This is quite consistent with IMF research, which suggests that fiscal consolidation efforts rely on spending restraints can help to achieve economic growth in short or medium terms. 10].
Main features of suggested plan are:
Previous fiscal rules allowed Government to enter crisis with weak fiscal stance. Suggested mandate insists on to ensure fiscal policy always set to achieve short — medium term goals.
Suggested actions are based on:
The current balance, with aim to protect the most effective investment expenditure.
A cyclically-adjusted aggregate, to allow some flexibility at a time of economic uncertainty.
Suggested fiscal policy is aimed at:
Achieving cyclically-adjusted current balance by the end of the five year period.
Lowering of public sector total debt as a percentage of GDP in allotted five year period.
Suggested measures should provide the flexibility for fiscal policy to support the economy in the face of unexpected is hocks.
Chapter 3. Comments about potential implementation of suggested fiscal policy in Greece, Italy or in France.
Talking about potential implementation of suggested fiscal policies for the UK. for other countries we need to take a close look at some of their key economic features.
As for France has the world’s 6th largest economy by nominal figures and the 10th largest economy by PPP figures. It has the 3rd-largest economy in Europe with the UK in 2nd and Germany in 1st. The OECD is headquartered in Paris, the nation’s financial capital.
C ompared to its peers, the French economy endured the economic crisis relatively well. P rotected, in part, by low reliance on external trade and stable private consumption rates, France’s GDP only contracted in 2009.
H owever, recovery has been rather slow and high unemployment rates, especially among youth, remain a growing concern for policymakers. A fter the start of the crisis the economy stagnated and the country has had to face several economic challenges. G overnment tax revenue has dwindled and consumer purchasing power has declined. P olicy makers have attempted to modernize the economy; however, this has been a difficult process.
T he former Sarkozy government became deeply unpopular, partially due to its reform agenda. Nonetheless, with a government budget deficit that is higher than the Euro-area average and low growth forecasts, the current Hollande government faces the challenge of restoring France’s public finances while encouraging economic growth.
Considering Italy we need to acknowledge that Italy suffers from political instability, economic stagnation and lack of structural reforms. Prior to the 2008 financial crisis, the country was already idling in low gear. In fact, Italy grew an average of 1.
2% between 2001 and 2007. The global crisis had a deteriorating effect on the already fragile Italian economy. In 2009, the economy suffered a hefty 5.
5% contraction—the strongest GDP drop in decades. Since then, Italy has shown no clear trend of recovery. In fact, in 2012 and 2013 the economy recorded contractions of 2.
4% and 1.
8% respectively. Going forward, the Italian economy faces a number of important challenges, one of which is unemployment. The unemployment rate has increased constantly in the last seven years. In 2013, it reached 12.
5%, which is the highest level on record. The stubbornly high unemployment rate highlights the weaknesses of the Italian labor market and growing global competition. Another challenge is presented by the difficult status of the country’s public finances. In 2013, Italy was the second biggest debtor in the Eurozone and the fifth largest worldwide.
Taking look at Greece we can encounter that it has made progress in restoring macroeconomic stability and implementing much-needed initial fiscal adjustments. However, the public sector accounts for more than 50 percent of GDP, and the country continues to confront a daunting debt burden and severe erosion of competitiveness.
Serious challenges remain in such areas as government spending and labor freedom. The fiscal deficit remains approximately 4 percent of GDP, and public debt exceeds 170 percent of GDP. Fading business confidence and the lack of competitiveness are serious impediments to economic revival. The economy, stifled by powerful public unions, does not support entrepreneurship. The rigid labor market impedes productivity and job growth, and corruption continues to be a problem.
Through the course of essay an analysis of the UK key economic data has been done on basis of the analysis following fiscal policy measures were suggested:
Consolidation of Β£100 billion by 2017;18 (6 per cent of GDP).
Consolidation as a whole, 75 per cent can be achieved by lower budget spending by 2017;18.
Tax consolidation, including the increase in standard rate of VAT by 2.5 percentage points, to 20 percent.
As was said in chapter 1 total debt (including: national, financial, business and household debts) was at around 497.
8% of GDP in the UK. For example, it was around 341.
5% in France, 179% in Greece and 132% in Italy. 23].
Taking into account what was said above we can point out that Greece, Italy, France and the UK also the majority of EU countries have very similar set of problems which includes: [11].
High level of budget deficit.
High levels of debt compared to GDP.
Rising of public sector debt due economic recession.
Business activity level drop.
Cut spending mainly social and government projects are cut.
Rising of the state pension age.
As noted above in chapter 2 fiscal policies should be focused on implementing necessary steps which would help to bring about balance in the economy.
Because of that suggested methods to improve the UK fiscal policy would be equally effective in getting economies of the France, Italy and Greece out of recession as said by IMF experts that fiscal consolidation efforts which rely on spending restraints can be very helpful to achieve economic growth in medium terms which is necessary concerning existing unstable world economy trend.
Conclusion.
By the end of 2010 it became clear that aggressive monetary policy was not sufficient to prevent a sharp contraction of the real economy in the UK. The scale of the crisis as well as preexisting economic vulnerabilities including budget deficit maintained even in times of continuous economic growth, a high level of debt, particularly among private households and the dependence of private consumption on an ever-rising housing market hindered the effectiveness of automatic stabilizers.
Therefore, the government had to respond by introducing a sizeable fiscal stimulus to support aggregate demand. More than half of the entire package was aimed at the support of private households. The key measures included changes in tax rates, including temporary cut in the VAT rate, introduction of additional allowances focusing on children and pensioners, support for mortgage payments in the case of job loss as well as subsidies on the purchase of more energy efficient cars. The bail-out of the labor market was achieved by enhancement of active labour market policies with the aim of assisting unemployed people or workers at risk of losing their jobs to find new work as well as supporting youth and people with disabilities. The government also reduced social security contributions in order to decrease the costs to businesses of maintaining staff in employment, despite the fall in aggregate demand.
The private investment was implemented through a Small Business Finance Scheme, aimed at supporting bank lending to small and medium-sized businesses as well as tax relief for businesses making losses. Public investment funding was mainly focused on development of social infrastructure, renewable energy and energy efficiency. Duties on alcohol and tobacco and fuel were increased to finance the discretionary stimulus package. Moreover, starting from 2011 the income tax personal allowance for those with high incomes, national insurance contribution rates for employees, employers and the self-employed were also increased to further assist in fiscal consolidation.
The monetary policy played the key role in mitigating the crisis, however the average size of the UK discretionary fiscal measures in 2009;2010 was higher than the average equivalent in the EU and in the United States. During this crisis the government fiscal rules were suspended as more than half of fiscal stimulus went on supporting household consumption and public-sector net debt increased far beyond the set limit. This could be an evidence of the shift towards a more Keynesian paradigm of fiscal policy.
The combination of the expansionary monetary policy and discretionary fiscal stimulus allowed to overcome a deep recession, recover major equity markets and return to economic growth in the UK. At the same time such macroeconomic indicators as the rate of unemployment or the size of the budget deficit developed in a rather negative manner during 2009;2011. However, if the UK continues to ensure a sustainable fiscal path, decrease of public debt, implement wide-ranging reforms in the regulation and supervision of the financial system, the economy would return to its steady growth.
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The Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services.
The Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services.
