Bank reported that the Government posted a surplus of some
$7.7 billion during the first nine months of the last fiscal
year. But what is fiscal balance and fiscal policy in general?
First of all, the word fiscal here broadly refers to the
revenues, debt and spending of the Government. Fiscal balance
is a measure of governments tax revenues, plus any
proceeds from sale of assets, minus government spending.
When the balance is positive, government is deemed to have
Fiscal policy refers to the decisions of the Government
with respect to how it will spend its revenues and how it
will tax its citizens. The long view is to ensure that resources
are strategically and optimally utilised to generate useful
outputgoods and services, so that economic stability
can be realised.
The concept of fiscal policy has its origins in the work
of 20th century English economist, John Maynard Keynes.
His theory was that unemployment is caused when there is
an insufficient demand for goods and services. When there
is great demand, unemployment falls and when there is excessive
demand, inflation results.
When governments intervene in the cycle, it is usually to
create either a surplus or a deficit in order to stimulate
certain economic goals. When they increase purchasing or
spending and cut taxes, for example, more disposable income
is put in the hands of the workers and greater demand is
triggered. This is sometimes referred to as pump priming.
Low income earners
When there is too much expansion, governments will reverse
the process by constricting its own spending, and increasing
taxes. These are seen as deliberate fiscal measures. The
dilemma is centred on the extent to which it should intervene
in the normal business cycle.
The funny thing about fiscal policy is that it doesnt
affect everyone in the same way. For example, when taxes
are cut, the largest working groupthe middle classis
most affected. Some individuals, who dont pay taxes
anyway, for example, low income earners, would experience
Conversely, when tax rates increase, those most affected
are also the middle class, since they pay more taxes, while
the wealthy do not suffer adversely. The irony is those
who work the hardest, tend to be the ones tossed around
by fiscal policy.
The opposite of fiscal policy is the old term laissez-faire.
The French expression meaning to leave it alone, sometimes
called let-it-be economics, purports that governments
should never intervene in the business cycle. Additionally,
advocates of laissez-faire do not support minimum wage legislation
or trade restrictions.
There is another strategy used by governments in tandem
with fiscal policy, called monetary policy. This deals with
how the money supply grows. A countrys money supply
refers to the total stock of bills, coins, credit and liquid
instruments in use.
Our strong fiscal balance experience was attributed to the
revenues from the oil and gas sector. The fiscal policy
allowed for a reduced need for tax revenue. That large group
in the middle have an opportunity to save.
But it is cyclic, so use it or lose it!