The government may have to borrow €5 billion in 2008. According to Budget 2008, they planned to borrow €1.85 billion.
Read the following article from the Sunday Business Post and answer the following questions:
1. Why will the deficit in 2008 be greater than originally planned?
2. State and explain two economic effects of a large budget deficit?
Send your answers by commenting on this post or you can email mrhannon at geralds dot ie
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1.
The deficit will be greater than planned because the government are taking in less money through taxes, this is due to a slow down in the Irish economy and a rise in unemployment.
2.
Economic effects of a deficit:
Possible increase in taxes.
Gov. will have to borrow more which has to be paid back with interest.
Gov. may cut back on expenditure on things such as infrastructure.
1. The budget deficit will be greater than planned due to over spending by the government and less money being taken in through taxes.
2. The economic effects of this years budget deficit will be
a)The government may have to increase taxes to help reduce the deficit
b)The country’s national debt figure will increase and cut backs will have to be introduced in certain sectors.
1.The deficit will be greater then planned because of less money in taxes due to a slow down in the economy e.g., (less houses being built)
2.i)less funds available for infrastructure
ii)an increase in the national debt so taxes will have to go up to pay for the money borrowed
1. The deficit on the budget will be greater than previously anticipated because of a slow down in the Irish construction sector. This slow down has led to the government taking in less taxes from stamp duty, vat, corporation tax, etc.
2.
(a) A large budget deficit could cause taxes to be increased to compensate for the lost revenue.
(b) A large budget deficit could also cause the economy to slow down as there would be less money in circulation and if there were six months of negative growth this would cause a recession.
1. The budget deficit in the economy will be less than originally planned because the Irish government is taking in less money in taxes due to a rise in unemployment. The government now takes in less money and is spending more on social welfare, to those who have become unemployed. Ireland’s economic growth is also in lower than in recent years.
2. Two economic effects are:
(i) Increased inflation because the government is pumping more money into the country.
(ii) Increased National Debt.
1. The reason why the budget deficit will be higher than expected is because there has been a dramatic increase in unemployment because of a slow down in the economy.
2.The economic effects of this deficit are:
(i) Because of the budget deficit, when the budget happens in December taxpayers might have to pay for the deficit in higher taxes such as income tax.
(ii Also the inflation rate would increase because of the increased spending in the economy. An increase in inflation would have dramatic effects because this would lead to a increase in the cost of goods and services and inflation would be higher in Ireland than wanted, because the European Central Bank (ECB) sets rates for the Eurozone. They want inflation to be 2% in the Eurozone, currently inflation in Ireland is around 4.8%.
1. The deficit in 2008 will be greater than planned due to a slow down in the economy and due to the government taking in less money through taxes.
2. The economic effects of the large deficit are:
i)increased inflation rates due to increased spending in Ireland
ii)increased taxes to reduce the deficit
1 The deficit will be greater than planned due to the slow down in the economy and the decrease in tax revenue that was expected.
2 The economic effects of a budget deficit are:
a) increase in taxes such as vat,corporation tax, excise duty and stamp duty to reduce the deficit
b) due to the increased spending, the national debt will increase