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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 2012. These totaled $738 billion. Of this total, 31 percent was expenditure on government employees and 22.4 percent for the goods and services that provided government services to Canadians. The remaining 46.6 percent was transfer payments to persons, business, and non-residents, and interest paid on the outstanding public debt.

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    Table 7.1: Total Government Expense in Canada, 2012
    Source: Department of Finance, Fiscal Reference Tables 2012, Table 34.

    Table 7.2 makes a comparison of the sizes of the government sectors relative to GDP in the G7 group of industrial countries (Canada, the United States, Japan, the United Kingdom, Germany, France, and Italy) in 2007 and 2013. 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 2013, the period of the financial crisis, recession and prolonged recovery.

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    Table 7.2: The General Government Sector in G7 Countries: 2007-2013
    Source: Canada: Department of Finance, Fiscal References Tables 2014,
    Tables 51-54.

    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 just under 40 percent of GDP. This is about average for the G7 countries, although you will notice that some spend quite a bit more and others less than this average. The differences reflect national political choices about the role the government sector plays in the economy.

    In 2007, Canada and Germany differed from other G7 countriesin terms of their government sector budget balances. Both 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 to the lowest in the G7.

    The shift in fiscal conditions in the G7 from 2007 to 2013 was dramatic. The recession that followed the financial crisis of 2008 reduced employment, incomes and government revenues in all countries. At the same time governments increased expenditures to stimulate demand and provided financial bailouts support in some cases to banks to limit the impact of the financial crisis on bank balance sheets. In combination, these fiscal policy actions increased government outlays by about 5 percent of GDP on average, pushed budget deficits up to 8.6 percent and, combined with slow growth in GDP, raised the average net public debt ratio more than 20 percentage points. The government debt crisis that followed in several countries has dominated European economic conditions and policy debates and remained unsolved in 2014.