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Canada Fiscal Policy

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Fiscal policy represents a particular area of economic policy. More specifically, it involves the use of government finances to influence the overall behavior of the national economy. Of particular importance to fiscal policy is a government’s budget, or annual levels of spending, taxation, and borrowing. In this context, the budget functions not just as a process by which the government collects revenues to pay for goods and services for its citizens, but as a mechanism for promoting economic stability over the short- and long-terms. Therefore, there are two basic instruments of fiscal policy. The first is government spending, that is, the money a government spends on programs and services for its citizens. The second involves taxation, or the money a government collects from its citizens.
The fiscal policy in Canada is pursued by a plurality of governments. This is due to the existence of different levels of government: 

  • Federal
  • Provincial
  • Local

Accordingly, when examining fiscal policy in Canada on the whole, one must recognize that it is not a single, homogeneous system. It is, instead, a very fragmented system constituted by many governments, each with their own fiscal priorities and stances. 

The tax is in Canada is collected by the different levels of government. Governments collect your tax dollars and return them in the form of education, free health care, roads and highways, and numerous other social benefits.  
Federal revenues come primarily from income and consumption taxes.
Provincial revenues come primarily from income taxes, consumption taxes, and federal transfers. Local revenues come primarily from property taxes.

Federal spending is high on protection of persons and property, health, social services, and transfers to provinces.
Provincial spending is high on health, social services, and education where spending on health and social services is encouraged by large federal grants.
Local spending is high on protection, education, transportation, and environment.
Also the composition of government spending is majorly done in the following areas:

  • Transfers to other levels of government
  • Transfer to persons
  • Public Debt Charges
  • Consolidated Crown Corporations
  • National Defense
  • Operating expenses of departments and agencies
  •  Other Transfer Payments

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Canada's tax system is unique in many respects. These taxes are discussed in detail as follows:


As a resident of Canada, it is your responsibility to pay taxes on the worldwide income you earned during the year and to file your tax return with the government.  Income can take many forms:  employment income, investment income, commission income, retirement income. You will pay taxes on your income at both the federal level and the provincial/territorial level.

On top of that, you will pay provincial/territorial income taxes. Your province of residence is determined by where you were living on December 31 of that tax year.
Also, to prevent you from paying taxes twice — in Canada and in your country of origin — on the same amount of money, Canada has tax treaties or conventions with more than 90 countries. 



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