Simon Fraser UniversityDepartment of Economics

ECON 892, Fall 2016Public Economics: Taxation

Government Revenue and Expenditure

This set of notes has been constructed partly with the help of Sam Bucovetsky notes.

This is a course on the revenue sources of the public sector. What is the public sector?

In a word, government. Now Canada has a federal form of government, which means

more than one level of government. There are three important layers of government in

Canada, the national (or federal) government, the provincial governments, and the local

governments. There are other layers than those three, but they are less important. In

Ontario, outside the major cities, the county governments play a role. Highways ( except

for the big ones ) are maintained by counties for example. In some parts of Ontario, the

school districts do not correspond exactly with the towns. That means that some people

pay taxes both to a town government, and to a school district, as well as to the Ontario

and Canadian governments. They also elect different governments for the town and for the

school district. There are some “authorities” which are different from local, provincial or

national governments, which have their own revenue sources, their own officials, and their

own legal powers. Prior to 1999, what is now Toronto had two layers of local government,

the Municipality of Metropolitan Toronto, and the lower level local governments of North

York, East York, York, Etobicoke, Scarborough and the City of Toronto. A lot of cities

outside Ontario still do have that multilevel structure : London (UK), Paris (France),

Sydney (Australia). But there are three important levels of government in Canada. By

“important”, I mean that each of the three levels is responsible for an important amount

of public spending, and each of the levels is responsible for collecting an important chunk

of revenue.

The following tables shows government revenue and expenditure collected by all the dif-

ferent levels of government (also see the Annual Financial Report from the Government of

Canada attach at the end of this document). Roughly speaking, the federal and provin-

cial governments each collected about 45 percent of the tax revenue in Canada, and local

governments the other 10 percent. On the other hand, the provincial governments are

accountable for around 45 percent of the spending, the federal government for only 35

percent, while the local government accounts for the remaining 20 percent. Notice the

difference in the composition of tax revenue, and in the composition of government expen-

1

diture. That is because of the tendency for money to flow “down” in Canada, from the

highest level of government to lower levels. These transfers, particularly transfers from the

federal government to the provinces, play an important role in Canadian intergovernmental

relations.

As mentioned, Canada is considered a federal state, meaning that several levels of gov-

ernment play important roles. The opposite of a federal state is a unitary state, in which

the national government does all the taxing and spending. But really, there are very few

“pure” unitary states, just varying degrees of federalism. Canada, the United States, Ger-

many, and Switzerland are very much federal states, for example. France, Japan and the

United Kingdom are considered more unitary. But there has been quite a bit of decentral-

ization in France and in the UK in recent years. Besides which, European uniffication has

proceeded to the stage that it may be more accurate to consider France and Germany (

and even the UK ) as provinces of a bigger, federal government called the European Union.

The public sector discussed here could be the provincial, or the local, or the federal. They

all levy taxes, they all provide public services, a lot of the analysis will be the same

whatever the level of government. But a brief comment on the relation among levels of

governments: “revenue sources of the public sector” are the main topic of the course.

What are the revenue sources? For the most part, taxes. How else do governments get

their money?

Well, if you look at the data (in any textbook, or in the table on income provided),

you can see that governments in Canada do have revenue sources which are not taxes.

For example, about 8% of the 2007 revenue of all levels of government, combined, came

from “investment income”, and another 8% comes form the sales of good and services.

That’s a combination of a couple of things. Governments do own a lot of businesses that

sell goods and services. They used to own a lot more, thirty years ago. In 1975, some

governments in Canada owned airlines, passenger rail lines, bus lines, telephone companies,

gas stations, hydroelectric companies, liquor stores, and lots of other enterprises. Most of

those businesses sell goods and services to the public. Now many of these enterprises have

been privatised since the 1970’s. But some have not. That investment income would also

include the return on short term securities various government agencies might hold as well.

The mysterious “other revenue” accounts for just over 1% of total government revenue. In-

cluded there would be the income the government collects from fees for example : passport

fees, marriage licences and so on.

These are called “fees”, rather than taxes, although the line is quite blurred. What is the

2

difference between a tax and a fee? The most obvious answer is that you have to pay your

taxes, whereas fees are charges which you choose to pay if you want to consume the goods

or services. But that distinction doesn’t really stand up under close examination, which

is why I won’t do much close examination. No one has to pay gasoline taxes : they can

always choose not to buy any gas. Why is that any different from a fee for a passport? If

I want to get a passport, I have to pay the passport fee, and if I want to buy gas I have to

pay the gasoline tax. The government contributes to the confusion by calling some of its

taxes “premiums” ( for employment insurance ), or “‘contributions” ( for Canada Pension

Plan or Quebec Pension Plan ). But those premia and contributions are taxes. Most

economists and accountants are not fooled, and EI premia and CPP/QPP contributions

are included under “payroll taxes”, as they should be.

So are taxes the only important revenue source for governments? If you look at the

aggregate revenue over all levels of government in Canada, then that seems roughly true.

However, if you disaggregate, and look at individual levels of government, then the story

appears somewhat different. At both the provincial and local levels, transfers from other

levels of government are an important revenue source which is not a tax. Newfoundland

and Prince Edward Island got almost as much revenue from transfers from the federal

government as they collected in taxes. Transfers are also very important as a revenue source

to local governments. So in Canada, there is (as mentioned above) a major ow of money

down, from higher levels of government, from the federal government to the provinces, and

from the provinces to the municipalities. When we aggregate over all levels of government

these transfer disappear. That is, federal grants to the provinces are a source of revenue

to the provinces, and a major form of expenditure to the federal government. It would

be double counting to include this money both in aggregate revenue and in expenditure.

To see the problem in its extreme form, look at a country (such as Australia), in which

the higher level of government collects most of the taxes, and the lower levels do most of

the spending. Exaggerating somewhat, imagine that the Australian federal government

collects 40% of people’s income in taxes, and then transfers all the tax revenue it collects

to the state governments, which spend the money on schools and roads and so on. Imagine

that the states collect no taxes of their own, that the federal government does no spending

on its own, and that the public sector budget is balanced, so that expenditure at each

level equals revenue. In this example, it should be clear that the public sector accounts for

40% of Australian income : the federal government is collecting 40% of income in taxes,

and the state governments are spending all that money on schools and roads. But if you

simply added up revenues, or expenditures, of all levels of government, then you’d get

a very misleading impression if you didn’t net out transfers among levels. If Australian

GDP were 100 billion dollars, then we have the federal government of Australia spending

3

40 billion — all on transfers to the state governments. The state governments together

spend 40 billion. Add spending at both levels, and you get total expenditure of 80 billion,

or 80% of GDP. ( Similarly, federal revenues, all from taxes, are 40 billion, and state

government revenues, all from transfers, are 40 billion, so if you just added them up, you’d

get government revenue of 80 billion. ) So, in the Australian answer, there is a right

answer and a wrong answer to how big government is, in aggregate. The right answer

is that government accounts for 40% of GDP : you can get that right answer either by

adding up how much each level of government collects in taxes, or adding up how much

each level of government spends on programs and transfers to people. You get the wrong

answer only by doublecounting, by counting the transfer from central government to states

as both spending by the central government and as revenue earned by the states.

So it is important to remember that a transfer from one level of government to another

does not mean any increase in the overall share of all levels of government in the economy.

In adding up tax revenues, or expenditures across all levels, add in only “own source”

revenue, or only ”expenditure on goods and services” and “transfers to individuals”. This

flow down of money means that the higher level governments are doing more of the tax

collecting, and the lower levels are doing more of the spending. This may be a very rational

system : perhaps there are advantages from having one highlevel government in charge

of most of the tax collection, or having the lowest level possible actually providing the

goods and services. But it is not the only way of doing things. If we regard the European

Union as a big “supranational” government, then money flows up. The EU does not collect

taxes directly, but finances its expenditures from transfers from the national governments.

China is another significant example of a (sort of) federal country in which the money

flows up: taxes are collecting by state and local government and remitted to the national

government.

4

Simon Fraser UniversityDepartment of Economics

ECON 892, Fall 2016Public Economics: Taxation

Forms of Taxation

This set of notes has been constructed partly with the help of Sam Bucovetsky notes.

We will now talk about what are the important taxes, and who levies them. At the

beginning, at the time of Confederation, government spending accounted for a much smaller

percentage of income in Canada than it does today. In 1867, no government, federal,

provincial or local, levied any sort of income taxes. So the two key features here are that

governments back then needed much less tax revenue, as a fraction of national income,

than they do today, and that they used a very different set of tax instruments.

Ad Valorem versus Per Unit Taxes

An ad valorem tax (Latin for according to value) is a tax based on the value of real estate

or personal property. It is usually in percent term. Example: Personal income tax, GST

and EI contribution. A per unit tax is a specific duty, or a tax based on the quantity of

an item regardless of price. Example: excise tax on gasoline and tobacco.

Types of taxes

– Consumption taxes

These are taxes on the consumption of goods and services. The main forms of consumption

taxes are sales taxes, excise taxes and duties. These taxes account for about 25% of all

Canadian governments revenue.

Duties and Excise taxes

The primary revenue sources of government in 1867 were customs duties and excise taxes.

Customs duties are revenue collected on the import of various goods : in other words,

tariffs. In the nineteenth century, these duties were very high on many goods. Since

World War II, tariffs rates have declined to virtual insignificance. We have free trade, of

a sort, with the United States and Mexico, but our duties on imports from the rest of

1

the world are also levied at a very low rate. Excise taxes mean taxes on a specific good,

or class of goods. Examples are taxes on tobacco, on gasoline, on car rentals, on cable

television bills, and on hotel rooms. Those are all examples of excise taxes which are still

in use today. But they do not collect an enormous fraction of government revenue. In

2004, the federal and provincial governments together, for example, raised just under $10

billion from excise taxes and duties on alcohol and tobacco products. That’s just under

$300 per Canadian per year, and about 2 percent of the total revenue raised by all levels

of government. So neither of the two prime revenue sources of government in 1867 are

relatively very important today. In part that’s because the rates of these taxes have fallen,

but in large part it’s due to the fact that governments have found new, broad-based taxes,

to collect the much larger fraction of national income which they now control.

Consumption Taxes

Sales taxes have remained fairly steady, between 25% to 30% of the total revenue of

governments. But within the category of sales and excises taxes, there has been some

changes. These taxes have become relatively less important to the federal government,

and relatively more important to the provincial government. That first statement may

surprise some of you (or your parents) who can remember 1991. You might think that

federal sales taxation was invented by Brian Mulroney. It was not. The federal government

introduced the manufacturers’ sales tax in 1920. In 1991, Mulroney replaced that tax by

the goods and services tax the GST. One difference : the GST applies to a much wider class

of goods and services than the old MST. When the GST was introduced, in 1991, Mulroney

promised that it was supposed just to replace the MST, not to collect more revenue. Good

old lyin’ Brian : in 1990, the federal MST collected 4.0% of national income in revenues

; in 1998 the GST accounted for 3.9%. So why were people upset about the introduction

of the GST, when it was just the replacement of one sales tax by another sales tax? A

key difference between the GST and the MST was that the MST was invisible to many

: it was collected at the manufacturing stage, not at the retail sales stage, so that many

people did not know that they were paying it. The new BC proposal fro the HST is also

a case where the new tax applies to a much wider class of goods and services.

– Income Taxes

Personal Income Taxes

This is a tax on all forms of revenue individuals earn; wage, private income from small

business, interest revenue, dividend and capital gain. These taxes account for about 45%

2

of all Canadian governments revenue.

The most important event in the fiscal history of Canada is World War I. Suddenly, the

scale of government got much larger, as they had to pay for this enormous war. The

federal government decided it needed new revenue sources to pay for these expenditures,

so they introduced the corporate income tax in 1916, the personal income tax in 1918,

and the manufacturers’ sales tax in 1920. Although the beginning of World War I meant

a big increase in government spending as a fraction of national income, the end of the war

did not mean that government spending dropped back to where it had been before. The

fraction of national income accounted for by government spending, in peacetime, stayed

much higher than it had been. It stayed even higher after the “temporary” increase caused

by World War II. So the personal income tax went from a tax collected only from a small

fraction of the population, to a broad-based tax, under which the large majority of adult

Canadians file returns.

Meanwhile, the provinces introduced their own main revenue sources : succession duties

late in the nineteenth century, and then sales, personal income, and corporate income taxes

( mostly between the 2 world wars ). The local governments have been the steady ones,

relying throughout Canada’s history on two main revenue sources : property taxes, and

grants from the provinces.

Corporate Income Taxes

This is a tax on profits of corporation. These taxes account for about 10% of all Canadian

governments revenue. The corporate income tax has become relatively less significant as

a source of government revenue – although corporate income tax revenues vary a lot over

the business cycle.

Payroll Taxes

This is a tax on wages, often paid by both employees and employers. These are mainly use

to finance EI, Pensions plans and Health care programs. These taxes account for about

10% of all Canadian governments revenue. Payroll Taxes are often call “premiums” (for

employment insurance ), or “contributions” (for Canada Pension Plan or Quebec Pension

Plan).

– Property and Wealth taxes

3

Those are taxes on the the value of an asset, like a house. The most common form of those

taxes in Canada is the municipal property taxes. US also has estate taxes. It is a tax on

total value of wealth and not on a flow of income. The importance of the property tax as

a revenue source has fallen, as has the relative importance of the level of government that

uses it: local government. It now constitute about 10% of all governments revenue.

4

Your Tax Dollar Here’s a quick overview of where your Tax Dollar went—and how it was raised— in the Fiscal year ended March 31, 2011

Other operations 19

Paying for Parliament 20

Crown corporations 21

Public debt charges 22

Where your

tax dollar goes: Summary 23

Where the money comes from 24-26

Where the money comes from: Summary 27

The budgetary deficit 28

More about these numbers 29

Useful links 30

Transfer payments 3

Transfers to persons 4-6

Transfers to persons: Families and children 7

Transfers to provincial and territorial governments 8-10

Transfers to provincial and territorial governments: Health care 11-12

Other transfer payments 13

Other program expenses 14-15

Defence 16

Public safety 17

Canada Revenue Agency 18

Table of Contents

Transfer payments

Payments that go directly to persons,

to provincial and territorial governments,

and to other organizations are

called ―transfers.‖

Transfers are the largest category of

government spending. They made up

about 58 cents of each tax dollar

spent ($157.9 billion).

3

58¢

Summary

Transfers to persons

Major transfers to persons cost 25 cents

of each tax dollar spent ($68.1 billion).

The biggest category within Transfers

to Persons was elderly benefits.

These transfers include:

• Old Age Security

• Guaranteed Income Supplement

• Allowance for Spouses

Total elderly benefits cost about

$35.6 billion, or roughly 13 cents

of each tax dollar spent.

4

25¢

13¢

Summary

Transfers to persons

Another major transfer to persons is

Employment Insurance (EI) benefits.

Altogether, EI benefits cost over 7 cents

of every tax dollar spent ($19.9 billion).

For information on EI premiums,

see the section entitled

―Where the money comes from.‖

5

7¢

Summary

Transfers to persons

The final category of Transfers to

Persons is Children’s Benefits.

Canada provided $12.7 billion to help

families raise their children through

the Canada Child Tax Benefit and

the Universal Child Care Benefit.

These payments cost almost 5 cents

of every tax dollar spent.

6

5¢

Summary

Transfers to persons : Families and children

Canada also provides assistance to low- and modest-income families

through the Goods and Services Tax (GST) credit ($3.8 billion).

7

Summary

Transfers to provincial and territorial governments

Major transfers to other levels of

government totaled about $53.0 billion

last year, or 20 cents of each tax dollar

spent. These transfers help fund health

care, post-secondary education and

other programs for Canadians.

8

Summary

20¢

Transfers to provincial and territorial governments

The Canada Health Transfer provided

$26.0 billion for health programs,

representing almost 10 cents of each

tax dollar spent.

The Canada Social Transfer provided

$11.2 billion for post-secondary

education, social programs and

programs for children, representing

about 4 cents of each

tax dollar spent.

9

4¢

10¢

Summary

Transfers to provincial and territorial governments

Other major transfers, including the Equalization and Territorial Formula Financing programs and the gas tax transfers to cities and communities, totaled roughly 6 cents of every tax dollar spent ($15.8 billion).

The Equalization and Territorial Formula Financing programs help less prosperous provinces and territories provide services that are reasonably comparable to those in other provinces at reasonably comparable levels of taxation. Gas tax transfers help Canada’s cities and communities provide environmentally sustainable municipal infrastructure.

10

6¢

Summary

Transfers to provincial and territorial governments: Health care

Federal support for health care goes beyond cash payments under the Canada

Health Transfer and the Equalization and Territorial Formula Financing programs.

In 1977, provinces assumed a share of federal taxes to supplement direct cash

transfers. In 2010–11, these ―tax points‖ added some $21.2 billion to provincial

finances for programs such as health care, post-secondary education, social

assistance and social services.

11

Summary

Transfers to provincial and territorial governments: Health care

In addition, Canada provided about $6 billion last year for:

12

Summary

First Nations health services

Programs for public health

Health care for veterans

Health research

Other transfer payments

Last year, spending on federal grants, contributions and subsidies

added up to $36.8 billion, almost 14 cents of each tax dollar spent.

This included approximately:

• $6.7 billion in transfers for First Nations and

Aboriginal peoples

• $1.9 billion in assistance to farmers and other

food producers;

• $4.1 billion in foreign aid and other

international assistance;

• $10.5 billion in support for research and

development, infrastructure, regional

development and assistance to businesses.

Other funding went to student assistance programs,

health research and promotion, the arts, amateur sports,

and multiculturalism and bilingualism.

13

14¢

Summary

Other program expenses

After transfers, the bulk of federal tax dollars went

to cover the operating costs of the more than

130 government departments, agencies,

Crown corporations and other federal bodies that

provide programs and services for Canadians.

14

Summary

Other program expenses

Government operating expenses such

as salaries and benefits, facilities and

equipment, and supplies and travel

made up 30 cents of each tax dollar

spent ($81.7 billion). Close to half of

this spending— just over 14 cents of

each tax dollar spent—went to just

three organizations.

15

30¢

14¢

Summary

Defence

First, spending last year by National Defence

on Canada’s military forces made up 8 cents

of each tax dollar spent ($21.3 billion)

16

8¢

Summary

Public safety

Next, operating costs of Public Safety and

Emergency Preparedness represented

over 3 cents of each tax dollar spent

($9.4 billion).

This includes funding for the Royal

Canadian Mounted Police, the federal

prison system, and border traffic and

security operations.

17

3¢

Summary

Canada Revenue Agency

And third, expenses of the Canada

Revenue Agency, which administers

the federal tax system (and also collects

personal income taxes for all provinces

except Quebec) totaled $7.3 billion,

or close to 3 cents of each

tax dollar spent.

18

3¢

Summary

Other operations

A further $33.1 billion—roughly 12 cents of

each tax dollar—was spent on the operations of

the other federal departments and agencies.

These included major departments such as:

• Environment

• Fisheries and Oceans

• Health • Human Resources and Skills Development

• Industry

• Justice • Natural Resources

• Public Works

• Transport • Veterans Affairs

19

12¢

Summary

Funding also went to federal agencies such as the Canadian Food Inspection Agency, Parks Canada and the Canadian International Development Agency.

Paying for Parliament

One of the smallest spending slices

goes to Parliament itself—the House of

Commons, the Senate and the Library

of Parliament.

Last year, the combination of salaries

and benefits for Members of Parliament,

Senators and parliamentary staff, and

spending on facilities and services,

totaled about $555 million. That’s less

than one-quarter of a cent of every

tax dollar spent.

20

1/4¢

Summary

Crown corporations

Crown corporations (organizations owned directly

or indirectly by the government) cost $10.5 billion,

or just under 4 cents of each tax dollar spent.

Most of this spending was by four organizations:

• Canada Mortgage and Housing Corporation,

which helps support home ownership and

affordable housing -- $3.0 billion;

• Canadian Broadcasting Corporation -- $1.8 billion;

• Atomic Energy of Canada Limited -- $1.7 billion and,

• Canadian Commercial Corporation -- $1.6 billion.

Funding was also provided to cultural organizations

(including the National Gallery of Canada, the

Canadian Museum of Civilization and the Canada

Council for the Arts), to enterprises like VIA Rail,

and to the Canadian Tourism Commission.

21

4¢

Summary

Public debt charges

Interest charges on Canada’s public

debt – money borrowed by the federal

government over the years and not yet

repaid – cost $30.9 billion. That’s about

11 cents of every tax dollar spent.

Currently, 78% of this debt is owed to

Canadians, including citizens and

domestic institutions holding federal

bonds, Treasury bills and other forms

of the debt.

22

11¢

Summary

Where your tax dollar goes: Summary That’s our brief summary of federal spending for 2010–11.

23

Click on colour segment for more information

Crown corporations

(4 cents) Public debt charges

(11 cents)

Support to elderly

(13 cents)

Employment

Insurance benefits

(7 cents)

Children’s benefits

(5 cents)

Canada Health Transfer

(10 cents) Canada Social Transfer

(4 cents)

Other major transfers to

other levels of government

(6 cents)

Other transfer

payments

(14 cents)

Defence

(8 cents)

Public Safety

(3 cents)

Canada Revenue Agency

(3 cents)

Other operations

(12 cents)

Where the money comes from

24

14¢

48¢

13¢ 12¢

Summary

During 2010–11, the federal government recorded $237.1 billion in revenues. These revenues came from:

Personal income tax – $113.5 billion, or almost 48 cents of every dollar raised in revenues.

Corporate income tax – about $30.0 billion, close to 13 cents of every dollar.

Goods and Services Tax – $28.4 billion, or 12 cents of every dollar.

.

Where the money comes from

A number of other taxes—such as

non-resident withholding taxes,

customs import duties, energy taxes

and excise taxes and duties on

alcohol and tobacco—made up

$19.7 billion, or over 8 cents of

every dollar raised in revenues.

As well, Employment Insurance

premiums contributed $17.5 billion

to federal revenues*, or close to

7 cents of every dollar in revenues.

.

25

8¢ 7¢

Summary

*To enhance the independence of premium rate setting and to

ensure that EI premiums are used exclusively for the EI program,

the Government created a new, independent Crown corporation, the

Canada Employment Insurance Financing Board (CEIFB).

Where the money comes from

And other revenues—such as

earnings by Crown corporations and

revenues from the sale of goods and

services—provided the remaining

$28.1 billion, or 12 cents of every

tax dollar.

26

12¢

Summary

Where the money comes from : Summary

27

Earnings by Crown corporations

and revenues from the sale of

goods and services (12 cents)

Corporate income tax

(13 cents)

Revenues from the

Goods and Services

Tax (12 cents)

Non-resident withholding taxes,

customs import duties, energy

taxes and excise taxes and

duties on alcohol and tobacco

(8 cents) Employment

Insurance premiums

(7 cents)

Personal income tax

(48 cents)

12¢

8¢

48¢

12¢

13¢

7¢

The budgetary deficit

The $33.4-billion difference between

the government’s total expenses of

$270.5 billion and total revenues of

$237.1 billion is the 2010–11

budgetary deficit. The budgetary

deficit represents an increase in the

federal debt (accumulated deficit).

28

More about these numbers

The federal government calculates its financial results

over a 12-month ―fiscal year‖ that ends every March 31.

This presentation is based on the Annual Financial

Report of the Government of Canada for the most

recent complete fiscal year, 2010–11.

So that’s the story of where your federal tax dollar goes,

and how it is raised. If you want more detailed

information, we’ve provided a series of useful links.

29

Useful links More information on Government of Canada finances is available from these sources:

30

Annual Financial Report The Annual Financial Report of the Government of

Canada provides overall financial data on federal

revenues and spending on a full accrual accounting

basis for the most recent complete fiscal year. It is

available through the Finance Canada website

under Publications at http://www.fin.gc.ca/purl/afr-

eng.asp.

Fiscal Reference Tables

Along with the Annual Financial Report, Finance

Canada also publishes its annual Fiscal Reference

Tables. Financial information on the provinces and

territories is also included. The tables are available

through the Finance Canada website under

Publications at http://www.fin.gc.ca/pub/frt-

trf/index-eng.asp.

The Fiscal Monitor Produced by Finance Canada, this monthly

newsletter highlights the most recent financial

results of the Government. It is available on the

Finance Canada website under Publications at

www.fin.gc.ca/pub/fm-rf-index-eng.asp.

Public Accounts The Public Accounts of Canada contain the Government’s

audited financial statements for the most recent fiscal

year, and details of financial operations by each

ministry. It is available through the Public Works and

Government Services Canada website at www.tpsgc-

pwgsc.gc.ca/recgen/txt/72-eng.html.

Debt Management Report The annual Debt Management Report covers key elements

of the federal debt strategy, and strategic and operational

aspects of the Government’s debt program and cash

management activities over the past year. It is available on

the Finance Canada website under Publications at

http://www.fin.gc.ca/pub/dmr-rgd/index-eng.asp.

Canada Revenue Agency While the Department of Finance is responsible for

setting federal tax policy, it is the Canada Revenue

Agency (CRA) that manages the actual revenue collection

for the federal government. A quick overview of CRA

operations (and access to the agency’s annual operating

report and Internet home page) is available at

www.cra-arc.gc.ca/gncy/nnnl/menu-eng.html.

C a n a d a Ye a r B o o k 2 0 0 9 • C a t a l o g u e n o . 1 1 - 4 0 2 - X 191

16

Chart 16.1 Selected consolidated government expenditures, 2009

Government

The three levels of government provide Canadians with services that cannot be easily offered by private companies. The federal government is responsible for national defence and international diplomacy, the provinces and territories ensure that Canadians have access to health care and education, and local governments keep our streets clean and our communities safe.

The Constitution Act spells out the responsibilities of each level of government, but their accounting books show where their priorities lie and where they spend tax dollars. In 2009, the three levels of government, plus the Canada and Quebec pension plans, spent a total of $631.3 billion providing services.

All told, the federal, provincial, territorial and local governments, as well as the Canada and Quebec pension plans, closed out fiscal 2008/2009—the fiscal year ended March 31, 2009—with

a surplus of $2.4 billion. Revenues for all levels of government combined were down 2.1% from the previous fiscal year; spending rose 2.5%.

Where the money goesProvincial, territorial and local governments spent $12,517 for every man, woman and child in the country in 2009, but these averages vary widely among the provinces and territories. The costs of providing services in the North are higher; Nunavut spent $44,476 per capita. Among the provinces, per capita spending ranged from $11,372 in Ontario to $14,032 in Saskatchewan.

Social services, health and education are perennially governments’ largest expenditures. In 2009, services such as social security payments, family allowances and income maintenance programs cost $190.3 billion. Health services spending totalled $121.6 billion,

Source: Statistics Canada, CANSIM table 385-0001.

0 20 40 60 80 100 120 140 160 180 200

Labour, employment and immigration

Regional planning and development

Housing

Foreign affairs and international assistance

Recreation and culture

Environment

Resource conservation and industrial development

General government services

Transportation and communication

Debt charges

Protection of persons and property

Education

Health

Social services

$ billions

192

Chapter 16

S t a t i s t i c s C a n a d a • w w w. s t a t c a n . g c . c a

and education spending amounted to $95.7 billion. These three areas accounted for about 65% of total government spending; combined with debt charges, they accounted for nearly three-quarters (71%) of all spending.

From 2005 to 2009, government spending on health grew 29%; spending on social services, 21%; and spending on education, 24%.

Spending on foreign affairs and international assistance totalled $6.5 billion in 2009, up 4.8% from the previous year.

Debt charges have been generally declining since 2001. In 2009, they accounted for 6.9% of spending, compared with 9.3% in 2004.

Where the revenue comes from Government spending has grown 25.8% since 2004, while consolidated government revenues have kept pace, growing 25.4%.

Income tax revenues grew 31.8% from 2004 to 2009; consumption taxes, 8.3%; and contributions to social security plans, 18.4%. Combined, these three revenue sources accounted for almost 70% of total government revenues in 2009.

Before 2009, the government sector posted combined surpluses of more than $20 billion for four consecutive years. The government sector has not posted a deficit since 1999.

Source: Statistics Canada, CANSIM table 385-0001.

Chart 16.2 Consolidated federal, provincial, territorial and local government revenue, 2009

1. Annual average.2. Annual total.Source: Statistics Canada, CANSIM table 183-0002.

Table 16.a Public sector employment, wages and salaries

2007 2008number

Employees1 3,382,323 3,490,747$ thousands

Wages and salaries2 161,617,171 169,850,124

0 50 100 150 200 250 300

Health and drug insurance premiums

Other revenue from own sources

Other taxes

Sales of goods and services

Property and related taxes

Investment income

Contributions to social security plans

Consumption taxes

Income taxes

$ billions

193

Government

C a n a d a Ye a r B o o k 2 0 0 9 • C a t a l o g u e n o . 1 1 - 4 0 2 - X

Federal public servantsThe composition of federal workers is shifting toward knowledge-based jobs and in favour of women.

Knowledge-based workers—those in scientific and professional, computer systems, program and administrative, executive, administrative and foreign service categories—accounted for 58% of federal workers in the core public administration (CPA) in 2006, compared with 41% in 1995. Two out of three knowledge-based workers are in the scientific and professional categories or the program and administrative categories.

The CPA excludes the Canadian Forces, the RCMP, and agencies such as the Canada Revenue Agency. About half of federal government workers are in the CPA.

Proportionally, women eclipsed men in the CPA in 1999; women now comprise

54% of workers, while men make up 46%. In the entire labour force, men make up 53% of employed workers, and women, 47%—though the gap has narrowed gradually since 1995.

$11.3 billion in 2003 to $19.6 billion in 2008, as local general governments have been busy renewing infrastructure.

Chart 16.4 Core public administration workers, by sex

Source: Statistics Canada, Catalogue no. 11-621-X.

40

42

44

46

48

50

52

54

56

1995 2006

Males Females

%

Spending outstrips revenueLocal general governments’ revenue has been growing in recent years, but it has been outpaced by rising spending.

In the year ending December 31, 2008, Canada’s local general governments collectively posted a $552-million deficit, equal to 0.7% of their total spending. ‘Local general governments’ comprise municipalities and other local entities but exclude school boards.

From 2003 to 2008, revenue grew by 42.4%; however, spending also advanced by 38.8%.

Property and related taxes were the main source of that revenue growth, advancing $9.1 billion. Transfers from provincial and federal governments increased $7.2 billion. Revenue from the sale of goods and services, mainly water and sewer services, was up $4.3 billion. However, spending on capital (build-ings and infrastructure) climbed from

Chart 16.3 Local general government revenue and expenditures

$ billions

0

10

20

30

40

50

60

70

80

2003 2008

Total revenue

Total expenditures

Source: Statistics Canada, CANSIM table 385-0024.

2003 2004 2005 2006 2007 % in 2007

Total expenditures 480,915 501,884 516,763 547,706 572,662 100%General government services 17,520 18,633 18,802 19,685 19,956 3Protection of persons and property 37,193 39,154 41,175 43,725 45,301 8Transportation and communication 19,148 20,258 21,385 25,390 26,051 5Health 83,315 89,479 94,565 99,017 106,850 19Social services 145,398 150,827 156,706 165,167 172,374 30Education 70,533 74,246 77,225 83,324 87,726 15Resource conservation and industrial development 18,784 19,430 18,444 19,749 19,908 3Environment 10,259 11,391 11,929 13,313 14,355 3Recreation and culture 11,690 13,143 13,736 14,350 14,584 3Labour, employment and immigration 3,395 3,440 2,328 2,514 2,582 0Housing 3,624 3,833 3,900 4,525 4,782 1

Foreign affairs and international assistance 5,128 4,611 5,556 5,585 6,654 1Regional planning and development 2,111 2,133 2,035 2,168 2,475 12Research establishments 1,881 1,890 1,855 1,986 1,995 4

Debt charges 49,475 46,917 45,460 45,518 46,107 8Other expenditures 1,463 2,499 1,662 1,689 964 0Surplus 496 3,550 20,898 28,304 28,601

Source: Statistics Canada, CANSIM, table (for fee) 385-0001.Last Modified: 2007-07-16.

Consolidated government revenue and expenditures(Expenditures and surplus or deficit)

$ millions

Note : Data for the consolidated, federal, provincial and territorial governments are as at March 31 and the local government data are at December 31.

2003 2004 2005 2006 2007 % in 2007

Total revenue 481,412 505,434 537,660 576,010 601,263 100%Own source revenue 481,412 505,434 537,660 576,011 601,263 100%Income taxes 178,173 188,619 207,219 227,275 246,232 41Consumption taxes 96,431 98,918 104,685 108,026 107,300 18Property and related taxes 42,529 44,244 46,710 49,639 51,417 9Other taxes 16,083 17,037 17,788 18,747 19,702 3Health and drug insurance premiums 3,000 3,132 3,206 3,258 3,327 1Contributions to social security plans 63,489 67,568 69,039 71,441 74,369 12Sales of goods and services 37,299 38,704 40,557 42,666 45,890 8Investment income 34,838 37,267 40,327 47,514 47,468 8Other revenue from own sources 9,570 9,946 8,129 7,445 5,559 1

Source: Statistics Canada, CANSIM, table (for fee) 385-0001.Last Modified: 2007-07-16.

Consolidated government revenue and expenditures(Revenue)

$ millions

Note : Data for the consolidated, federal, provincial and territorial governments are as at March 31 and the local government data are at December 31.

of 18 1

Taxation in Canada

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Share in Total Government Expenditures

of 18 7

Share in Total Government Revenues

of 18 8

Federal Transfers to Provinces (% of provincial revenue)

of 18 10

C. The Size of Government

of 18 11

C. The Size of Government

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C. The Size of Government

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C. The Size of Government % of GDP

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C. The Size of Government