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Outline how the Irish Government’s policy of increased taxation and decreased public expenditure is impacting on business. - Leaving Cert Business - Question B - 2012
Question B
Outline how the Irish Government’s policy of increased taxation and decreased public expenditure is impacting on business.
Worked Solution & Example Answer:Outline how the Irish Government’s policy of increased taxation and decreased public expenditure is impacting on business. - Leaving Cert Business - Question B - 2012
Step 1
Increased Taxation
Answer
The Irish Government has implemented several tax increases that affect businesses in various ways.
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Value Added Tax (VAT): The VAT rate has increased to 23%, which raises the cost of goods and services. This tends to decrease consumer spending, as higher prices can limit the quantity of purchases made by consumers. As a result, businesses may face declining sales and reduced profits.
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Excise Duties: Changes in excise duties, particularly on tobacco products, have led to increased costs for retailers. This can lead to decreased consumption, especially if customers seek cheaper alternatives or stop purchasing these goods altogether.
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Banking Charges: The increase in the 'Rate of Dirt' affects individuals but also impacts small and medium enterprises (SMEs) that rely on savings and deposits. This creates a less favorable environment for business growth and investment.
Step 2
Decreased Public Expenditure
Answer
The Government's cuts in public expenditure have far-reaching effects on businesses:
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Reduction in Social Services: Reducing social welfare payments can lead to decreased disposable income for many individuals, adversely affecting consumer spending. As a result, businesses may experience declines in demand, affecting their sales and revenue.
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Healthcare Cuts: Savings in healthcare budgets mean that fewer resources are available for health services, potentially leading to a less healthy workforce, which could impact productivity and business operations.
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Public Sector Employment: Cutbacks in public sector jobs and services lead to a rise in unemployment, which subsequently reduces overall consumer spending power. A decline in public projects can also affect construction and related sectors, potentially leading to job losses.
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Investment in Infrastructure: Cuts to capital expenditure may hinder investment in necessary infrastructure, which businesses rely on for operational efficiency. Delays or cancellations of major projects can impact supply chains and operational capabilities for firms.