Chapter 8 Stabilization Policy
http://www.edmontonsun.com/homes/homesandcondos/2010/04/25/13716331.html
http://www.actionplan.gc.ca/eng/feature.asp?featureId=18
Summary
On April 24, 2010, federal government transferred funding of $9 million to Alberta to subsidize housing projects; this payment is part of the Canadian Economic Action Plan, which was first introduced in 2009 to fight against the economics downturn that was originated in 2008. This tax credit is aimed to aid people with general improvement, energy-efficiency upgrade and modification for people with disabilities on their accommodations. Home renovation credit does not only “ Improve quality of lives by improving living conditions, but also it stimulates the local economy by creating jobs.” The Ministry of Finance has reserved $1 billion to be transferred for social housing and over $800 million will be distributed among provinces and territories.
Connection
The home renovation and retrofits program is closely connected to the fiscal policy for the Canadian government. Fiscal policy determines government spending level and standard of tax rate. By introducing home renovation and retrofits, Canadian will be encouraged to spend more money on renovation because it is now cheaper for them to improve their houses or buildings. In addition, energy-efficiency upgrade qualifies for the criteria of renovation credit and this certainly does create an incentive for Canadian to go green and save more on their bills in the future. Although people will spend more, the reduced level of tax income will magnify government’s debt level problem.
Reflection
Although economists promote free market system, I find that government intervenes and regulations are necessary to stabilize the economy. Canada Action Plan is a multi-billion project to improve the economy by creating jobs and encouraging spending. Home renovation is an example of encouraging spending by reducing tax rate. However, as government constantly spending money to improve the economy, the deficit level is slowly escalating. These debts are not likely to be paid by this generation, but it will be carried over to the future generation. This accumulated debt will be a big load for the future generations. As economy is now picking up its own pace, it is likely tax benefits might be withdrawn soon to prevent further deficit. Take good use of these tax credits and spending money wisely will be the smart decision to be made currently.
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I agree that government intervenes are necessary to stabilize the economy sometimes. However, their actions might not be the best idea. By reducing tax rate, the government will grow debts. When the debt gets too high, they will no longer reduce the tax and instead charge more tax to compensate for the inflation. By creating more jobs and encouraging spending, this will create an inflation. Although the tax has been lowered, the inflation will take over the place of the tax. So I think that this Action Plan might not be the best solution to help provinces stabilize.
ReplyDelete-Michael Li
Althought Michael may have some points in his comment about tax rising again after a while. I think this is a good idea to help economic activity by creating more jobs and encouraging spending with this method. If people don't spend, and the economy is going down, then the government would have to be the ones doing the spending because the people would be saving money for the future since prices would be too high at the moment. This kind of action would also cause government to go into debt. So the Canada Action Plan may not be the method at the moment but I think its a good start to help the economy.
ReplyDeleteI agree with Jackie. He has made very good points. This blog also connects with what has been said in mine because of the issue that baby boomers have with consumer habits. They have been consuming more than what the Earth can restock and reproduce its natural resources. I mean not to be misleading on what we should be doing now like completely stop consuming but on actually improving deficits later on for future generations, like Jackie said consumers nowadays do need to make more wise decisions with their spending. Or else it will greatly affect the future not only economically but ecologically too. In the future, we cannot control the climate so what we can do now is to help prevent anything that will make our days in the future bad.
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