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

Term Paper 4 pages (1705 words) Sources: 4

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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 i

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nfluence 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… READ MORE

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Quoted Instructions for "How Does Canada's Federal System Affect Economic Policy in the Recovery?" Assignment:

“

THESE ARE THE TWO ARTICLES ASSIGNED TO ANSWER THE QUESTIONS.

Flaherty *****˜Comfortable***** Business Will Replace Stimulus

October 23, 2010, 9:04 AM EDT

Oct. 23 (Bloomberg) -- Canadian Finance Minister Jim Flaherty said he is *****comfortable***** that an increase in business investment will allow his government to end its stimulus measures in March as planned.

Speaking in a Bloomberg interview, Flaherty, 60, said he has seen *****an increase in investment, particularly in machinery and equipment***** since the second quarter of the year. *****We*****ve helped stimulate that with tax breaks.*****

The Bank of Canada lowered its economic growth forecasts on Oct. 20, and Flaherty has faced increasing political pressure to extend some fiscal stimulus measures past their March 31 deadline.

*****I*****m comfortable where we are,***** Flaherty said. *****We see increasingly the private sector moving in to provide the demand that the public sector has been providing with people*****s tax dollars.*****

The central bank cut its estimate of economic growth for this year to 3 percent from 3.5 percent, and for 2011 to 2.3 percent from 2.9 percent. The expansion will shift from being driven by consumer and government spending to exports and business investment, the bank said in its monetary policy report.

Canada last week joined central banks in Brazil, Malaysia and Australia in keeping rates unchanged to gauge the global recovery and avoiding a divergence with the Federal Reserve and the European Central Bank, where policy makers have signaled they may offer additional stimulus.

Exports a *****˜Weakness*****

Shipments abroad are *****clearly a weakness in our economy, our exports to the United States in particular,***** Flaherty said. *****We always wish the Americans well in their recovery.*****

Flaherty contrasted his government*****s *****effective***** stimulus measures with those in the U.S., where economic data suggest the stimulus has had less of an impact. *****The U.S. has its own challenges,***** Flaherty said, including *****a weaker economy and higher unemployment and still a terrible situation in their housing market.*****

A successful U.S. recovery is important for Canada and the rest of the world, he said. *****As much as we talk about the emerging economies, the largest economy in the world remains the United States,***** he said.

Relying on U.S.

Canada relies on the U.S. for 63 percent of its trade, and the country*****s dollar reached parity with its U.S. counterpart last week for the first time since April. U.S. Fed Chairman Ben S. Bernanke said Oct. 15 that new stimulus may be warranted because inflation is too low and unemployment is too high.

That could put fresh pressure on exporters hurt in the global recession by lost U.S. orders of manufactured goods such as autos and paper.

Flaherty said this weekend*****s talks had gone some way to reducing worries that the global economy could be hurt by currency and trade tensions. *****I*****m modestly less concerned, but I*****m still concerned,***** he said. *****We made some progress this weekend but there*****s more hard work to do***** before G-20 leaders meet in Seoul next month.

*****We certainly see the relative inflexibility of certain Asian currencies, which remains a serious issue,***** Flaherty said. *****I hope we*****ll see movement there as a result of the discussions this week.*****

--Editors: Brett Miller, Ken McCallum

Source: Business Week

http://www.businessweek.com/news/2010-10-23/flaherty-comfortable-business-will-replace-stimulus.html

Canadian finance ministers to target debts and deficits in new year

KAREN HOWLETT and BILL CURRY

Kananaskis, Alta.ï¿½*****" From Tuesday*****'s Globe and Mail

Published Tuesday, Dec. 21, 2010 12:16AM EST

Last updated Tuesday, Dec. 21, 2010 8:39AM EST

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, although their unity was less certain on the subject of whether Ottawa or Ontario*****s fiscal picture is of greatest concern.

Federal Finance Minister Jim Flaherty said Canada needs to get back on the strong financial footing that helped it weather the global economic recession better than many other countries. What he is seeking to avoid is the spectre of the debt crisis that is gripping many European Union countries.

*****The situation remains fragile, with concern over mounting public debt in many countries and its implications for long-term growth,***** Mr. Flaherty said at a news conference in Kananaskis, Alta., after his day-long meeting with provincial and territorial finance ministers.

But he sought to strike a more conciliatory tone with Ontario by backing off his calls last week for all the provinces to balance their books by 2015. Now, there is no firm date, just a commitment to shed red ink in the *****medium term,***** he said.

*****We*****re all on track.*****

Ontario is projecting a deficit of $18.7-billion for fiscal 2010-11 and does not expect to balance its books until 2018.

*****We*****ll see who gets to balance first,***** Ontario Finance Minister Dwight Duncan told reporters.

He noted that Mr. Flaherty has continually understated the size of the federal deficit ï¿½*****" pegged at $55.6-billion for 2009-10 ï¿½*****" and said his federal counterpart should do a better job of getting his own affairs in order before telling others how to manage theirs.

But Mr. Duncan is alone on this front. Virtually every other province expects to erase its red ink by 2015, and Saskatchewan and Newfoundland and Labrador are on track to post surpluses in the current fiscal year.

Bank of Canada Governor Mark Carney, who was also at the Rocky Mountain resort for the meeting, reinforced the importance of addressing debt and deficits, Alberta Finance Minister Ted Morton said.

*****I*****m not going to be a fear monger, but I think when both the Governor of the Bank of Canada and the Finance Minister say this is an important issue, everybody should listen,***** Mr. Morton told reporters.

He himself expressed concerns that Ontario, which accounts for 40 per cent of the Canadian economy, could drag down the entire country and said Canada could head in the same direction as the European Union.

Douglas Porter, deputy chief economist of Bank of Montreal, does not share that view. He questioned the urgency of imposing a new era of spending restraints just as the United States embarks on a stimulus plan to help its ailing economy.

With fiscal policy diverging between Canada and its largest trading partner, Mr. Porter said, the United States will likely see stronger economic growth, at least in the short term, than this country.

*****No country wants to be anywhere close to where countries like Ireland or Greece or even Spain or Portugal have found themselves,***** Mr. Porter said. *****But, frankly, I don*****t think Canada*****s in the same hemisphere.*****

THESE ARE THE ARTICLES I AM SUPPOSED TO USE TO ANSWER THE QUESTIONS BELOW.

QUESTION 2

How does 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 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?

*I NEED A MINIMUM OF 6 QUOTATIONS AND 3 CITATION SOURCES. IN ADDITION I NEED EACH QUESTION ANSWERED TO BE NUMBERED. THANK YOU!

*****

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