ROLE OF THE GOVERNMENT IN AN ECONOMY

· Responsibilities of a Government in and Economy

· Ways in which Businesses Protect the Environment

· Ways by which Government Regulates Business Activities

· Purpose of Taxation

· Direct and Indirect Taxes

· Regressive, Progressive and Proportional taxation

· Government Assistance Offered to Businesses

· Social Services Provided by Governments

Responsibilities Of A Government In An Economy

Governments are appointed by citizens to manage the affairs of their country. Their responsibilities include:

Ensuring the security of a state- Government must maintain law and order internally. This is realized through legislation, the court of justice and the police force. Externally the armed forces protect citizens against external threats.

Protection and general welfare of citizens – Government is responsible for the general health and education of citizens. Welfare programmes must be provided for those who are very poor and vulnerable.

Management of the economy – Governments are appointed by citizens to efficiently manage the economy to bring about growth and development. This includes: encouraging local and foreign investment, controlling inflation, maintaining the foreign reserve (NIR), curbing balance of payments deficits and achieving high levels of employment.

Protecting the environment – Sustaining the environment is important to the well-being of citizens. Ways of protecting the environment include: legislation to prevent further degradation, zoning to protect wildlife areas from disruption by development of factories, shopping and residential areas and taxation to reduce the level of pollution by firms.

Ways in Which Businesses Protect the Environment

1. Business owners must adhere to the various legislation set out by government and reduce pollution in rivers, seas and the atmosphere.

2. Establish business in the zones legally allocated to reduce the impact of noise and air pollution in residential areas.

3. Being part or initiating environmental projects such as beach clean up and planting trees.

Ways by Which Government Regulates Business Activities

Consumers must be protected from business owners who are eager to sell without taking into consideration the well-being of customers. Consumers must be protected from overcharging, poor quality goods and services and short measurements and weights.

Consumers are protected by legislation delegated to various government agencies. These agencies include:

1. The Consumer Affairs Commission- aids consumers with redress

2. The Fair Trading Commission- investigates cases of tied selling and misleading advertising.

3. The Bureau of standards – set standards for goods and services to be sold on the market.

4. The Ombudsman- investigates injustices suffered by citizens from dealing with a government agency or official.

Consumer Protection Laws

-The Food and drugs Act

-The Standards Act

-The public Health Act

-The weights and measures Act

-The processed food Act

-The hire purchase Act

Hire Purchase Law

Buyers and sellers must sign the hire purchase contract. The seller must state the cash price, down payment and monthly instalments and total to be paid. Goods cannot be repossessed by the seller once the buyer pays up to three quarters of the hire purchase price.

Price controls

Price controls are levied on certain good and services to prevent suppliers from increasing prices. For example basic food items such as corn meal, flour, rice and sugar.

Zoning Laws

These laws protect the environment by identifying certain wildlife areas that should not be disrupted by development. Therefore, areas are designated for factories, shopping centres and residential, away from protected wildlife.

Taxation

Firms that pollute the atmosphere, rivers and seas are charged a tax for the harm caused to the environment. This forces firms to find methods to reduce pollution to avoid this penalty.

Purpose Of Taxation

Taxes are mainly used to finance the expenses incurred by government to manage an economy. These expenses include: health care, education, garbage collection and operating government business entities. Taxation is also used by government for several other purposes.

a. To reduce pollution by taxing offending firms

b. To discourage unhealthy lifestyle e.g. a tax on cigarettes

c. To protect local and infant industries by taxing imports

d. To achieve greater equality of wealth and income. Revenue from taxation is used to help the very poor e.g. providing food stamps.

e. To improve the balance of payments (BOP) by increasing the duties charged on imported goods.

f. To control spending in an economy thus reduce inflation

Direct and Indirect Taxes

Direct taxes are paid by individuals directly from income earned or on the value assets owned to the income tax department.

Types of Direct Taxes

Income Tax – This is a tax on earned income- individuals pay a percentage of their income.

Corporate Tax

This is a tax on the profits of companies

Capital Gains Tax

This is a tax on the proceeds resulting from the sale of assets, e.g. houses, land etc.

Capital Transfer and Estate Duties

This is a tax on the transfer of property (gifts) and on legacies (death duties)

Other Direct Taxes

These include: stamp duties, motor vehicle duties land taxes, etc.

Indirect taxes are paid to the income tax department through the suppliers of goods and services. These taxes are levied on consumption and therefore are paid by individuals when purchasing commodities.

Value Added Tax (Ad Valorem Tax)

This is the tax levied on goods as each stage of production. This tax generally is known as a General Consumption Tax (G.C.T.).

Purchase Tax

This tax is placed on specific goods at retail outlets. Theses include gasoline, tobacco, rum etc.

Excise Duties

A tax placed on goods manufactured within a country. This tax is paid by the manufacturer of the product.

Customs Duties

This is a tax on imports i.e. goods entering the country.

Regressive, Progressive And Proportional Taxation

Progressive Taxation

A progressive tax system levies a higher percentage of tax on high income earners compared to lower income earners. This ensures that higher income earners pay a larger proportion of their income than lower income earners.

Regressive Taxes

A regressive tax system levies a smaller percentage of tax on higher income earners compared to lower income earners. This results in higher income earners paying a smaller proportion of their income in taxes than lower income earners. For example, a purchase tax of 10% charged on a commodity which values $100 is bought by a high income earner who receives $10,000 weekly and also by low income earner who receives $1000 weekly. Both income earners will pay $10.00 in taxes. This $10 represents a much higher percentage of the lower income earner’s pay which is .01% than the higher income earner which is only .001% of his income

Proportional Taxation

Under this system all taxpayers pays the same proportion of their income in taxes. The same percentage tax is levied on both high and low income earners. Therefore if the percentage tax charged is 10% of income then each person will pay that proportion of their income.

Government Assistance Offered To Businesses

The survival and growth of the business sector will reduce unemployment, increase GDP and foreign exchange earnings. This sector must therefore be support and encouraged by government.

Financing

Government assists local businesses by providing loans at low interest rates.

Protecting local industries

Custom duties charged on imported goods to protect local producers

Tax concessions

Reduced tax rates or tax holidays offered to industries will encourage production.

Subsidies

The cost of production is subsidised to reduce this cost to producers. For example, a subsidy offered on fertilizer to farmers.

Promotion

Local and international trade shows as well as general advertisements promoting business locally and overseas, for example, advertisements encouraging tourist to visit the region.

Training

Government agencies set up to provide technical and managerial training.

Social Services Provided By Governments

These services are provided by government to ensure the well-being of all citizens.

Education

An effective national education plan will ensure that the innate skills, talents and abilities of individuals are harnessed and developed to their fullest potential. High levels of literacy and numeracy will increase productivity.

Health

The economic development of any nation is dependent upon its population being physically and mentally healthy. For someone to be productive he or she must be in good health.

Roads and Transportation

Proper Infrastructure such as roads, railways, sea and airports coupled with an efficient transportation system are important to a country’s economic activities. Roads and transportation facilitate trade of goods and services.

National Insurance Scheme

National Insurance Schemes protect the elderly and other categories of vulnerable persons within a society. The elderly have contributed to the development of a nation and must be adequately provided for when they no longer a part of the labour force.