Fiscal Policy2000 04


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  • Fiscal Policy2000 04

    1. 1. FISCAL POLICY (2000-04) <ul><li>Prepared By: </li></ul><ul><li>Pankaj Prabhakar </li></ul>
    2. 2. INTRODUCTON <ul><li>Government policy with respect to spending and taxing is known as Fiscal Policy. </li></ul><ul><li>Fiscal policy is an additional method to determine public revenue and public expenditure. </li></ul><ul><li>Fiscal policy is a policy under which government uses its expenditure and revenue programmed to produce desirable effects and avoid undesirable effects on the national income, production and employment. </li></ul>
    3. 3. Types of Fiscal Policy <ul><li>Discretionary </li></ul><ul><li> Deliberate change in government expenditure and tax to influence the level of national output. </li></ul><ul><li>Non-Discretionary </li></ul><ul><li>It is an inbuilt tax or expenditure mechanism that automatically increase aggregate demand in recession and reduce aggregate demand in inflation. </li></ul>
    4. 4. OBJECTIVES OF THE FISCAL POLICY <ul><li>To achieve desirable price level: The stability of general prices is necessary for economic stability. Fiscal policy should be used to remove fluctuations in price level so that ideal level is maintained. </li></ul><ul><li>To Achieve desirable consumption level: A desirable consumption level is important for political, social and economic consideration. Fiscal policy should be used to increase welfare of the economy through consumption level. </li></ul>
    5. 5. OBJECTIVES OF THE FISCAL POLICY <ul><li>To Achieve desirable employment level: The efficient employment level is most important in determining the living standard of the people. It is necessary for political stability and for maximization of production. Fiscal policy should achieve this level. </li></ul><ul><li>To achieve desirable income distribution: The distribution of income determines the type of economic activities the amount of savings. Fiscal policy can achieve equality in distribution of income. </li></ul>
    6. 6. OBJECTIVES OF THE FISCAL POLICY <ul><li>Increase in capital formation: In underdeveloped countries deficiency of capital is the main reason for under-development. Large amounts are required for industry and economic development. Fiscal policy can divert resources and increase capital. </li></ul><ul><li>Degree of inflation: In under-developed countries, a degree of inflation is required for economic development. After a limit, inflationary be used to get rid of this situation. </li></ul>
    7. 7. OBJECTIVES OF THE FISCAL POLICY <ul><li>Generating high primary surplus. </li></ul><ul><li>Reducing public debt stock. </li></ul><ul><li>Supporting struggle against inflation. </li></ul><ul><li>Establishing a taxation system, supporting growth and employment policies and reducing unregistered economy. </li></ul><ul><li>Completing reform activities in public financial management. </li></ul>
    8. 8. HOW FISCAL POLICY WORKS <ul><li>Fiscal policy is based on the theories of British economist John Maynard Keynes. Also known as Keynesian economics, this theory basically states that governments can influence macroeconomic productivity levels by increasing or decreasing tax levels and public spending. This influence, in turn, curbs inflation (generally considered to be healthy when at a level between 2-3%), increases employment and maintains a healthy value of money. </li></ul>
    9. 9. INSTRUMENTS OF FISCAL POLICY <ul><li>Public expenditure </li></ul><ul><li>Taxes </li></ul><ul><li>Public debts </li></ul><ul><li>These are used by the public authorities to achieve desirable level of production, consumption and National Income. </li></ul><ul><li>During inflationary trend more and more taxes are levied on the community. In this way, purchasing power of the people can be decreased and desirable price level is achieved. </li></ul>
    10. 10. Conted….. <ul><li>During inflation public expenditure is decreased so that all in production may decrease high prices and increase the value of money. During deflationary period taxes are reduced and public expenditure is increased. In this way incentives to invest are increased and national income begins to rise. </li></ul><ul><li>For economic development public debts are necessary. In under developed countries, due to insufficient resources economic development is not possible. Public loans are drawn internally and externally. </li></ul>
    11. 11. CONSOLIDATED BUDGET 35 21.8 10.4 8.5 1.9 1.8 22.8 9.7 13.1 39 22.7 10.7 8.4 2.3 2 26.3 10 16.3 42.2 23.5 11 8.3 2.7 3 28.2 9.5 18.7 45.5 22.5 11.4 8.5 2.9 2.7 31.4 8.4 23 Expenditures Non-Interest Expenditures Current Expenditures Personnel Other Investment Transfer Non-Interest Transfer Interest Payments 2004 2003 2002 2001 CONSOLIDATED BUDGET BALANCE / GDP (%)
    12. 12. CONSOLIDATED BUDGET 27.9 27.5 23.1 3.9 0.5 0.4 27.9 27.4 23.4 2.8 1.1 0.5 27.2 26.9 21.5 3.9 1.5 0.4 28.8 28.4 22.3 4.2 2 0.3 Revenues General Budget Tax Revenues Non-Tax Revenues Special Revenue and Funds Annexed Budget 2004 2003 2002 2001 CONSOLIDATED BUDGET BALANCE / GDP (%)
    13. 13. CONSOLIDATED BUDGET <ul><li>Consolidated Budget Expenditures and Revenues / GDP (%) </li></ul>
    14. 14. CONSOLIDATED BUDGET <ul><li>Consolidated Budget Interest Payments / GDP (%) </li></ul>
    15. 15. CONSOLIDATED BUDGET 6.1 5.1 -7.0 5.1 4.9 -11.2 3.7 2.5 -15 6.3 4.4 -16.7 Primary Surplus IMF-Defined Primary Surplus Budget Deficit 2004 2003 2001 2001 CONSOLIDATED BUDGET BALANCE / GDP (%)
    16. 16. CONSOLIDATED BUDGET <ul><li>Consolidated Budget IMF-Defined Primary Surplus / GDP (%) </li></ul>
    17. 17. CONSOLIDATED BUDGET <ul><li>Consolidated Budget Deficit / GDP (%) </li></ul>
    18. 18. PUBLIC FINANCIAL MANAGEMENT AND CONTROL LAW (PFMC LAW - NO: 5018) <ul><li>Adopted in December 2003 </li></ul><ul><li>Main Purposes </li></ul><ul><li>To ensure: </li></ul><ul><li>Harmonization with the EU practices and international standards. </li></ul><ul><li>Effective, economic and efficient collection and utilization of public resources. </li></ul><ul><li>Accountability and transparency. </li></ul>
    19. 19. PUBLIC FINANCIAL MANAGEMENT AND CONTROL LAW (PFMC LAW - NO: 5018) <ul><li>To regulate: </li></ul><ul><li>Structure and functioning of the public financial management. </li></ul><ul><li>Preparation and implementation of the public budgets. </li></ul><ul><li>Internal financial control (ex-ante financial control and internal audit). </li></ul><ul><li>Accounting and reporting of all financial transactions. </li></ul>
    20. 20. TAX POLICY <ul><li>MAJOR TAX POLICY DEVELOPMENTS </li></ul><ul><li>- Reform of taxes on consumption </li></ul><ul><li>• Introduction of Special Consumption Tax (SCT) </li></ul><ul><li>- Reform of taxes on income </li></ul><ul><li>• Rate reductions </li></ul><ul><li>- Corporate Income Tax (CIT) </li></ul><ul><li>- Personal Income Tax (PIT) </li></ul><ul><li>• Base broadening </li></ul><ul><li>- Investment Tax Allowance (ITA) </li></ul>