What is Keynesian Economics BY: PAUL YOUNG, CPA, CGA
Agenda
• What is Keynesian Economics?• Money flow from taxation to program spending• What is trickle down economics• Money flow from a Corporation – Public Traded• Money flow from a Corporation – GBE (Government Business
Enterprise)• Money flow from a School Board• Money flow from a Hospital• Issues facing economies around the world
What is Keynesian Economics• Keynes advocated increased government expenditures and lower
taxes to stimulate demand and pull the global economy out of the Depression. Subsequently, the term “Keynesian economics” was used to refer to the concept that optimal economic performance could be achieved – and economic slumps prevented – by influencing aggregate demand through activist stabilization and economic intervention policies by the government. Keynesian economics is considered to be a “demand-side” theory that focuses on changes in the economy over the short run.
Source - Keynesian Economics Definition | Investopedia http://www.investopedia.com/terms/k/keynesianeconomics.asp#ixzz4YTczh6Kk
Government Taxation / Spending FlowConsumers
Corporations
Government Entities
Taxation Flow• Income Tax
(Personal)• Income Tax
(Corporate)• Consumption
Tax• Income from
GBE• Dividends
(LCBO)
Spending Flow• Government
Transfers (Healthcare, infrastructure, post-secondary education, childcare
• Direct Program • Healthcar
e• Education• Social
Services• Public
Safety
What is Trickle Down Economics• Trickle-down economics, or “trickle-down theory,”
argues for income and capital gains tax breaks or other financial benefits to large businesses, investors and entrepreneurs in order to stimulate economic growth. The argument hinges on two assumptions: all members of society benefit from growth; and growth is most likely to come from those with the resources and skills to increase productive output.
Source Trickle-Down Theory Definition | Investopedia http://www.investopedia.com/terms/t/trickledowntheory.asp#ixzz4YTi1ElxV
Corporation / Money Flow / Canada Tire
• Source - http://investors.canadiantire.ca/English/investors/financial-reporting/annual-disclosures/default.aspx
Commentary:• Employees
(personal Income tax)
• Spending on goods and services (domestically or internationally
• Logistics• Facilities• Other spending• Corporate
taxation• Sales Taxation
(GST and PST)
GBE - LCBO
• Source – http://www.lcbo.com/content/dam/lcbo/corporate-pages/about/pdf/LCBO_AR14-15-english.pdf
Commentary:• Dividend flows to general
revenue• LCBO buys locally
produce wine, beer and liquor
School Board - Flow
Source - http://www3.dpcdsb.org/Documents/Financial%20Statements%2031%20August%202016.pdf
Commentary:• 90% of the school
board is supported by taxation (Provincial grants:
Expenses• 76% of the school
cost is payroll• Payroll taxes (CPP,
EI• Pensions• Income tax• Benefits
Hospital - Flow
Source - https://www.rvh.on.ca/account/SiteAssets/SitePages/account/2016%20RVH%20Audited%20Financial%20Statements.pdf
Commentary• Approximately 70%
of funding comes the government
• Doctors and Nurses compensation is tied to contracts
• Many hospitals have donor programs to support either hospital expansion or new equipment
• Money Flow• Spending • Taxation
(Personal)
Starting a business• Takes capital• Many high growth companies rely on stock options as
well as other deferred compensation a part of growing their business• Small business are hurt by taxation, hydro, red
tape/regulations• The bulk of all new jobs created are by small business
How do pension funding work? • Pension funds by assets (investments) with pension funds
generated contributions made by both private and public sector employees• Pension funds are looking for ways to maximized the
Pension Fund returns• If you increase taxation then you actually are hurting
pensions funds, i.e. less income (dividends) for pension funds• Defined Benefit Plans • Guaranteed pensioners a set amount to paid out to them.
Harper / Trickle Down Economics
• Source – http://globalnews.ca/news/1356467/tax-cuts-since-2005-net-canadians-30b-pbo/
Fiscal Management – Harper Keynesian Examples• Harper increase
program spending• Harper established
dedicated funding for infrastructure
• Harper honored the transfers to the provinces
• Harper moved OAS to 67
• Harper is not responsible for mismanagement at the provincial level
Commentary• After the 2008-2009 recession is when
Canada had one of the strongest economy in the G-7
Risk/Issues with Keynesian Economics
• Source - http://www.forbes.com/sites/peterferrara/2012/07/12/obamanomics-the-final-nail-in-the-discredited-keynesian-coffin/#4e241e7a2167
Forbes Video:https://www.youtube.com/watch?v=yOl37VcG89c&t=28s
Commentary:• USA tax system is
complicated• USA does poor job of
redistribution of wealth
• USA income inequality worsening
• Government waste money or about 1/3 of all spending is wasted
Issues facing an economy• Government Deficit and Debt• Mismanagement of government moneys• Structural deficits• Government trying to be everything to everyone
• Size of the economy• Consumer spending drives 2/3 of the economy• Exports are key area for many countries (Canada drives 25% of their GDP via exports or
about $520B)• People want cheat goods and services • Taxation • You cannot tax people to prosperity
• Demographics• Aging population tends have different buying patterns• Part-time vs- Full-time jobs (Precarious work)• People are living longer
Summary• Many people misunderstand either Keynesian Economics or Trickle
down economics• Private investment drives job creation (market-supply side of
economics)• Personal spending drives 2/3 of the economy. • Pension funds invest pension assets into companies as part of
managing the returns• It is not one policy that drive business expansion, but multiple
policies