Fiscal policy

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FISCAL POLICY :

FISCAL POLICY WELCOME TO OUR PROGRAMME -Some thoughts

FISCAL POLICY-Some Thoughts :

FISCAL POLICY-Some Thoughts PRESENTED BY: MUDASSIR IFTIKHAR (G.L)MB09053 M.USMAN MB09036 ZEESHAN MUNAWAR MB09060 M.IFTIKHAR MB09028 MUDASSIR NAZEER MB09033

Slide 4:

MUDASSIR IFTIKHAR MB090-53

CLASSICAL ECONOMIST :

CLASSICAL ECONOMIST

JOHN MAYNARD KEYNES :

JOHN MAYNARD KEYNES to the classical economists Challenged

Government in the Economy :

Government in the Economy Nothing arouses as much controversy as the role of government in the economy. Government can affect the macroeconomy through two policy channels: Fiscal policy Monetary policy

Fiscal Policy :

Fiscal Policy

Overview :

Overview The government has four primary objectives when it intervenes in the macro economy: Promote full employment (high employment) Promote price stability (low inflation) Promote Economic Growth Promote the Stability of Financial Markets

Fiscal Policy :

Fiscal Policy The use of government spending and taxation to promote economy

According to Semuelson:“Fiscal policy is concerned with all those activities which are adopted by the government to collect revenues and make the expenditures so that economic stability could be attained without inflation and deflation” :

According to Semuelson:“Fiscal policy is concerned with all those activities which are adopted by the government to collect revenues and make the expenditures so that economic stability could be attained without inflation and deflation”

ACTIVITIES OF THE STATE :

ACTIVITIES OF THE STATE Collection of Revenues Spending of Revenues

ACTIVITIES OF THE STATE ( cont.) :

ACTIVITIES OF THE STATE ( cont.) Collection of Revenues Taxes Fees Fines Loan Internal Loans External Loans

ACTIVITIES OF THE STATE ( cont.) :

ACTIVITIES OF THE STATE ( cont.) Spending of Revenues Productive Non-Productive

Slide 15:

Productive Non-Productive Dams Health Roads Education Mills Defense Bridges Justice Railways Social Security Electricity Plants Embassies Engineering unit Politics

Function with Monetary Policy :

Function with Monetary Policy MP- implement by central Bank FP - decision set by national government influence Regulate level of economic activity BOP Price level

FP affect MP :

FP affect MP Impose consumer less less more supply extra taxes have less spending demand and less demand money cheaper goods inflation will start lower SISTER’S STRATGY TO MP

TYPES OF FISCAL POLICY :

TYPES OF FISCAL POLICY

Types of Fiscal policy :

Types of Fiscal policy Neutral Fiscal policy Expansionary/ Reflationary Fiscal policy Contractionary / Deflatioary Fiscal policy

Neutral Fiscal policy :

Neutral Fiscal policy G=T (Govt. spending = Tax Revenue) neutral effect on economy

Expansionary Fiscal policy :

Expansionary Fiscal policy G > T T G

Contractionary Fiscal policy :

Contractionary Fiscal policy G < T T G

The Budget Deficit :

The Budget Deficit A government’s budget deficit is the difference between what it spends (G) and what it collects in taxes (T) in a given period: With Expasionary fiscal policy With Contractionary fiscal policy

Slide 24:

MUHAMMAD USMAN MB-09-036

INSTRUMENTS OF FISCAL POLICY :

INSTRUMENTS OF FISCAL POLICY PUBLIC EXPENDITURES. TAXES. PUBLIC DEBTS.

1ST INSTRUMENT PUBLIC EXPENDITURES :

1ST INSTRUMENT PUBLIC EXPENDITURES 1. Government purchases of goods and services for current use. 2.Government purchases of goods and services intended to create future benefits. 3. Government expenditures that are not purchases of goods and services, and instead just represent transfers of money, such as social security payments.

GOVERNMENT EXPENDITURES IN BUDGET 2009-2010 :

GOVERNMENT EXPENDITURES IN BUDGET 2009-2010

METHODS OF FUNDING :

METHODS OF FUNDING Taxation. Seignorage. Borrowing money from the population, resulting in a fiscal deficit Consumption of fiscal reserves Sale of assets (e.g., land).

FUNDING THE DEFICITDEFICIT=E>R :

FUNDING THE DEFICITDEFICIT=E>R A FISCAL DEFICIT IS OFTEN FUNDED BY ISSUING BONDS LIKE TREASURY BILLS.

CONSUMING THE SURPLUSSURPLUS=R>E :

CONSUMING THE SURPLUSSURPLUS=R>E A FISCAL SURPLUS IS OFTEN SAVED FOR FUTURE LOCAL FINANCIAL INSTRUMENTS UNTILL NEEDED.

PAKISTAN DEFICIT FISCAL BUDGET 2009-20102.482 tn :

PAKISTAN DEFICIT FISCAL BUDGET 2009-20102.482 tn ESTIMATED REVENUE 2.174 tn ESTIMATED EXPENDITURE 2.89 tn DEFICIT 722.5

GOVERNMENT SPENDINGS :

GOVERNMENT SPENDINGS DISCRETIONARY MANDATORY

2ND INSTRUMENTTAXATION :

2ND INSTRUMENTTAXATION TAX IS A COMPULSORY CONTRIBUTION TO THE PUBLIC AUTHORITY TO COVER THE COST OF SERVICES RENDERED BY THE STATE FOR THE GENERAL BENEFITS OF IT PEOPLE

MAIN TYPES OF TAX :

MAIN TYPES OF TAX Direct Tax Indirect Tax Progressive Tax. Proportional Taxes. Regressive Taxes TAX RATE BASE SHIFTABILITY

Kinds of Taxes :

Kinds of Taxes CORPORATE TAX ENVOIRNMENT AFFECTING TAX EXCISE INCOME TAX PROPERTY TAX SALES TAX TARIFFS TOLL

Slide 36:

ZEESHAN MUNAWAR MB09060

CANONS OF TAXATION :

CANONS OF TAXATION Canon Of Equality Canon Of Certainty Canon Of convenience Canon Of Economy

CANONS OF TAXATION :

CANONS OF TAXATION Canon Of Productivity Canon Of Elasticity Canon Of Simplicity Canon Of Diversity

TAX COLLECTION ORGANIZATION :

TAX COLLECTION ORGANIZATION Canada Revenue Agency Internal Revenue Service (IRS) Her Majesty’s Revenue and Custom (HMRC) Federal Board Of Revenue (FBR)

PURPOSES AND EFFECTS OF TAXATION :

PURPOSES AND EFFECTS OF TAXATION On war Enforcement of law and public order Protection of property Economic infrastructure Public works The operation of government itself

PURPOSES AND EFFECTS OF TAXATION :

PURPOSES AND EFFECTS OF TAXATION Education systems Health care systems Unemployment benefits Public transportation

THE FOUR "R"S OF TAXES :

THE FOUR "R"S OF TAXES Revenue Redistribution Repricing Representation

Slide 43:

MUDASSIR IFTIKHAR MB090-53

Objectives of the Fiscal Policy :

Objectives of the Fiscal Policy Price stability

Objectives cont. :

Objectives cont. Influence on consumption pattern To raise the level of employment Redistribution of income

Slide 46:

Objectives cont. Economic growth / development Removal of deficit in BOP Mobilization of resources Increase in capital formation

Objectives cont. :

Objectives cont. Degree of inflation Social security Encourage saving Remove vicious circle of poverty

Limitation of Fiscal Policy :

Limitation of Fiscal Policy Non-monetized economy Lack of statistical information Cooperation with the government Large-scale tax evasion Efficient administrative machinery

Slide 49:

Mudassar Nazeer MB09033

Pakistan Fiscal Policy :

Pakistan Fiscal Policy Since 1970 Last Budget Who Present it When Present it

Pakistan Fiscal Policy :

Pakistan Fiscal Policy Total Budget Deficit = Total Expenditure – Total Revenue

REMOVING OF DEFECIT :

REMOVING OF DEFECIT INTERNAL LOANS BISE and SLICOP EXTERNAL LOANS USA-UK-KSA-

IMF :

IMF IMF Introduction What is the function of IMF

IMF Terms And Condition :

IMF Terms And Condition Tighten Money Supply Removal of subsidies Raise Taxes Implementation of strong tax Policy Implementation tax Policy on Agriculture Do not spend on Defense

Drawbacks of IMF Loan :

Drawbacks of IMF Loan A Large number of Drawbacks Interference in govt. Use of defence Chairman of KCCI

Islamic Point of view :

Islamic Point of view Equally Distribution Of Resources Collect Zakat from rich

Islamic Sources of Revenue :

Islamic Sources of Revenue Zakat Ushar Fitrana Sadqat Khaiarat

Slide 58:

M.IFTIKHAR AHMAD MB09028

Slide 59:

Fiscal policy of Different Countries

Comparison of Fiscal Policy of Pakistan with :

Comparison of Fiscal Policy of Pakistan with Australia China India

Fiscal Policy of Australia :

Fiscal Policy of Australia Inflation targeting system Supporting monetary policy

Fiscal Policy of China :

Fiscal Policy of China 8% growth current year €464 billion for domestic consumption Still growing

India & PakistanA Comparison :

India & PakistanA Comparison

Common Successes Shared by Both Countries :

Common Successes Shared by Both Countries Doubling their per capita incomes Lowering poverty (defined as $1 per day) Improved food production Food self-sufficiency

Common failures of both the countries :

Common failures of both the countries Wasteful expenditures of resources Issuance of licenses to inefficient private sector Pre-planned allocation of resources Poor judicial system Lack of transparency in decision making

Common failures of both the countries (cont’d) :

Common failures of both the countries (cont’d) Non-productive expenditures Low check and balance Large domestic borrowing Heavy defense expenditures Fragile banking system

The areas where India has surpassed Pakistan :

The areas where India has surpassed Pakistan Scientific and technological development Defense technology Space search Electronics

The areas where India has surpassed Pakistan (cont’d) :

The areas where India has surpassed Pakistan (cont’d) Telecommunication Population rate Health access

The areas where Pakistan has surpassed India :

The areas where Pakistan has surpassed India Higher economic growth High per capita income Strong export growth Less poverty

Indo-Pak Comparison in 2010 :

Indo-Pak Comparison in 2010

Indo-Pak comparison in 2010 :

Indo-Pak comparison in 2010 Food Water Low-cost housing Mass literacy International terrorism

Slide 72:

Mudassar Nazeer MB09033

NFC :

NFC Allocation of Resources Distribution of Resources Unity of Provinces

NFC :

NFC History (SUBCONTINENT & PAKISTAN) First Time in Pakistan Second Time

NFC Every time fail (Reasons) :

NFC Every time fail (Reasons) Political Instability Provinces Clashes External Interference External loans

NFCLast NFC Award :

NFCLast NFC Award 7th NFC Award Lahore 12th December 2009 Participation of provinces

NFCLast NFC Award :

NFCLast NFC Award PM of Pakistan CM of Punjab CM of Sindh CM of NWFP CM of Balochistan FM of Pakistan

NFC :

NFC Federal part Provinces part

NFC Part for Provinces :

NFC Part for Provinces Punjab(53%) Sindh(22%) NWFP(16%) Baluchistan(9%)

NFC :

NFC Comments on NFC

Slide 81:

MUDASSIR IFTIKHAR MB090-53

Macroeconomic Framework Assumptions (2007-8 – 2016-17) :

Macroeconomic Framework Assumptions (2007-8 – 2016-17)

GDP Growth Rate leading to rising trend in Per Capita Income :

Per Capita GDP in $ GDP Growth Rate leading to rising trend in Per Capita Income Crossing $ 1000 per capita income Crossing $ 2000 per capita income Crossing $ 2000 per capita income

Pakistan’s economy :

Pakistan’s economy Deficit budget

Slide 85:

Where are we now? Recent economic issues in Pakistan

Slide 86:

Girl in search of water Man on the moon WE ARE DIFFERENT – A LOT OF SPACE TO COVER (1)

Slide 87:

Child labour scavenging food WE ARE DIFFERENT – A LOT OF SPACE TO COVER (2)

Pakistan “zinda bad” :

Pakistan “zinda bad”

Slide 95:

Survival or Growth ?

Suggestions and Recommendations :

Suggestions and Recommendations

Slide 98:

–Road map Fiscal adjustment Monetary policy Keeping inflation under control Maintain a flexible exchange rate regime Strengthening the country’s physical and human infrastructure growth momentum Improving social indicators Maintain fiscal prudence by keeping fiscal deficit low