Government's Role in Economy: Responsibilities, Consumer Protection, & Business Regulation, Study notes of Business

Download Government's Role in Economy: Responsibilities, Consumer Protection, & Business Regulation and more Study notes Business in PDF only on Docsity! PRINCIPLES OF BUSINESS SECTION 8: ROLE OF GOVERNMENT IN AN ECONOMY Responsibilities of Government in An Economy 1. Security of the State: The country must be protected from outside/foreign forces by the army, coast guard etc. Assistance can also be received from other nations where a country lacks the ability to protect itself. 2. Protection and General Welfare of Citizens: It is the duty of any government to create and amend laws which would be beneficial and protect the innocent of the society. Laws must also be enforced through the courts as well as the police force. There should also be the provision of social services to safeguard the welfare of the citizens. These include: “* Education Health services Utilities Proper road network Telecommunication 4 . “ So ate “ . “ 3. Job Security and Severance benefits to workers: Governments can help to make sure that the jobs of many of their citizens are protected by having legislation through which government workers can be appointed to the government/civil service. Government can also enact labour laws to ensure that workers in both the private and public sectors are not treated unfairly or dismissed without just causes. Throughout the Caribbean, workers and employers are required to pay national insurance. This is to make sure that in the event of sickness, injury or severance, worker would still receive some payment as long as the necessary contributions were made. 4. Protection of the Environment: This can be carried out by the following measures: “* Legislation/acts of parliament which would make certain acts such as dumping and other offensive practices illegal. There would be fines or other sanctions attached to discourage the various forms of pollution. These laws can also indicate where industries are to be located. “* The zoning of certain areas which would become national parks or reserves. This may be done to protect certain species of plants or animals which may be considered endangered. “* Various seminars, lectures and workshops and other awareness material can be offered in schools and communities, especially among the young people, showing them that what they do today will impact negatively on those to come. “* There can be regular impact studies and statements of the land, air and sea. This will assist in keeping track of the conditions of the environment. 5. Management of the Economy: It is the government’s duty to ensure that there is economic growth and development in the country. The standard of living should also be improving, meaning that people can live better lives, with better health care, education etc. The government needs to control the country’s rate of borrowing, so that the national debt will not become unmanageable. There must also be adequate foreign reserves to cover the cost imports for a reasonable amount of time. 6. Maintenance of a Safe Environment for Investors: Persons/organisations wishing to make investments into a country must feel that their capital will be safe. They should no be made to feel that there is political unrest which will destabilise the economy. If there is growth, then investor will get a return on their capital. The level of crime must also be controlled. How can Businesses Protect the Environment (Physical & Economic)? VVVVV Adhere to business laws e.g. taxation (income, corporation, VAT), copyright, health etc. Comply with labour laws Have a proper working environment which is safe for workers Having a good relationship with workers and their trade unions Proper disposal of waste Importance of Environmental Protection and Preservation The quality of life is enhanced. e.g. a reduction in the greenhouse effect The flora and fauna is protected There is sustainable development. This is the careful use of elements of the environments by people today, while ensuring that later generations will still be able to have adequate use of the same resources. Harmony between workers and employers which can improve productivity. Increased investment may occur TAXATION Taxation is the compulsory payment made by citizens and corporations to the government, for which no direct benefit is given in return. Direct Taxes: Taxes that are incurred directly by a person or organisation e.g. ** Income tax “ Corporate tax “* Capital transfer and estate duties Indirect Taxes: These taxes are placed on goods and services and are included in the final price e.g. Role of Taxation 1. Raising Revenue Governments will earn money as it collects the various forms of taxes. 2. Income Redistribution Persons who are lower income earners will pay less tax. 3. Control of Spending Higher taxes /duties are applied to goods for which the government hopes to reduce consumption e.g. alcohol, tobacco. 4. To Protect Local Industries Higher taxes are usually placed on imported goods to reduce their attractiveness, while encouraging the consumption of the cheaper local product. N.B. In some cases, the above can also be seen as positive effects of taxation. Negative Effects of Taxation 1. Taxes such as VAT can raise prices creating higher inflation. 2. Taxes can lead to a poverty trap. As the pay of some people rise, they may not be able to collect certain kinds of benefits and they may also have to pay higher taxes, leaving them worse off than before. Progressive Taxation The higher the tax payer’s income, the higher the absolute amount of tax paid as well as the proportion of income. Regressive Taxation As a person’s income increases, the percentage of tax paid will decrease. Proportional Taxation All taxpayers pay the same proportion of his income in tax. The wealthier individuals will pay more in absolute terms but he will still be better off. Exercise In 2004 and 2005, Paul’s income was $3000 and $6000 respectively. Below is a table showing the various tax brackets for the years. TAX BRACKET RATE OF TAX The first $1000 0% The next 2,500 10% The next $2000 15% The next $1000 25% 1. Calculate how much income tax was paid in each year. (8 marks) 2. Calculate the percentage of income which was paid as income tax each year = (4 marks) 3. Is the method of taxation, progressive, regressive or proportional? Show all working (1 mark)