South Africa - All Provinces
How can we describe Fiscal Policy? What does south africa consider its fiscal policy and what goals does the Fiscal Policy have in mind?
What is a Fiscal Policy?
Fiscal Policy is used by the goverment to meet the needs of its people, thats the theory anyway. Its is often used to alleviate poverty, create jobs and meet the needs of foreign investors. The fiscal policy is also used to finance services like education, healthcare and defence. Some fiscal policies will seek to stop negative activities within the economy like drinking and smloking taxes, although that could be a positive activity depending how you look at it.
Goverments fiscal policy will often have a huge affect on big business decision making. These influence investments and dividends payed out to shareholders and dividends [Payouts] this may force companies to raise more capital through debt or eqiuty. Tax also affects the man on the street, we all pay tax, in south africa its usually follows the PAYE [Pay as you earn] system. If a goverment raises taxes this has a negative affect on spending and hense a decreasing trend on economic activity.
Public spending versus taxes
When we compare public spending to taxes we get what is called the budget balance, the budget is the actual planned amount the goverment has to spend. It may be balanced meaning revenues equal expenditure or it may have some form of budget surplus where revenue exceeds expenditure.
Some goverments pay companies to train and recruit employees, the UK goverment has funds available for unemployment and many incentives for those who work like tax cuts. Managing this process is a tricky balance for any goverment, some goverments struggle with inflation [rising cost of living]. In south africa every employee is expected to pay UIF [Unemployment Fund] this is a safety net for the poorer people in the economy who cannot find employement. The more you earn the higher percentage you pay, this is just another way goverment is trying to redistribute the weath in the country.
GPD (Gross domestic product) is a measure of a countries overall economic activity and is calculated by adding the total value of goods and services. It is a calculated amount based on what a country produces to what a country consumes. It takes the following factors into account: consumer spending, total investment from public and private sectors, total amount of exports (this is the balance between imported and exported goods)
If a countries GDP falls from previous figures the countries economy is said to be "shrinking", government policies would then be used to ease the problem and this would be done by adopting a certain fiscal policy. The government may boost public spending, they may cut taxes to encourage more spending or saving. More savings would usually help consumers in a future economic recession. In South Africa consumers generally save very little of their yearly income.
The fiscal policy of any country has an important role to play as the markets rise and fall, local production should be encouraged since importing would push up the levels of inflation since imported goods are more expensive than locally produced goods. This would indicate a country is not ing optimally.