Finance Minister Morneau brought down his 2016 – and his first – Budget on March 22,2016. Rob Carrick reports on how the Budget will directly impact on the financial lives of various groups of Canadians. In a related March 23 article Inside Trudeau’s budget: read the highlights, Laura Stone summarizes the highlights of a Budget which forecasts a deficit of $29.4 billion for the coming year. Early indications, not surprisingly, seem to indicate that it made some people happy and some unhappy.
Appropriate Subject Area(s):
Economics, politics, social studies, role of government
Key Questions to Explore:
- What is a federal budget?
- What is the debt to GDP ratio?
- What were the highlights of the Budget?
- How does the Budget affect various groups of Canadians?
- Which groups were happy, or unhappy, with the Budget and why?
- What do students think of the Budget’s strengths and weaknesses?
Federal Budget, Budget surplus, Budget deficit, federal debt, Debt to GDP ratio, stimulus, infrastructure
- Computer to access the following link: http://www.theglobeandmail.com/news/politics/inside-trudeaus-budget-read-thehighlights/article29336681/
- Copies of the Background Reading
- Copies of the article provided
- Handout #1
- Handout #2
- Handout #3
Introduction to 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 incurs 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 year. The debt is the total amount that a government owes, accumulated over all past years of deficits, surpluses and budgets. The federal government currently has a debt of over $600 billion – see http://www.debtclock.ca/ for the up-to-date level of federal debt.
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 as taxes, helped to add stimulus spending to the economy. This was to help promote production and protect jobs during difficult economic times. During those difficult economic years, Canada’s economy experienced a recession. A recession is when the economy experiences a decline in the overall level of production in two consecutive quarters (two three-month periods).
Canada’s economy has since recovered and the economy is growing again but quite slowly. Many Canadians are still feeling the effects from the recession and may have taken on more debt, lost their job, had a decrease in their income, and so forth. There are various groups of Canadians who have experienced some particularly challenging times – not just in recent years but, in some cases, over quite a prolonged period of time – for example, indigenous groups and communities as well as students and youth experiencing high rates of unemployment and high debt levels.
During the last election, the Liberals made quite a number of promises to Canadians. This Budget is the first real opportunity the government has had to follow up on those promises. Reaction has been mixed. Some groups feel the promises relevant to their interests have been fulfilled. Some think the Budget addressed their interest and needs to some degree, but didn’t go far enough. And some feel the promises relevant to them were left unfulfilled.
Until the financial crisis hit, Canada had been running surpluses for a number of years and had been paying down the past 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 previous government focused on deficit-cutting austerity in their latter years of to try to reduce and ultimately eliminate the deficit.
Many global events in recent years have made it difficult for Canada’s economy to fully recover from the difficult economic times. In fact, for some Canadians, these are the difficult economic times, such as those in Alberta and elsewhere who have been affected by the dramatic decline in oil prices. The decline in oil prices has certainly hurt the Canadian economy, but other factors such as economic challenges in Europe, economic slowdown in China, the slow pace of recovery in the U.S. (our largest trading partner), the instability in the Middle East and the challenges posed by the exodus of Syrians from their war-torn country have made Canada’s economy — in fact, the global economy — slow to recover.
The general feeling, even among most economists, is that Canada’s economy still required fiscal stimulus from the federal government – that is, there was a need to spend more than is taken in via revenue to help boost production, protect or increase jobs, and help sustain or improve incomes for Canadians.
This Budget has done this. The talk during the election was that the government would run a $10 billion deficit to spend more, particularly on infrastructure – that is, roads, bridges, sewers, etc. that help create the systems by which people and goods and services move throughout our country. This, it was reasoned, would help create and sustain the desired jobs and incomes.
But economic times have proven to be less healthy than most had anticipated for reasons noted above. It has been anticipated for some time that the deficit would likely be higher than the $10 billion discussed during the campaign. The question was how much higher. We now know. In the Budget, the government is forecasting a deficit this year of $29.4 billion. Like the Three Bears, some will argue this is too high, some will argue it is not enough, and some will think it is just about right.
The articles for this lesson will help you to explore the areas on which the government is planning to spend money, or increase spending. You can consider whether you support the areas of spending planned and if you think the deficit is appropriate or not. You will learn more about the groups that are pleased with the Budget, those that are not, and those that are lukewarm.
One last thing. Previous governments for some time now, have focused on deficits and trying to get the annual federal deficit down to zero, or even move the government into a surplus position. The new government has changed that somewhat and is focusing more on a statistic referred to as the “debt to GDP ratio.” The government has committed to keeping the debt-to-GDP ratio stable or even to reduce it over the coming years. What is the debt-to-GDP ratio? Please see the Handout that has been prepared for this lesson to help readers understand this important statistic.
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 Background Reading and the Carrick article to students and ask them to review the article at the link provided. Ask them to read the articles. In addition, ask them to go online and take a quick look at the Budget Summary. The Summary should enable students to do a quick scan of the key budget content and highlights. Ask students to prepare a summary of the key highlights from the Budget and to identify groups that seem to be happy, unhappy, and somewhat happy with the Budget and why
- 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 youth, student loans and grants, youth employment and employment in general, taxes, indigenous people, pensioners, etc. Create a general list illustrating the kinds of things that come under the federal government’s jurisdiction and the areas for spending that the government targeted in the current Budget.
- Next, discuss with students the groups in Canada that they identified that seemed to be happy with the Budget, those that were unhappy, and those that were somewhat, but not totally, happy with it. Make a list of each group category and the groups that fall within each.
- Ask if they noticed what Canada’s total federal debt is. If no one knows, ask the class what they think our national debt is. Share with them the current federal debt that can be found at http://www.debtclock.ca/.
- Use Handout #1 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 also adds a cost burden to future taxpayers.
- Note that the current government is focusing more on a statistic called the debt-to-income ratio than it is on government deficits. Use Handout #2 to help students understand this statistic and its importance.
- Divide the class into four groups. Designate one group as being Liberal, one group as being Conservative, one group as being NDP, and one group as the Green Party. Inform each group that their challenge is to prepare a presentation for the class providing 10 reasons why this is a good Budget (the Liberal group) and ten reasons why it is not a good Budget (the Conservatives), and five reasons why it was good and five reasons why it was bad (the NDP and Green parties).
- 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 #3 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 on 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
- explain the concept of debt-to-GDP ratio and the importance of this statistic
- 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 the government in their province, ask the students to undertake a quick review and offer a personal assessment based upon what they have learned in this lesson.