Canada - Politics, government, and taxation



Canada was formerly a British colony that gained independence in 1867. The nation is a parliamentary democracy and a confederation (a system in which the regional governments have a high degree of power). Canada is divided into 10 provinces and 3 territories. Each of the provinces has a substantial degree of political independence and power, more so than an American state.

The head of state is the British monarch, currently Queen Elizabeth II. She is represented in Canada by a governor-general whom she appoints on the advice of the prime minister for a 5-year term. The actual head of the government is the prime minister, who is the leader of the majority party in Parliament. Parliament itself is bicameral (2-chamber). The upper house is the Senate, whose 104 members are appointed for life by the governor-general upon the advice of the prime minister. Most of the real political power in Canada is in the lower chamber, the House of Commons. It consists of 301 members who are directly elected by the people to serve 5-year terms. Each province has an elected premier and a unicameral (single chamber) assembly. There is also a lieutenant-governor who is appointed by the governor-general.

Unlike the United States, which has only 2 main political parties, Canada has a number of different parties. The Bloc Québécois represents those who wish independence for Quebec. The Liberal Party is moderate and similar to the American Democratic Party, while the Progressive Conservative Party and the Canadian Alliance are similar to the American Republican Party. There are also a number of other minor parties, including the New Democratic Party. All of the major political parties support private enterprise to varying degrees, although the New Democratic Party favors more government oversight of the economy. There are also disagreements among the parties over free trade.

While the majority of businesses in Canada are privately owned, the government does play a major role in the economy. This is true of both the national and provincial governments. When the 2 levels of government are combined, they account for 21 percent of the nation's GDP. At times the provincial and national governments have disputes over economic policy. For instance, there is an ongoing disagreement between the national government and the maritime provinces over control of fishing rights and mineral resources in the Atlantic. Western provinces want more control over their own mineral and energy deposits while the central region of the nation seeks increased government spending to support economic development.

Often economic differences focus on environmental issues and worker concerns. The national government tends to favor more environmental regulation, even if it is economically disadvantageous. The same is true of issues such as worker safety and pay. However, since 1984 the national government has been engaged in a broad effort to return control over social and economic policies to the provinces. The main reason for devolution is economic; the national government has not had the financial resources to enforce many of its programs and regulations, so it has divested itself of them. In 1999, the national and provincial governments reached a sweeping agreement that called for combined authority over new social spending. Furthermore, the national government has given control of job training and worker retraining back to the provinces, but it has strengthened its role in regulating trade between the provinces and attempted to develop national regulations on stock trading and other financial services.

In 1998, the Canadian national government had revenues of US$121.8 billion and expenditures of US$115.1 billion. Compared with the United States, Canada's taxes are high, about 30 percent higher for the average person. In Canada, people with low incomes pay 16 percent of their income in taxes; the tax rates rise to 22 percent, then to 26 percent for those with incomes between Can$61,000 and Can$100,000, and finally to 29 percent for those with incomes over Can$100,000 per year. In 1998, taxes accounted for 38 percent of the nation's GDP. Significantly, taxes accounted for 60 percent of the growth in the Canadian economy from 1990-96. The country has a national 7 percent sales tax known as the Goods and Services Tax (GST). The GST is particularly unpopular among the Canadian people. Because of these high taxes, it is estimated that the underground economy is responsible for as much as 20 percent of economic activity. In 1999, the Canadian government estimated that it lost US$9 billion in tax revenues because of the underground economy.

On the other hand, these high taxes allow all Canadians to have full access to health care. The Canadian system is known as "Medicare" and it allows people to go to private doctors and a network of 950 hospitals and have their costs paid for by the government. The individual provinces and territories direct health-care planning and financing. The nation's taxes help keep the cost of prescription drugs low for individuals. However, limits on care and lengthy delays in care have led more and more people to pay for private care out of their own pockets. Some 30 percent of all new health-care spending is made in the private sector . In addition, education costs are low. Canada spends more per person on education than any of the other industrialized countries and the cost of college is very low compared with the United States. Nonetheless, the high tax rate has contributed to the brain drain from Canada and has caused some foreign companies to invest in the United States rather than Canada.

Although Canada is dependent on foreign investment to fuel its continuing economic expansion, it restricts investment in several key areas of its service sector. There is only 1 special trade zone in Canada and no free trade zones . Instead, Canada pursues free trade through multinational forums such as the World Trade Organization (WTO). It also works to deepen trade with partner countries such as the United States.

The United States and Canada cooperate on environmental issues and border disputes. The main mechanism to facilitate this cooperation is the International Joint Commission (ICJ). The 2 major environmental accords are the Great Lakes Water Quality Agreement of 1972, which controls water pollution in the Great Lakes, and the Air Quality Agreement of 1991, which helps coordinate policies on problems such as acid rain.

Canada spends only a small percentage of its GDP on defense. In 1998, it spent 1.2 percent of GDP or US$7.4 billion, compared with an average of around 2.5 percent of GDP for most developed nations. The long border with the United States does not need to be militarily defended, but Canada is a frequent contributor of troops for United Nations peacekeeping forces. It is also a member of the North Atlantic Treaty Organization (NATO, a military alliance consisting of Canada, the United States, and many European countries). As a NATO member, Canadian military forces have participated in the peacekeeping mission to Bosnia and in the military action against Serbia as a result of the atrocities in Kosovo in 1999.

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