Government budget deficits and debts

Government budget deficits and debts

Issue/Problem(s):

Considering the period between 1970 to 1990 the Canadian budget indicated more spending than the money collected from tax which resulted in budget deficit which resulted in debts. This was able to affect governmental investment, interest rates, and savings. The Canadian government in 1998 introduced a balanced budget which included surpluses which assisted in the reduction of the debts. The 2009 recession brought back the deficits and accumulation of debts through the political parties indicated their determination to adapt back the balanced budgets however the provincial governments have not been successful in reducing debt. The government budget services have been able to cut down debts value from 588 billion dollars in 1997 to 490 billion dollars in 2008. The federal debts impose a financial burden for generations to come and will place them at difficult situations.

Current Background/Situation:

The federal government should implement an increase of tax which is used to fund the CCP for retired individuals. This will redistribute income from current generation towards the elderly generation who receives extra payments. Therefore the government debt is a small portion of the problem of how the policy of the government affects the wellbeing of generations. The growth of governmental debts handicaps the income of the nation and there are no strategies to limit the growth of governmental debts. The government debts policy is sustainable provided that the budget deficit is less than 24.5 billion dollars. Inheritance of huge debts from the past and passing bill for current taxpayers will not reduce the cost of living for future generations.

Current Concerns:

The fact that the tax system of Canada does not promote savings through tax returns in comparison to saving is heavy. Individuals should be responding to incentives, thus the government should make saving regulations to be lucrative which enables people to save a large portion of their income which results in a prosperous future. Therefore the tax laws need to be reformed to ensure that citizens are able to use strategies that ensure that citizens save more to ensure future financial stability. The budget deficits illustrate the negative saving of the public and reduce the national saving which results in the rise of exchange rates and a reduction of net profit. The larger the debts the bigger the risk associated lenders perception when considering buying of the debts of Canada. This makes the country to be above real interest rate as compared to other countries in the world. High real rates of interest contribute to falling of investment.

Assessment of Article/Report: Global debt crisis

In the current economic environment, money is not generated by the government but created through private banks in form of loans. The private structure of creating money has expanded over the centuries and has superseded the governments worldwide. However, it also has its elements of self-destruction.

Major Strengths/Pros:

It will enable the private sector to invest in the banks while the government gets the profits.

The citizens will also benefit from enhanced public services, minimum taxes, and affordable public infrastructure.

Publicly sponsored banks have proved to be a successful strategy considering North Dakota state-owned bank.

Weaknesses/Cons:

The dependence on the public to pay back loans with interest is unpredictable in some periods.

There is a possibility of the government to print more paper money which decreases currency value in the market.

Risks:

The global economic performance is a matter of predictability and probability of the future, any setback may adversely affect the trend. Gross changes in the environment that affect economic factors may lead to a worsening debt crisis. The economic trends are unpredictable thus government investment from public owned and private banks funding performance is not 100 percent guaranteed. When the private banks’ issue loans, there is no proof that the indicated interest will be earned without deficits.

Overall Summary:

Global debt crisis affects many countries Canada being one of them, there also other situations where the concept has been tackled before which led to the printing of more reserve notes. The government can also buy out investors who provide funds such as mortgage to raise money. The country should promote public investment and state-owned banks. The private banks will issue loans to people that will be returned with interest after a specific period of time. Public investment will enable stakeholders to acquire infrastructure in exchange for money that will be used by the government to reduce debts. These two strategies will assist the country out of debt crisis without involving the acquisition of more loans from other sources but through investing in the citizens.

Recommendation(s):

The legal tenders issued should be through national treasuries and should be utilized on the national budget. The publicly sponsored banks should be empowered to increase the national credit and provide the government an interest-free loan. The government should invest the loan from publicly owned banks to generate income that is eventually directed towards paying off debts.