1. GOVERNMENT AND THE
ECONOMY

2. ECONOMIC SYSTEMS

3. IRISH ECONOMY – MOVING
TOWARDS FREE ENTERPRISE

4. IRELAND – MOVING TOWARDS
CENTRAL PLANNING

5. KEY QUESTION?
To intervene or
not?

6. ARGUMENTS IN FAVOUR OF
STATE INTERVENTION IN THE
ECONOMY?

7. ARGUMENTS IN FAVOUR OF GOV.
INTERFERENCE IN THE ECONOMY
 To provide essential services
 For Economic control I.e. creating employment,
stabilising prices etc
 To provide merit wants
 To intervene in a particular sector of the
economy
 Which might require a large capital investment
 Or because certain goods may not be produced if left to
the free play of market forces because private enterprise
may lack skills/ expertise or back up services which the
gov. can avail of
 For strategic reasons

8. ARGUMENTS AGAINST STATE
INTERVENTION - BRAINSTORM

9. ARGUMENTS AGAINST GOV.
INTERFERENCE – EXPAND...

10. MERIT GOODS – EXAMPLES?

11. MERIT GOODS
 Goods and services which gov.
feels obliged to provide rather than
leave to the free play of market
forces.
 Gov. control of these goods is considered desirable
because
 They are essential to the basic welfare of society generally
 It is in the interests of social justice and equity that a certain
minimum amount of such goods and services be made
available to all citizens regardless of their income
 Examples of such goods =
health, education,

12. ECONOMIC AIMS OF THE CURRENT
IRISH GOVERNMENT – WHAT ARE
THEY?

13. ECONOMIC AIMS OF THE GOVERNMENT
1. Improve infrastructure. The continued development
of the road infrastructure, provision of improved public
transport, continued development of the airports and
seaports etc is essential so that our standard of living is
maintained.
2. Achievement of full employment. However, most
gov. would be happy now to reduce unemployment.
Pursue policies which will improve our competitiveness,
boost exports and so help create jobs in Ireland.
3. Control of inflation to keep exports competitive
and to encourage MNC’s to come to Ireland. Also
inflation discourages saving (not currently main aim
of gov)
4. Achievement of moderate economic growth. The
gov. Must try to manage the current downturn in
economic activity and ensure that we return to a position
of some economic growth. Appropriate fiscal policy may
help towards achieving this.
5. Broaden the tax base. Many believe that we relied too
much on the property boom for taxation revenues. The
gov must now plan to introduce new taxes, eliminate tax
evasion; bring more workers into the income tax net and
so generate a greater flow of tax revenues.

14. 5. Control government finances/ reduce borrowing/ manage
the national debt. The gov. Must continue to reduce spending.
It must also widen the tax base so as to increase taxation
revenues. These measures will help reduce borrowing and help
reduce the national debt.
6. Stability in the banking sector. The state guarantee on
depositers saving, the nationalisation of Anglo Irish bank and
the establishment of NAMA are all aimed at restoring
confidence to the banking sector, restore credit availability,
generate confidence in domestic and international investors and
so encourage investment.
7. Achievement of a just social policy. Refers to efforts to treat
all citizens fairly. Covers housing, education, social welfare,
health (merit goods) . The governmnet must continue to ensure
that social welfare recipients standard of living is maintained
that it provides adequately for future pensions and helps
redistribute income within the state, given the current
contraints on gov. Spending.
8. Promote Balanced Regional Development. Some regions
less developed than others. Gov. needs to discriminate in favour
of these regions e.g. West of Ireland. The National Development
Plan aims to do this.The government must develop broadband,
ensure the continuity of regional airports, develop or promote
educational opportunities inthe regions so as to stimulate
economic activity and encourage economic growth.
9. Maintain state services. Even though taxation revenues are
declining the gov must ensure that our health services are
maintained and made more efficient, that schools are built and
staffed and that practices are developed to ensure the long term

15. EXAMPLE OF CONFLICT OF
ECONOMIC OBJECTIVES

16. CONFLICTS BETWEEN THE
ECONOMIC OBJECTIVES

17. SOCIAL AIMS OF THE GOVERNMENT
 More equitable distribution of wealth
 Taxation policy
 Social welfare policy
 Controlling pollution
 Legislation to control and standardise the
manufacture of products
 Legislation imposing fines and prison sentences
 Promoting among citizens and businesses an
awareness being eco friendly
 Provision of merit wants
 See notes, e.g. health, education, housing

18. GOVERNMENT POLICY
INSTRUMENTS

19. OTHER POLICY INSTRUMENTS
IMPLEMENTED BY THE
GOVERNMENT

20.  Government
funding of 3rd level
SOCIAL BENEFITS education
 Improves the skills/ quality/
Social productivity/ mobility of the
labour force
Benefit  Acts as an incentive to
 The attracting FDI
benefits  Possible increase in present/
which accrue to future living standards
society as a  New roads being
whole as a result
of an individual
built throughout
consuming a
Ireland
 Toll road revenue
commodity which is  Easing of traffic congestion
not measured in  Time saved getting to work
the price system  Safety
 Attraction of FDI into IRL

21. SOCIAL COST  New roads being
 The price built throughout
society has to Ireland
pay as a result  Increased pollution
 Disfiguration of the
of any landscape
economic  Land prices rise close to
development of the road
activity  Disruption of community
life in villages

22. Private cost Private benefit
Of a good or a Of a good or
service is the service is the
cost to the benefit to the
person or firm person or firm
using the using the
product or product or
service service

23. BUDGET
 Before Budget Day the Estimates of Receipts and
Expenditure are published. This documents shows
the estimates of receipts and expenditure for the
coming year assuming that tax levels were to remain
unchanged.
 The Budget itself is then presented to the Dail by the
Minister for Finance. This is then followed by the
passing of two acts
 The finance Act which allows for funds to be raised
 The Appropriation Act which allows for the funds to be
spent.
 The comptroller and Auditor General will issue a
report of the Committee on Public Accounts to verify
that the money was raised correctly and spent in
accordance with the provisions of the Budget

24. BUDGET EXPENDITURE
Current expenditure Capital expenditure
 Is spent on items used  Outlines gov. planned
up during the year/ expenditure on items
day to day items not used up during
the year but which
increases the
productive capacity
of the country

25. EXAMPLES:
Current Expenditure Capital Expenditure
 Supply Services
 Loans and grants to
 I.e. salaries of civil private enterprise and
service, army, gardai local authorities for the
 The costs of running the production of capital goods
civil service
 Social welfare payments
 Physical capital
formation: money spent
 Debt Service and other directly by the gov. on capital
Central Fund Services goods e.g. building offices,
 Interest on the National
Debt Infrastructural dev
 Grants to local authorities
for current expendiure  Loan repayments
 Contribution to the EU
Budget
 Judicial Salaries and  Foreign repayments
pensions

26. BUDGET REVENUE
Current revenue Capital revenue
 Outlines the  Outlines government
governments money used to pay
expected/ planned for capital
revenues for the expenditure usually
forthcoming year received through
borrowing by the gov

27. EXAMPLES:
Current Revenue Capital Revenue
 Tax revenue (VAT,  Surplus from the Current
PAYE, Corporation Budget
 Loan repayments: local
Tax, Capital Gains
Tax, Excise duties, authorities and SSB’s
repaying loans they received
 Non Tax Revenue
from gov
 Proceeds from the  Borrowing: money borrowed
National Lottery
from the public from selling
 Interest on loans given
securities e.g National loans
to semi state bodies and
 Grants and loans from
local authorities
international financial
institutions and foreign gov

29. IRELAND AND THE CURRENT
BUDGET

30. REDUCING A CURRENT BUDGET DEFICIT
 Increase tax revenue
 Direct (PAYE)
 Indirect (VAT)
 Reduce gov. expenditure
 Limiting pay increases in the public sector
 Reduce numbers employed in the public sector
 Cutbacks on services provided by government e.g.
education, health (current spending)

31. ECONOMIC EFFECTS OF REDUCING THE
CBD

32. BUDGET SURPLUS

33. TAXATION: CANONS OF TAXATION
 Equity
 Takes a higher proportion of income in tax as income
rises (the ability of each person to pay must be taken
into account)
 Economy
 The revenue collected should exceed the costs of
collection
 Certainty
 The amount they should pay should be certain and clear
 Convenience
 The tax should be collected in a way and at a time which
suits the taxpayer

34. DO YOU CONSIDER THE CANONS ARE
USEFUL FOR ANALYSING THE TAX
SYSTEM IN IRELAND ?

35. CHARACTERISTICS OF A GOOD SYSTEM
OF TAXATION

36. MAIN FUNCTIONS OF TAXATION
 Finance government activities
 e.g. running the civil service, wages of Public
Sector workers
 Economic objectives
 Reducing inflation, favourable B/P
 Redistribution of National Wealth
 Social welfare payments paid for with taxation
 Automatic stabiliser
 It helps to avoid wide fluctuations in the
economic cycle by automatically taking more
tax when the economy is doing well and taking
less when the economy is performing poorly

37.  Achieve desirable social objectives
 To discourage smoking, drinking etc. to decrease
pollution/ damage to the environment
 To encourage enterprise
 To help industry through subsidies; grants and other
services can be provided to help industry and
encourage enterprise

38. DIRECT TAX
A tax on income or wealth
 PAYE, Corporation Tax, Capital
Gains Tax

39. DIRECT TAX
Advantages
 Equity
Disadvantages
 If tax rates are too high,
 _____________________
people may be
 Certainty discouraged from
 _____________________ working
 Economy  It is difficult to introduce
 _____________________ a system which is simple
 Predictability and equitable
 ________________________  High taxes encourage
____________________ the growth of the black
 Evasion is difficult economy
 ______________________  High taxes discourage
 Acts as an automatic investment in Ireland
stabiliser  High DIRT discourages
people from saving

40. INDIRECT TAXES
A tax on goods and services
 VAT, Excise Duties

41. Advantages Disadvantages
 Evasion is difficult  Can cause inflation
 Why? _____________________  _________________________
 These taxes can be
 Cost of collection is low regressive
 Why? _____________________  _________________________
 There is a lot of extra
 Doesn’t act as a disincentive to administrative work for
work retailers and businesses
 Why? _____________________
 Difficult for the gov. to
 The burden of tax is light predict accurately how much
 Why? _____________________ revenue will be collected from
indirect taxes as it depends
on _______________________
 Can be used to
encourage/discourage
consumption of certain goods
 E.g. ______________________

42. DEFINITIONS:
 Black economy
 Alleconomic activity that goes unrecorded in the
National Income accounts
Examples?




43.  Tax avoidance
 Arranging ones affairs within the law to minimise
tax liabilities. It is legal.
 Tax evasion
 Reducing ones tax liabilities by making false returns
or no returns
Question:
How can the government reduce
tax evasion?



44.  A progressive tax
 Isone which takes proportionately more in tax as a
persons income increases
 E,g. income tax
 Another e.g.? _______________
 A regressive tax
 Isone which takes proportionately more in tax as a
persons income decreases
 E.g. VAT
 Another e.g. _________________

45. DISCUSS THE EFFECTS WHICH A
REDUCTION IN INCOME TAX MAY
HAVE ON THE IRISH ECONOMY

46. GOV. POLICY TO INCREASE PUBLIC
SERVICE CHARGES
positive
 Less pressure to increase taxes
 By raising public charges there will be less pressure on the
gov. To raise additional revenue by increasing tax
 More efficient use of services
 Where people pay for services it may encourage greater
efficiency in their use e.g. Encouraging people to recycle
 Saving scarce resources
 Those people who can afford to pay for these services now do
so, hence the resources which were being used to finance
these services would no longer be necessary
 Pressure to improve the quality of service
 Better frequency of service, more recycling centres.
 Lower tax base – which will encourage investment
 Use of revenue collected – can be targeted to achieve further aims

47. Negative
 Increased cost of living
 Prices for services will increase
 Increased inflation
 Thiswill affect the economy negatively : reduced
competitiveness; demand for compensatory wage increases
 Affects lower income groups most
 The increased charges will have the greatest impact on
lower income groups – those with the least ability to cope
with the higher prices – standard of living deteriorates
 Higher costs for business
 They must now pay higher toll charges; refuse charges;
water charges – increasing costs which may require higher
prices or reduction in jobs

48.  The imposition of taxation
 The imposition or impact of taxation refers to
the people or companies on whom the tax is
actually levied I.e. imposed. They have to
pay the tax directly to the government e.g. the
excise duty on petrol is levied on the petrol
companies
 The effective incidence of a tax
 Refers to the people who bear the burden
of the tax, e.g. the tax on petrol is levied on
the petrol companies. They pass this on to the
motorists in the form of increased prices. The
effective incidence of the tax is on the
motorists

49. RELATIONSHIP BETWEEN
CBD AND NATIONAL DEBT:
The amount the government has to borrow to fund a
current Budget Deficit plus BORROWING FOR
CAPITAL PURPOSES
=
EXCHEQUER BORROWING REQUIREMENT
+
BORROWINGS OF SEMI-STATE AND LOCAL
AUTHORITIES
=
PUBLIC SECTOR BORROWING REQUIREMENT
NATIONAL DEBT IS THE ACCUMULATION OF ALL

50. THE NATIONAL DEBT
 Is
the total amount of government
borrowing which is outstanding
 2007 – 39 billion euro

51. REASONS FOR THE NATIONAL DEBT
 Productive investment
 Spending on projects which are self financing. These
investments create incomes which are then taxed to
repay the borrowings . This form of borrowing causes no
problems for the country in the long term
 Social investment
 Non- productive; financing projects which can never be
self financing but which are desired and required by
society e.g. expenditure on schools and hospitals. This
type of expenditure could benefit the economy in the long
run if it results in a better educated and healthier
workforce
 Current budget deficit – undesirable - simply
delays taxation to a future date
 Interest on the national debt

52. NATIONAL TREASURY MANAGEMENT
AGENCY (NTMA)
 Borrowing on behalf of the Irish
government/ sale of government bonds
 Managing the Irish debt on behalf of the
gov
 Management of the National Pension
Reserve Fund
 Management of other gov. funds such as
the Social Insurance Fund and Dormant
Account Fund
 Provision of financial advice, possibly
funding and providing guarantees for all
major public investment projects

53.  The National Debt / GDP ratio has fallen from
over 90% during the first half of the 1990s to an
estimated 25.1% at the end of 2006. (NTMA)
 GDP – the output produced by the factors
of production in the domestic economy
irrespective of whether the factors are
owned by Irish nationals or foreigners

54. ECONOMIC BENEFITS OF A REDUCED
DEBT/ GDP RATIO
 Reduced annual interest repayments
A declining debt to GDP means that the
annual cost of repaying our national debt is
declining
 More funds available to the government
for current use
 With less funds being used to meet our annual
interest repayments the gov. has more funds
available for other purposes
 Reduced burden on future taxpayers
 Thedecline will mean that the gov. will not
have to contemplate increasing future taxes on
future taxpayers

55.  Improved international credit rating
 Unlike other countries our ratio is declining
 Adhering to requirements of the Euro
stability pact.
 Unlike other members of the Euro Ireland
does not have a difficulty in meeting the
conditions of the stability pact and hence no
corrective action need to be taken in economic
policy matters
 Prudent management of economy by gov
 Citizensmay be made aware that the gov. mgt
of the economy is prudent and this may boost
morale

56.  Possible deterioration of state services
 Ifthe reduced debt to GDP ratio is caused by a
reduction in current borrowing the gov. may spend
less on public services resulting in a deterioration of
these services
 Reduced spending on infrastructure
 Ifreduction in capital borrowing, this may inhibit the
future growth of the country

57. POSITIVE ECONOMIC
CONSEQUENCES OF INCURRING
THE NATIONAL DEBT
 Infrastructural developments
 Help with the national development plan
 Provision of improved services
 E.g. Health, education, leisure etc
 Future economic growth
 Boosts demand/ opportunities for further investment
 Self- liquidating debt
 If the return on the borrowings is able to meet the
cost of repayments then the borrowing has been self
liquidating

58. NEGATIVE ECONOMIC
CONSEQUENCES OF INCURRING
THE NATIONAL DEBT
 Deferred taxation
 Our national debt must be paid for by future
taxpayers
 Repayments of foreign element
 Will result in a loss of income within the economy
 Repaying domestic element
 May lead to a redistribution of wealth: funds go from
taxpayers to the lenders as repayments
 Lenders may be able to influence government
policies
 Opportunity costs
 The funds may have been put to better use in the
private sector