Governments play a key role in providing services and regulations, which are not efficiently or feasibly provided by the private sector for the reasons of excludability, rivalry and business mandate reasons. A foundational role of government is its involvement in managing the nation’s revenues, expenditures and the national economy. Government can intervene in the economic environment by increasing taxes and reducing program funding in times of economic growth, and initiating stimulus spending and tax cuts in times of recession. Government is both part of a nation’s economy and a regulator of a nation’s economy, making it a key player in its sustainable management and stabilization.
To address the problem of economic recessions and their impact, government, itself suffering revenue during a recession, may engage in deficit spending or borrowing to provide stimulus money. This fuels the fires of the national economy, with its extensive connections involving government and the collective world economies coordinating as part of the world market, allowing economic recovery with the associated reduction in unemployment burdens and slowed market activity. This renewed growth then leads to restoration of government revenue in income and sales tax, giving the government a return on its stimulus “investment”.
However, due to political agendas and pressures on government to fund programs and reduce taxes, expenditures have continually exceeded the government’s means, and discipline has often not been exercised to pay down the deficit. Thus, the deficit then adds to the growing and interest incurring national debt.
Chapter 1: A Brief History of Debt
Successive governments, especially Conservative governments in the case of Canada, have increased spending and grown the deficit, leading to increased debt and interest liabilities, rather than directing funds to pay off the deficit. On the other hand, the Canada's federal Liberals have displayed a tendency towards deficit reduction, even to the point of running a surplus, in part achieved by cuts to federal-provincial grants. The high spending patterns seen in the conservative government indicate a loose commitment to funding reduction and lack of regard for the economic implications, burdens and risks of increasing deficit spending. Increased deficit spending grows the national debt and incurs substantial interest charges, creating potentially serious liabilities. The greatest need is for tight control on government finances and the size of the deficit is not kept. The Conservative party’s 2011 election platform promises to eliminate Canada’s deficit by 2014-15, without cutting inter-governmental money transfers. That would be a key accomplishment to avoid further increasing the national debt, which would ideally be the first step towards pulling the country out of excess debt.