The role of government in the
Related sections>> Alternative
Budgets and Advocacy
and What governments can do?
The government plays a critical role
in the functioning of the economy. However, many people don't
really understand what exactly the government does and how
this impacts the economy. This section is meant to answer
some of those questions and thus to empower us to talk to
our elected officials and let them know our ideas, or perhaps
to run for elected office ourselves.
When Canada was formed in 1867 through the British North America
Act (BNA), and later the repatriation of the Canadian Constitution
from Britain (1982), the powers of provincial and federal
levels of government in the Federation of Canada were set.
The Supreme Court was given power to uphold these rules. Rules
for municipal governments were later set by each provincial
government. Many of the rules at all levels were later modified,
when the need arose and the political will existed.
People have different ideas about the role of the government.
Some people believe government should be small, interfering
as little as possible into citizens' lives. People who advocate
for smaller government tend to believe taxes should
be the lowest they can be and that citizens should not depend
too heavily on government services. They believe that limited
social services provide incentive for citizens to work harder,
earn more, and take care of themselves rather than be dependant
on the government. Those who prefer bigger government on
the other hand, believe the role of government is to create
fairness and equity within the country. These people see that
even those who work hard don't always have what they need
to survive and they want a system that provides for and protects
all the country's people.
In Canada the federal government is the level of government
where most of the economic decision-making takes place. The
federal government controls Canada's budget
and sets the rules for and collects most of the personal and
corporate income taxes.
Because the federal government collects taxes, many of the
government services Canadians enjoy are funded directly by
the federal government. These services include old age security
(OAS) payments, employment insurance payments, student loans,
agricultural subsidies, the Royal Canadian Mounted Police
(RCMP), and funding to crown corporations like the Canadian
Broadcasting Corporation (CBC), Via Rail, and Canada Post.
It also manages the Canada Pension Plan (CPP) which is funded
by employer and employee contributions. The federal government
provides money to the provinces to deliver other services
such as health, education, and social services.
The federal government has a significant impact on how public
services are delivered, even if they are delivered by the
provinces. When the federal government cuts taxes or changes
the way it transfers money to the provinces, Canadians experience
direct consequences. While the federal government sets the
principles and standards under which some provincial services
operate (e.g., Medicare under the Canada Health Act), it may
not necessarily provide sufficient funds to enable all the
provinces to comply. In 1995 the federal government eliminated
the Canada Assistance Plan (CAP) replacing it with the Canadian
Health and Social Transfer (CHST). Under CAP, provinces received
separate funding for health, post-secondary education, and
social assistance. Provinces had to abide by national standards
in the delivery of health and social assistance. The CHST,
in contrast, is a block of funding that the provinces can
use as they see fit. In response, many provinces cut social
assistance rates drastically, leaving vulnerable people in
desperate circumstances. (For more visit Women,
Poverty, and Social Assistance.)
The federal government is also involved in the flow of money
in Canada and controls the national bank. The Bank
of Canada, which is owned by the federal government (making
it unique among western countries), sets interest
rates for the entire country; interest rates of all other
financial institutions are based on these. The Canadian government
also controls the money supply and is in charge of printing
new coins and bills. It is responsible for dealing with currency
exchange rates set by international financial
institutions, and for dealing with balances of payments
with other countries resulting from the two-way flow of investment
and trade. And
it is responsible for setting the rules within which corporations
The federal government also controls defense, foreign affairs,
and international trade. Lately, federal politicians have
been represented at trade meetings around the globe advocating
for free trade
agreements. Free trade agreements generally give less power
to governments and more to corporations so it is interesting
that the government is so complicit in signing these trade
agreements. They also tend to benefit richer countries more
since the headquarters of most of the world's largest and
most powerful corporations are generally found in these countries.
Managing immigration and citizenship is another role of the
federal government. Rules that dictate whether or not recent
immigrants and refugees to Canada can work or study have a
major impact on the economic reality of persons new in Canada.
The government of Canada works to create equal opportunities
for all peoples. In Canada, this is done through equalization.
Wealthy provinces pay fees to the federal government which
are distributed to poorer provinces. This is why we speak
of the have and have not provinces. Not surprisingly
richer provinces do not tend to appreciate this system. Poorer
provinces suffer more when the federal government reduces
its contribution to the provinces. On the international scene,
governments perform a somewhat similar function through Overseas
Development Assistance (ODA); however, amounts that are sent
are never sufficient to start closing the gap between have
and have not countries.
Finally, because the federal government is so large, federal
government departments hire large numbers of Canadians. Providing
relatively stable, high-paying, and usually unionized jobs
is a significant contribution to the Canadian economy made
by our federal government.
Canada's provincial and territorial governments play a significant
role in delivering services to Canadians. Through funding
from the federal government and through the taxes they collect
themselves, provincial and territorial governments administer
and deliver services such as health care, education, social
assistance, child care (albeit limited), road maintenance,
and some student loans. Provincial governments also fund provincial
crown corporations. In Manitoba these include Manitoba Hydro
and Manitoba Public Insurance (MPI).
Until recently, almost all provinces except Quebec collected
provincial taxes according to the rules set by the federal
government. Deductions, credits, and exemptions the federal
government authorized limited the revenues available for the
provinces to tax. Because some provinces now collect taxes
themselves, provincial governments can also cut taxes - a
trend which provincial governments across the country have
been adopting over the past decade. When provincial governments
cut taxes, the federal government does not want to be left
picking up the slack. For example, as the Alberta government
discusses funding private medical clinics, the federal government
threatens to cut its health payments to the province. Provincial
governments' inclination to cut taxes along with the federal
government's elimination of CAP has created a precarious situation
for the most vulnerable Canadians.
In Canada provincial governments control minimum wage and
provincial labour laws and in this way have a significant
impact on the working lives of their citizens. However, they
rarely act in isolation as they want to promote investment
and population growth in their own province rather than see
it flow out to other more lenient provinces.
Provincial courts make laws relating to the family, such
as maintenance laws which dictate how much money is to be
distributed within families that have separated. These laws
have a major impact on the quality of life for many divorced
families, especially women and their children.
Provinces are also responsible for land-use planning and
the establishment of an environmental framework of incentives
and penalties within which sustainable development can be
promoted, or regrettably, hampered.
Although provincial governments do not usually have a major
say in international trade, they do control trade between
provinces. And provincial government representatives are sometimes
represented on international trade missions, encouraging international
trade with their particular province.
Like the federal government, the provincial government is
a good source of quality employment.
Ordinary Canadians are usually able to have greater input
in the decision-making at the level of the provincial government
than the federal simply because it is a lot smaller. In less
populated provinces like Manitoba, there are sometimes better
opportunities for citizen input in such things as budgets
as well as for ordinary citizens to run for elected office.
Each year the Manitoba government holds budgetary consultations
across the province asking citizens what they would like to
see in the provincial budget. To offer your opinion on how
our government's money should be spent visit Manitoba
Finance Budget Consultation.
In Canada, governments of cities, towns, and rural municipalities/counties,
have the least amount of say in economic decision-making.
Municipal governments receive most of their funding from the
provinces. With these funds they deliver services such as
water, sanitation and sewers, road maintenance, fire and ambulance
services, garbage collection, and they operate municipal hospitals.
Municipal governments have a small amount of control over
taxes. They collect gas taxes, property taxes, business taxes,
and some other small taxes. For example, the City of Winnipeg
collects an amusement tax.
In some countries, municipal governments encourage much citizen
input in budget decisions. The city of Porto Alegre in Brazil
is known around the world for its participative budget, a
practice that has had a profound impact on how resources are
distributed in a disadvantaged area of the country, and has
radicalized citizen involvement in that process.
One of the ways citizens can hold their governments accountable
is by offering input on how the budget is divided up. All
of us can play a part in this process, no matter who we are.
Each year in Canada the Canadian Centre for Policy Alternatives
(CCPA) publishes an Alternative Federal Budget. In Manitoba
CCPA and CHO!CES also work on an alternative provincial budget.
To learn more about these initiatives and about gender-sensitive
budgets around the world visit Alternative
Another more direct role open to each citizen is through
membership and activity in the political party of their choice
where members work together to develop party policy and select
and campaign for candidates for election who they think best
able to carry out party policy. Many also take the opportunity
to run for office themselves. To become active in a political
party, contact the party of your choice and ask them how you
can become involved. To hear of one woman who became involved
see Muriel's story.
Some people find preparing for work in the civil service
offers another route to helping shape political policy. Most
bureaucracies in Canada have well-educated people who are
selected and advanced according to merit and not political
- prepares Canada's federal budget
- collects most taxes
- pays Old Age Security (OAS)
- administers Canada Pension Plan (CPP) and Employment
- administers and funds most of the student loan program
- funds Crown corporations such as CBC, Via Rail, and
- provides agricultural subsidies
- controls Bank of Canada (sets interest rates)
- prints money
- sets rules for corporations
- controls defense, foreign affairs, and international
trade (negotiates free trade agreements)
- controls immigration and citizenship
- administers inter-provincial equalization payments
- controls Overseas Development Assistance (ODA)
- provides good jobs for many Canadians
delivers public services such as health care, education,
social assistance, and child care (limited)
- maintains provincial roads
- collects some taxes
- sets minimum wage
- decides provincial labour laws
- decides rules of family law (including divorce, separation,
and maintenance laws)
- administers land-use planning
- sets environmental laws
- controls inter-provincial trade
- provides good jobs for many residents
delivers services such as water, sanitation, and sewage
- maintains municipal roads
- provides fire and ambulance services
- operates municipal hospitals
- collects garbage and maintains municipal dumps
- collects gas taxes, business taxes, and property taxes
- provides some jobs for residents
Special thanks to Muriel Smith for extensive input into this
article. Thanks also to Murray Smith and Ross Dobson.