Unit 3 Notes

Unit 3 – Government Finances
General Learning Outcome:
• Demonstrate an understanding of federal,
provincial, and municipal revenues and
expenditures.
• Specific Learning Outcomes
• E-1 Interpret, based on charts or tables, the largest expenditures for
each of the three levels of government.
• E-2 Interpret, based on charts or tables, major sources of revenue for
federal, provincial, and municipal levels of government.
• E-3 Solve and explain the solution of problems involving selected
federal taxes such as GST, excise taxes, and customs duties.
• E-4 Solve and explain the solution of problems involving foreign
currency exchange.
• E-5 Solve and explain the solution of problems involving selected
provincial taxes such as PST, fuel, and tobacco.
• E-6 Explain the determination of education taxes, municipal mill rates,
and municipal property taxes.

Introduction to Government Finances
• In order to pay for its programs and
services, a government must have
money. The money a government
collects is called its revenue and the
money a government spends on its
programs and services is called its
expenditures.

Financial Terminology
• Revenues: income
• Expenditures: expenses
• Surplus: the amount by which revenues
exceed expenditures for any year
• Deficit: the amount by which expenditures
exceed revenues for any year
• Debt: an amount that is owed, the
accumulated deficit
• Inflation: an increase in the cost of
products and services

Major Sources of Revenue for the
Canadian Federal Government
Federal
Revenues “A”
Worksheet

Federal
Government
Revenues
Federal
Revenues “B”
Worksheet

Major Expenditures for the
Canadian Federal Government
Federal
Expenditures
“A” Worksheet

Federal
Expenditures
“B” Worksheet
Federal
Expenditures

Federal Government Debt
• In the past, many federal governments
have spent more money than they
collected. To finance these deficits, the
governments have issued Canada
Savings Bonds and Government
Treasury Bills and have borrowed money
from many foreign banks. The interest
charges on these borrowed funds must
be paid annually.

Federal Government Debt

Current Federal Government Debt

Inflation & Consumer Price Index
• Inflation is a persistent rise over time in the
average price of goods and services—in the
"cost of living." Inflation and the risk of inflation
encourage certain types of spending and
investment decisions.
• The most widely used measure of inflation is the
consumer price index (CPI) . It reflects
changes in the price of a representative "basket"
of goods and services sold in Canada: food,
housing, transportation, furniture, clothing,
recreation, and other items that Canadians buy.

Canadian Inflation Rates

The Effects of High Inflation

Provincial Revenues and Expenditures
• In the last lesson, federal revenues and
expenditures were examined. In this
lesson, the revenues and expenditures of
the Province of Manitoba will be explored.
• Just as you did in the last lesson, you will
learn about provincial finances from
graphs and tables. You will answer
questions related to the data displayed in
these provincial graphs and tables.

Major Sources of Revenue for the
Manitoba Government
Provincial
Revenues “A”
Worksheet

Provincial
Government
Revenues
Provincial
Revenues “B”
Worksheet

Major Expenditures for the
Manitoba Government
Federal
Expenditures
“A” Worksheet

Provincial
Expenditures
“B” Worksheet
Provincial
Expenditures

Municipal Revenues and Expenditures
• In the previous lessons, revenues and
expenditures of both the federal and
provincial governments were examined.
In this lesson, the revenues and
expenditures of municipal governments
will be introduced.
• Revenues and expenditures vary from
municipality to municipality. In this lesson,
the finances of the City of Winnipeg will
be considered.

Major Sources of Revenue for Municipal
Governments

Major Expenditures for Municipal
Governments

Municipal Property Taxes – Property
Classification
• From the previous pages, you can see that the
major source of revenue for the City of
Winnipeg is property taxes. Most municipalities
have property taxes as their major source of
revenue.
• Owners of property must pay property tax to the
municipality in which the property is located.
Provincial legislation requires all property in
Manitoba to be classified for tax purposes.

Municipal Property Taxes – Property
Classification
• There are nine classes of property ranging from
residential property to commercial and industrial
property.
• The following chart lists the property classification for
properties in Manitoba.

Municipal Property Taxes- Portioned
Assessment Value
• The Province of Manitoba assigns a portion percentage to each of the nine classes
of property. The following chart lists the portion percentages of the nine classes of
property in Manitoba.
• The portioned assessment value of a property is the value of the property on
which the property tax is calculated. The portioned assessment value is determined
by multiplying the market value of the property by the portion percentage.
Note: The market value is the value that the property could be sold for.

Municipal Property Taxes- Portioned
Assessment Value
Example Problem #1
• Sarah Mahler owns a home in Flin Flon. The market
value of her home and land is $83,850.
– Find the portion percentage for the property.
– Find the portioned assessment of the property.

Municipal Property Taxes – Determining the
Rate of Property Tax (%)
• In order to establish the rate at which property
will be taxed, a municipality must first establish
a budget. From that budget, the total revenues
required is determined. From this revenue, all
other sources of revenue, such as provincial
grants, business taxes, licence fees, and user
fees, are subtracted. The balance is the amount
the municipality must raise with property taxes.

• The total revenue required from property taxes
is compared to the total portioned assessment
of all properties in the municipality. This ratio is
then expressed as a % rate of tax.
The following formula can be used to determine
this rate of tax:

Example Problem #2
• A municipality requires revenue of $4,500,000
to be raised from property taxes. The total
portioned assessment of all taxable properties
is $200,000,000. Find the tax rate expressed as
a percentage rate.

Municipal Property Taxes – Expressing
the Rate of Property Tax in Other Ways
• The rate of tax in the previous example
was expressed as a percentage (2.25%).
The rate of property tax can be
expressed in other ways.
Two of these are:
– cents per dollar
– in mills

Municipal Property Taxes – Expressing the Rate of
Property Tax in Other Ways
• Cents Per Dollar
The previous tax rate of 2.25% means 2.25 out of 100.
This can all be expressed as 2.25¢ out of 100¢ or 2.25¢
out of $1.00.
In terms of property taxes, it means that a property
owner would pay 2.25¢ of tax for every $1.00 of the
portioned assessed value of the property.

Municipal Property Taxes – Expressing the Rate of Property Tax
in Other Ways
• Mills
The most common way to express the property tax rate is as a mill
rate. A “mill” is really a metric term, much like a millimeter, where a
“mill” refers to a unit of one thousandth. In terms of a property tax
rate, one mill represents a tax of $1 for every $1000 of portioned
assessed value.
The formula for calculating the property tax as a mill rate is the
following:

Municipal Property Taxes – Expressing
the Rate of Property Tax in Other Ways
Example Problem #3
• A municipality requires revenue of
$4,500,000 to be raised from property
taxes. The total portioned assessment of
all taxable properties is $200,000,000.
Find the tax rate expressed as a
percentage rate.

Municipal & Education Taxes
• In the last lesson, municipal revenues and
expenditures were examined. The main source
of municipal revenues is collected from property
taxes. In this lesson, the property taxes of
homeowners will be considered in more detail.
• Homeowners in Manitoba pay property taxes
each year. Property taxes consist of both
municipal taxes and local and provincial
education taxes. In order to calculate property
taxes, the portioned assessments and property
tax mill rates introduced in the previous lesson,
will be used.

Municipal Taxes
• Municipal taxes support municipalities.
Municipal taxes consist of a General
Municipal Tax and Local Improvement
Taxes. The General Municipal Tax (GMT)
is calculated as follows:

Municipal Taxes
• Municipalities will often
make improvements to
roads, sidewalks, sewers,
street lighting, etc. The
property owners themselves
pay some of the cost of
these improvements.
• The following table lists the
local improvement charges
for the City of Winnipeg.
There charges are paid
annually by the homeowner
for the number of years
indicated.

Municipal Taxes
• Most Local Improvement taxes are based on the cost of
the improvements and on the frontage of the property.
For purposes of this course, the frontage is taken to be
the width of the front of your property.
Each Local Improvement Tax (LIT) is calculated as
follows:
The total municipal tax is the sum of the General
Municipal tax and the Local Improvement taxes. The
total municipal tax can be calculated as follows:

Municipal Taxes – Sample Problem 1
• Andre Hebert owns a home with a total
portioned assessment of $48,500. His annual
municipal tax rate is 23.435 mills.
The frontage of his property is 50 feet. His
property taxes include Local Improvement
Taxes for both boulevard construction and lane
paving.
Calculate Andre’s total annual municipal taxes.

Education Taxes
• Education taxes support the various school divisions in
the province of Manitoba.
Education taxes are also calculated using portioned
assessed property value and mill rate.
The mill rate for education taxes is usually not the same
as that for municipal taxes.
Education taxes are calculated as follows:
The education tax rate in this lesson is expressed as a
single mill rate. In reality, there are two education taxes,
each with their own mill rate.

Education Taxes – Sample Problem 2
• In the previous problem Andre Hebert’s
property had a portioned assessment of
$48,500 and total annual municipal taxes of
$1787.60.
As well as these annual municipal taxes, he
must also pay Education taxes. These taxes
are levied at a rate of 30.926 mills.
– Calculate Andre’s annual total Education tax.
– Calculate the total of Andre’s annual Municipal and
Education taxes.

Education Taxes – Sample Problem 3
• The Wallace family owns a home with a market value
assessment of $71,500 and a land assessment of
$13,500.
The municipal mill rate is 21.415 mills and the
education mill rate is 28.562 mills.
The property has a frontage of 50 feet. The family is
charged Local Improvement taxes for road oiling and
lane lighting.
– Calculate the total portioned assessed value of the property.
– Calculate the total annual Municipal taxes for the property.
– Calculate the total annual Education taxes for the property.
– Calculate the total annual Municipal and Education taxes.

Demand for Taxes

Foreign Exchange
• If you wish to purchase foreign goods, travel in a
foreign country, or invest in foreign securities, you must
first purchase the currency of that country.
• Similarly, foreigners desiring to buy Canadian goods,
travel in Canada, or invest in Canadian securities must
purchase Canadian dollars.
• Therefore, a foreign exchange market has developed.
In Canada, the buying and selling of foreign currency is
transacted through the chartered banks, credit unions,
and foreign exchange brokers.

The Fluctuating Canadian Dollar
• The exchange rate refers to the value of the Canadian dollar
against the currencies of other countries. Among other things, it
helps determine how much we pay for imported goods and
services and how much we receive for what we export.
• When the value of the Canadian dollar falls, imported goods
become more expensive, and we tend to reduce the volume of our
imports. At the same time, other countries will pay less for some of
our products and that will tend to boost export sales.
• The exchange rate plays a particularly important role in our
economy because, compared with other countries, imports and
exports are a relatively large part of Canada's economy. Most of
our trade is with the United States, which is why the value of our
dollar against the U.S. dollar is especially important.

The Fluctuating Canadian Dollar
• The following graph shows the
fluctuations in the Canadian dollar vs. the
American dollar from June 2003 to June
2004.

Factors Affecting the Exchange Rate
• Canada has a floating exchange rate. That
means there is no set value for our currency
compared with any other currency. The
exchange rate on Canadian dollars is affected
by supply and demand for Canadian dollars in
international exchange markets.
• If demand exceeds supply, the value of the
dollar will go up. If the supply exceeds demand,
its value will go down.

Canadian $ Currency Exchange Rates
• Foreign exchange rate lists are available
from chartered banks, credit unions, and
the Internet. The ways foreign exchange
rates are stated varies, but all are stated
with a buying and selling rate.
.

Canadian $ Currency
Exchange Rates
• The foreign
currency rates for
selected countries
in June 2004 are
indicated in the
following Currency
Exchange Rates
Chart.

Foreign Exchange – Sample Problem 1
• Use the Currency Exchange Rates chart to
complete the solutions to these problems.
– You wish to purchase one US$. How much in
Canadian dollars does it cost to purchase this
amount?
– You have one US$. How much in Canadian dollars
do you receive from the bank for one US$?

• You are planning a trip to Switzerland
this summer. You estimate that you
require 1500 Swiss francs for the trip.
How much will it cost you to purchase
this currency?

• You have $500 in Canadian dollars with
which to buy Japanese yen. How much
Japanese yen can you buy?

• Your friend works in Australia for six
months. He is able to save $1000 AUD
during that time. How much will he
receive in Canadian currency for this
amount?

• In the previous problem, your friend
cashed in $1000 AUD at the bank and
received $895.40 CAN.
How many Canadian $ would it take for
him to ‘buy back’ the $1000 AUD?

Foreign Exchange Calculator

Unit 3 Notes

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Unit 3 Notes