 |
Tax systems need to be analyzed in terms of their adequacy in achieving
their basic purposes, the most fundamental of which is the provision of
the revenue needed to run government programs. A vitally important
objective of tax policy is delivering, in a very broad sense, a balanced
budget (revenues being equal to expenses) over a fiscal cycle.
Countries that run excessive deficits find that these deficits must be
made up eventually, and are really just deferred taxes that must be
recovered.
Further, deficits cause governments to borrow, resulting in growing and
compounding interest expenses on the debt, and making it that much more
difficult to achieve balanced budgets and surpluses. In addition,
growing government deficits and borrowing can lead to other undesirable
effects, such as inflation and a “crowding out” of private borrowers in
capital markets. In theory, a country could rationally strive to balance
its accounts over an economic cycle of several years, but it is not
easy to project how long these cycles would last.
Debt is not inherently a negative matter. For example, countries can use
debt to fund public capital expenditures in the early years if these
expenditures will provide benefits to future taxpayers. It is therefore
reasonable to use some public debt financing with the intent of paying
it back in later years. In cyclical economies, using debt to pay for
capital improvements can smooth tax burdens over time.
The federal government and a number of provincial and territorial
governments in Canada have adopted an accrual accounting approach to
government expenditures, which requires the inclusion of all receipts
and expenses as long as they are invoiced or incurred, even though they
are not paid in cash. Capital costs, such as expenditures on highways
and bridges, are depreciated with amounts equal to the amount of money
that would be needed to maintain the capital (based on the expected life
of capital before it must be replaced). Instead of charging an entire
capital expenditure against revenue in a single year, the relevant
amount is added to a capital account (covering, for example, public
roads and highways) and depreciated in accordance with the expected life
of the capital.
|
Post a Comment