well below the average to the lowest in the G7.

    The shift in fiscal conditions in the G7 from 2007 to 2015 was dramatic. The recession that followed the financial crisis of 2008 reduced employment and incomes in all countries. Government revenue in Canada and the G7 fell relative to GDP. At the same time governments maintained or increased expenditures to stimulate demand, and some provided financial bailouts to banks to limit the impact of the financial crisis on bank balance sheets. In combination, these fiscal policy actions, although differing across countries had limited effects on average G7 government outlays by 2015, but budget deficits were larger by 0.8 percent of GDP, and, combined with slow growth in GDP, raised the average net public debt ratio more than 30 percentage points. Initially Canada also experienced a rise in the net public debt ratio but improved GDP growth and expenditure restraint reduced the ratio slightly by 2015. The government debt crisis that followed in several countries has dominated European economic conditions and policy debates and remained unsolved in 2017.

    This page titled 7.1: Government in Canada is shared under a CC BY-NC-SA license and was authored, remixed, and/or curated by Douglas Curtis and Ian Irvine (Lyryx) .

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