Photo AI
A Minister for Finance prepares the following draft Current Budget for 2009: Current Budget - 2009 Government Current Income €5,600m | Government Current Spending €7,600m (i) State two examples of government current income and two examples of government current expenditure - Leaving Cert Economics - Question 4 - 2009
Question 4
A Minister for Finance prepares the following draft Current Budget for 2009: Current Budget - 2009 Government Current Income €5,600m | Government Current Spending ... show full transcript
Worked Solution & Example Answer:A Minister for Finance prepares the following draft Current Budget for 2009: Current Budget - 2009 Government Current Income €5,600m | Government Current Spending €7,600m (i) State two examples of government current income and two examples of government current expenditure - Leaving Cert Economics - Question 4 - 2009
Step 1
State two examples of government current income and two examples of government current expenditure.
Answer
Examples of government current income:
- Direct tax revenue (e.g., income tax).
- Indirect tax revenue (e.g., VAT).
Examples of government current expenditure:
- Salaries of state employees.
- Social welfare payments.
Step 2
Calculate the Current Budget Deficit for the above budget. Show your workings.
Answer
To calculate the Current Budget Deficit, we subtract Government Current Income from Government Current Spending:
egin{align*} ext{Current Budget Deficit} &= ext{Government Current Spending} - ext{Government Current Income} \ &= €7,600m - €5,600m \ &= €2,000m \end{align*}
Step 3
If you were Minister for Finance and this Current Budget Deficit was predicted: State and explain two measures you would like to help reduce this deficit; Explain how each measure you have stated could affect the standard of living within the country.
Answer
-
Increase income tax:
- This would raise additional revenue, helping to reduce the budget deficit.
- However, it may lower disposable incomes and consequently reduce living standards.
-
Cut social welfare spending:
- This measure would reduce government expenditure and help alleviate the deficit.
- Nevertheless, it may lower the standard of living for those reliant on social welfare.
Step 4
State and explain two reasons for this development.
Answer
-
Increased unemployment:
- With rising unemployment, the government collects less income tax revenue, leading to decreased income from taxation.
-
Reduced consumer spending:
- Consumers are spending less, which reduces sales tax revenue collected by the government.
Step 5
State and explain the economic effects which this increase in VAT may have on each of the following: Consumer purchases; Government Current Budget.
Answer
Consumer purchases:
- The increase in VAT may lead to decreased consumer purchases as prices rise, making goods less affordable.
Government Current Budget:
- The increase in VAT is expected to raise additional revenue for the government, helping to improve the Current Budget.
Step 6
Step 7
Step 8
If these measures were successful, state and explain how they may affect the Government's Current Budget.
Answer
-
Reduce direct taxation:
- If citizens are more inclined to declare their full income and tax compliance increases, the overall tax revenue could rise, positively impacting the Current Budget.
-
Better enforcement by Revenue Commissioners:
- Increased revenue collection through better enforcement would lead to a decrease in the tax evasion rate, enhancing the government's income.