Finance Minister Jim Flaherty brought down his 2014 Budget recently. It triggered much discussion about the status of the deficit, Canada’s economic future and the prospects for the next federal election.
Appropriate Subject Area(s):
Economics, politics, social studies, role of government
Key Questions to Explore:
- What is a federal budget?
- What is a budget surplus or deficit?
- What is Canada’s economic situation?
- What is the outlook for Canada’s economy?
- What discussions and debates were triggered by the Budget?
Federal budget, budget surplus, budget deficit, stimulus, recession, deficit-cutting, austerity, shovel-ready plans
- Computer to access the following link: http://www.budget.gc.ca/2014/docs/bb/brief-bref-eng.html
- Copies of Handouts #1, #2, and #3
Introduction to the Lesson and Task:
The Federal Budget basically charts the government’s course for its fiscal policy – that is, taxing and spending activity. When a government takes in more revenue than it spends, it has a budget surplus. When its spending exceeds its revenue, the government incurs a deficit. Deficits and surpluses are annual – that is, what happens over the course of a given year. The debt is the total amount that a government owes, accumulated over all past years of surpluses and deficits. The federal government currently has a debt of over $600 billion.
Canada’s debt has been increased over the years since the financial crisis hit and the economy took a big downturn. Why? The government, by spending more than it took in through taxes, helped to add stimulus spending to the economy. This was to help promote production and protect jobs during difficult economic times – the Great Recession, as it is referred to in the article. A recession occurs when the economy experiences a decline in the overall level of production in the economy in two consecutive quarters (two three-month periods).
One area of spending was on infrastructure – roads, bridges, sewers, etc. – the structural framework that helps keep communities and commerce running. The focus of spending was on shovel-ready projects – that is, those that were ready to go quickly and hopefully would create or sustain jobs.
Until the financial crisis hit, Canada had been running surpluses for a number of years and had been paying down the debt that had built up. Reducing debt is usually good for an economy as it reduces tax money that has to be used for interest payments, frees up money to be used on other things, and reduces the burden of debt that is put on future generations.
The federal government has been focusing on deficit-cutting austerity for a few years now to try to reduce and ultimately eliminate the deficit. This term refers to cutting spending at the same time as revenues rise with better economic times; together these factors lead to reduced deficits. That has been happening; Canada’s annual deficit has been reduced each year for several years . But every year of deficit adds more to the nation’s debt.
In this year’s Budget, the Finance Minister built in a $3 billion cushion to cover unexpected items. Without that, the county’s finances would have been shown to be in surplus and the government would have achieved its goal. Some believe that the government didn’t want to show a surplus this year but wanted to wait for next year when there will be a federal election, the surplus will likely be higher, and the government can say to Canadians that it achieved its goal.
Opposition parties criticize the government because they think there is too much focus on eliminating the deficit when there are needs to be addressed, such as job creation, especially for youth. The debate will continue. Canadians will need to decide what they think government priorities should be.
The lesson will have students take a look at what a Budget looks like, review the Budget summary, summarize highlights, and discuss/debate the position of the federal government and what its economic priorities should be.
Action (lesson plan and task)
- Prior to the class, distribute the article to students. Ask them to read it and to go online and take a quick look at the Budget Summary at the following website – http://www.budget.gc.ca/2014/docs/bb/brief-bref-eng.html. The Summary is around 15 pages long and should enable students to do a quick scan. Tell students that you just want them to get a sense of what is in a Budget so there is no need to do a detailed review.
- At the start of the class, ask students to provide you with examples of the kinds of things they saw in the Budget. What was of interest to then? Did anything surprise them? Make a list on the board of the general topics that came up in the Budget – e.g. policies or steps to affect employment, taxes, pensioners, youth programs, etc. Create a general list illustrating the kinds of things that come under the federal government’s jurisdiction.
- Ask if they noticed what Canada’s total federal debt is, or was as of March 31, 2013. If no one knows, ask the class what they think our national debt is. Share with them that, at March 31, 2013, it stood at $602.4 billion.
- Use Handout #1 (provided) and review with students what a Budget is and the concepts of Budget surplus and deficit. Use the equation for total demand to show how government spending can help boost an economy when it is needed.
- But also note that, in other years, if a surplus doesn’t help bring down the debt, the debt just continues to rise.
- Discuss with students how this can lead to one generation passing debt on to another. The debt has to be repaid – and interest payments on large levels of debt are very high – and this adds a cost burden to future taxpayers.
- Use Handout #2 to provide a summary of the nation’s financial situation to students.
- Discuss the article with students and the key messages that the article conveys. Note that the consensus is that this was a pretty bland budget without much in the way of major policy announcements and that the government seems to be biding its time to next year’s Budget when there will be an election. Discuss why the government would do this and note the criticisms from the opposition parties.
- Divide the class into three groups. Designate one group as being Liberal, one group as being Conservative, and one group as being NDP. Inform each group that their challenge is to prepare a presentation for the class providing 10 reasons why this is a good Budget (the Conservative group) and ten reasons why it is not a good Budget (the Liberals and NDP). Ask the Liberal and NDP groups to try to be consistent with the messages that their political party would argue.
- Provide the rest of the class for the groups to discuss the challenge and ask them to be ready to make their presentation during the next class. Each class should prepare copies of Handout #2 for the rest of the class which presents a summary of their 10 points.
- Provide an opportunity at the next class for the groups to share their 10 points via a handout and a presentation.
Consolidation of Learning:
Once the presentations are complete, ask students to drop their party affiliation and discuss as a class the best points made for or against the Budget. Make a summary of the best points for and against and discuss the quality of the Budget as a class.
Students should be able to:
- describe the purpose of a federal budget
- distinguish between a budget deficit, budget surplus, and government debt
- explain why a government might run a budget deficit
- explain the consequences of a growing national debt
- review the highlights of a government budget and offer opinion as to the merits and shortfalls of the budget
At the time of the next budget presented by one of the provinces or municipalities, ask the students to undertake a quick review and offer a personal assessment.