Government Budget

A government only has a set amount it can spend, because of, well… scarcity.

The budget can be in 3 states:

1. Deficit: Spends more than what it collects in tax revenue. Must borrow money
2. Surplus: Collects more in tax then it spends. Money left over to pay off debt
3. Balanced: Spends same amount it receives in tax revenue

Govt Debt

Exists because:

• Budget is at a deficit
• War bonds

Slow Policies

Government responds to solutions slow because of:

1. They need time to recognize the problem
2. They need time to determine the most appropriate policy
3. They need time to figure out how to implement new directives
4. We must wait for the effects of the new policies to be felt

Struggle for Balance

Paying off and borrowing the debt will forever be at a tug of war.

• Changes in governments. Liberals borrow, conservatives reduce debt
• In the first few years of office, the current political party will make the harshest tax cuts, in the final few years of their term, they will loosen up and provide welfare to put them on terms with the people so they can be revoted into office for their text term
• Regions have certain policies that conflict with federal policies. They may be forced into doing something harmful to them

Downsides of Debt

• Crowding out: Bank of Canada will have less loanable funds. More difficult for businesses to borrow
• Debt for future generations
• Less funding for welfare