Economics of Public Finance - Essay Example

Economics of Public Finance Equalization program makes transition of funds from federal government to provinces based on their revenue raising capacity. The equalization funding provides a chance for the provinces to meet health, infrastructure and other challenges. The transition of funds to the provinces will be done according to the needs of the provinces due to lack of revenues and the demand of social situation. The transition of funds to the provinces sanctioned under equalization scheme will be in a diminishing manner within a fixed time period. This type of allotment will give a chance to the provinces to meet the challenges of health and infrastructure and the diminishing transition within a time period will compel them to increase the revenues in that time period for being self sufficient. In some cases when a province, which is having a difficult fiscal position found any natural resources that can earn revenue, the federal government will give a chance by exempting from the equalization program and enabling it to generate revenue from that natural resources. For example in case of Nova Scotia to improve its fiscal situation Canadian Government in 1986 with Nova Scotia signed an accord to facilitate the development of oil and gas reserves. It allowed the Province to tax the resources as if it was the owner. It also provided the Nova Scotia Province the exemption from the reductions in equalization, which would have been a result when the revenues from the oil and gas reserves grow. This provision of gaining from resources and exemption from the reduction of equalization was provided keeping in view the fiscal challenges the province was facing. After 10 years from the date of agreement in 1993-94 the federal government reached another accord with the same province to provide 100 percent protection from reductions of equalization program. This was in spite of inclusion of off shore resource revenues with the exemptions from the reductions in equalization transitions. The payments done as compensation according to 1986 and 2005 agreements were additional to the equalization programs. This allocation tells that after 10 year allocation of extra funds in the form of taxes on offshore revenues, the Nova Scotia province still facing the fiscal challenges to meet the social requirements like health, education and infrastructure. This situation compelled the federal government to review the agreement and extend it for another 10 years period. This situation could have been avoided if the taxing on offshore resources by Nova Scotia province was linked to the development of its fiscal situation. The equalization programs or provisions in the form of allowing the province to tax on off shore resources must be linked with the fiscal improvement. The extra revenues and allocation of funds will decrease pressure on the budget of the government. That relaxation must be used by the provincial government to improve the fiscal situation. The fact that the federal government reached another agreement in 2005 similar to that of 1993-94 discloses that the fiscal situation did not improve as much as it should be after 10 years of extra revenues and exemptions from the reductions. The 1986 accord payments were sanctioned using a formula according to federal legislations. This will decline percentage of offshore revenues in the time period of 10 years compared with equalization. But again in 2004 the Canadian government has to restart the payments of 1986 to 2001. In spite of the failure of improvement of fiscal situation from the funds allocated and due to exemptions from equalization the government again allotted the funds in 2005 for an eight year period. It provides 100 percent protection from equalisation reductions due to additional income from offshore resources. Actually it is not qualified for equalisation funds in the eight year period. But despite receiving the exemptions in reductions of equalisation and income on offshore resources, the province was still in a situation of accepting exemptions even after getting revenues from offshore resources. This situation brings into the mind the funds that could have been demanded by Nova Scotia in the absence of offshore revenues. Even the equalisation scheme may not be sufficient to improve the fiscal situation in the absence of offshore revenues. This tells us the importance of the implementation of fiscal discipline for the provinces which receive the funds under equalisation scheme. This assures the fiscal development and unnecessary expenditure of the administration. For giving 100 percent exemption from the reductions of equalisation despite the presence of offshore revenues administration must extract those funds from other provinces which raise their revenue according to the needs. If the provinces like Nova Scotia did not improve even in the additional presence of offshore revenues, the provinces like Newfoundland, Labrador and Quebec may suffer and may result in delay in improvement of the fiscal situation of those provinces. This type of allocation which was a diversion from the territorial formula finance will deteriorate the situation and increases the number of provinces that depend on federal funds for the fiscal development or for exemptions from reductions. If the number of provinces and regions that depend on equalisation, exemptions from reductions increase, then the funds for the equalisation program will be insufficient and it is capable of marring the TFF goal and achievements. From the details of federal transfers from 2003-04 to 2006-07 it can be observed that the Nova Scotia province received more funds than Newfoundland and Labrador regions. This is despite the presence of additional revenues from offshore revenues. This type of discrimination towards a particular province will disturb the actual purpose of equalisation program and the fundamentals of the economics of public finance cannot be applied reasonably. The health and social transfers for the provinces will be done according to the study of revision of CHST/CST/CHT processes. The revision of these processes will take in to consideration the health and social needs of people in the provinces. The extra allocation for some provinces like Nova Scotia in spite of presence of additional resources discloses that the revenues in that province were not utilised according to the needs and necessities of the people. If Nova Scotia province did not improve its situation even by 2012 then the process of improving the province’s fiscal situation can be recommended to be done under the monitoring of federal administration. This proposal is due to the fact that the extra funds it is receiving were from other revenue rising provinces and they too may resort to same practice if the discrepancies in the fiscal conditions of provinces like Nova Scotia were not corrected. But the associated equalisation seems to be more applicable for the improvement of fiscal situation of the provinces. In this method the 13.5 points from personal income tax and 1 point from the corporate income tax were allotted for the government’s contribution for health and higher education. The difference in the tax points between the provinces by the allocation of the federal government to the provinces. This amount which is approximately $1.3 billion is known as associated allocation. This was known as associated equalisation because it was associated with tax points. As the allocation of funds under equalisation and exemptions were evaluated above it can be suggested that this type of associated equalisation can be adopted to allot funds for the provinces that were drawing extra revenues other than equalisation funds. The difference can be calculated similar to the calculation of associated equalisation in case of tax points. But in this case instead of tax points the ways of generation of revenues can be taken into account to calculate the associated equalisation in that context. The transfers of associated equalisation regarding the tax transfers were allocated to CHST, CHT, and CST. If the associated equalisation was calculated in the case of ways of additional revenues that a province has, those transfers can be spent on creating revenue generating ways in the provinces. So in the case of provinces like Nova Scotia the revenues incurred from the provision of taxing the federal administered resources like offshore oil and gas reserves can be spent on development of revenue generation. The equalisation exemptions received by the province can be spent on the health, education and social needs. This type of segregation of allocations can result in prudential use and spending of transfers of federal government to provinces. There are no details available for the ways the revenues incurred from the extra taxing of the federal resources were spent by the provinces. This tells that those funds were also spent on the health, education and social needs. But the equalisation transfers for those activities were allocated by the study of revision of the needs and necessities of the provinces. So the funds needed for those activities can be sanctioned from equalisation activities. So if there is a clause in federal government’s regulations that the funds other than equalisation must be spent on revenue generating ways and the continuation of equalisation programmes as long as they were needed both the demands of fiscal development and health, education, social needs can be met and the dependence of the provinces on administration can be lessened due to improvement of fiscal situation with the help of equalisation funds and schemes. Even in the case of allocating funds to health, education and social needs the need for revising the mode of allocation and reviewing of the situation is needed. In regions like Ontario the school boards feel that the funding is not sufficient to maintain their books and achieve objectives. Some school boards even claim that they ran out of ways to eliminate deficits. The heavy funding for the education by the federal administration and the deficiency faced by the school boards were true. When both the things were true it is better to consider the way of allotting and sanctioning the funds. When the allocations in 2006 were considered there is an additional spending by school boards due to the new initiatives by the province. This increase overall costs more than funding from the administration. The fact that the federal administration did not take into consideration the new provincial initiatives is the reason for the dissatisfaction on both the sides. The same thing may not be repeated next year because the new initiatives introduced this year will continue next year. So there is a need of extra allotment for this year as there was no need of extra funding diverting from the regulations in next year. The new initiatives are the reduction of class size in primary classes, making primary teachers specialised in their work and extra increase in salary due to enhancements in work. All these initiatives mentioned above will not incur extra expenses in the coming year as the school boards will not decrease class size every year and teachers do not need specialisation drive each year. So when there is need of extra funding that can be done by having a system of communication between federal administration and provincial administration regarding the extra needs for that particular year. The absence of such mechanism resulted in lack of funds in Ontario and it can be avoided by having a regulation regarding the initiatives like class size, specialisation of teachers and extra increments in their salaries. The funding for education did not consider the inflation adjusted costs for the school boards. In Toronto the inflation adjusted costs were more and there the school boards suffered due to that problem though there were no new initiatives like that of in Ontario. In addition to the inflation costs the adult credit courses were under funded. The emphasis was only on child education and higher secondary education. But the provincial activities regarding adult credit courses did not find any importance in allocating funds by federal administration to provinces. This lack of communication along with inflation adjusted costs resulted in lack of funds for education in Toronto. The allocations were not made according to the recommendations of the expert panel, which recommended $250 million and the allocations wre only $125 million. Similarly the difference in cost of education for the students having English I and II language was not taken into consideration and the students with I language other than English suffered due to this ignorance in funding the education. While the communication between provincial and federal administrations and lack of certain clauses to affect the allocation affected the education funding the deregulation affected the health funding for provinces from Canadian government. The deregulation was also termed as regulatory cooperation. But the deregulation resulted in corporate methods in health initiatives implementation. The deregulation supported the corporate institutes and there is a view that the regulations supported the public interests. This means that the deregulation supported corporate interests. But at the same time the regulation was seen as burden for the competitiveness. This resulted in deregulation and this decreases funds for health from federal administration to provinces. This does not mean that the governments must force regulations regarding health initiatives but a part of the profits incurred by the corporate institutes of health can be allotted for the sanctioning the funds for health initiatives of the provincial governments. Regulations exist because the deregulation cannot achieve both economic and social development. In case of deregulation it was observed that there is economic development but a little social development. In case of regulation era there is social development but a little economic development. This tells us the fact that the beneficiaries of economic development in deregulation do not concentrate on social development and the organisations which receive funds under regulation did not consider the economic development. The facts observed in both the cased emphasise some initiatives regarding social development in deregulation era. Though there is dissent in social sector regarding evils of deregulation there is dissatisfaction in corporate sector of slow progress of deregulation. They need faster approval of drugs and bio technology. The health needs of the public need an alternative approaches to the deregulation process. According to precautionary approach the law basically says that it is better to approve the drug rather than leaving people to potential threats of diseases. If the potential of the drug to harm people is less than the threat to the people’s lives it is better to approve the drug. The as many approvals for the commercial production of the drug will increase the production and decrease the price of the drug and the rules regarding that must be in that manner. This makes the availability of drugs for lower prices and quick approval for the corporate organisations. This can be made possible according to the proposals of public interest lawyers and auditor general the economic objectives and regulatory objectives must be put on equal footing. Even the regulatory measures must help both corporate and public. This is possible when benefits overcome costs. If this occurs then there will be no regulatory burden to be imposed. But when it does not occur, then the regulatory intervention is necessary. The above evaluation stresses on the necessity of monitoring the deregulation and the regulatory when there is a situation of costs over coming the benefits and the corporate organisations were compelled to increase the prices of products and services. At this juncture the regulatory intervention is necessary to make certain laws which enable the increase of benefits over costs or funding the public organisations to over come the costs of health for the people. The regulatory cooperation will be made taking into consideration economic development. But the correct implementation of regulation too had its benefits. In US it was proved that the benefits of regulation exceeded the costs of business using cost benefit methods in regulations. The sincerity in the implementation is the critical issue. So it will be in the interest of both economic development and social development if the deregulation insists on cost benefit methods and the benefits overcome costs. At this juncture the regulation must intervene to limit the profits of the organisations and make commercial production more to ensure the cheap availability of drugs. This makes less funds sufficient for the health initiatives of the provincial administrations. References: The references were asked to select from the list given in the assignment brief. They were given accordingly. 1.www.eqtff-pfft.ca 2. www.policyalternatives.ca 3. www. fraserinstitute.ca Read More