1.6 Government objectives and policies

What is government spending for?

• Provide public services like healthcare, education, defense, care for the elderly, child protection, rubbish collection, law, transport 

Different types of tax

Indirect tax: GST- goods and service & VAT - value added tax

Income tax

Corporation tax: on business profits

What is fiscal policy and examples

using changes in taxation and government expenditure to manage the economy

• when the government spends more or cuts taxes, it puts more money in the economy, boosting demand

• When the government raises tax or cuts spending, it takes money out of the economy, slowing down inflation

How does infrastructure provision (transportation, schools, hospitals) affect business activity

• Reduces cost for businesses

• Increases productivity

• Creates jobs

What are the different legislation that can affect business activity

Consumer protection, competition policy, environmental legislation

How does consumer protection affect business activity

Ensures businesses provide fair prices, good service and safe goods

How does competition policy affect business activity

It encourages competition

• preventing single companies dominating a market

• Drives innovation

• Drives prices down

• Encouraging efficiency

How does environmental legislation affect business activity

• businesses must invest in new tech, processes to meet regulatory standards

• Necessity of compliance drives innovations to develop sustainable practices

• Businesses may be fined/close if they fail to comply

What does trade policy protect

• Protecting jobs if foreign competitors threaten survival of domestic producers

• Protect new industries

• Prevent dumping (Where a business sells goods in another country for a price below cost)

What are tariffs

A tax on imports to make them more expensive

Quota

A physical limit on amount allowed to import into the country

Subsidy

• giving of financial support to exporters or domestic producers

Administrative barriers

the use of strict health and safety or environmental regulations and specifications to make importing harder.

What is interest

Price of borrowed money

Effect on business from increased interest rate

• They might refrain from borrowing

  • Delays expansion

• Experience lower sales

  • Because consumers decide to save more or have lower income

Effect on consumer from increased rates

• Consumers might have lower income so might reduce spending

• Find it more difficult to obtain loans and reduce spending