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Fiscal Policy

Fiscal Policy

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Fiscal Policy

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  1. Fiscal Policy

  2. Ways to finance government expenditures in Hong Kong • Tax revenue : direct and indirect taxes • Non-tax revenue : sale of land, fees and charges ……. • Past fiscal surplus ( 財政儲備 ) • Selling government bonds ?

  3. Classification by function: Types Economic services Security Social welfare Health Education Environment Community & external affairs Infrastructure Support Housing Classification by nature Capital expenditure refers to expenditure on capital works and is non-recurrent in nature. Revenue expenditure refers to regular expenditure. Types of Government Expenditures

  4. Fiscal Policy : Government Budgeting Policy Fiscal policy means that the government makes decisions on taxation and spending with an aim to influence the income ( GDP ) and employment.

  5. Economic Problems: An economy is not doing well when.. • Unemployment rate is rising. • Real GDP growth rate falls or even becomes negative. • Price level is falling. • ( Or, price level is rising. )

  6. Aims of Fiscal Policy • Full employment ( very low unemployment rate ) • Economic growth ( real GDP growth ) • Price stability ( without deflation and inflation )

  7. Types of Budget : How to achieve the above aims ? • Surplus budget ( 盈餘預算 ) : estimated revenue is larger than estimated expenditure. • Deficit budget ( 赤字預算 ) : estimated revenue is smaller than estimated expenditure. • Balanced budget (平衡預算 ) estimated revenue is equal to estimated expenditure.

  8. Surplus budget ( 盈餘預算 ) • Economic condition: inflation and overheated economy • Aim: Price stability • Policy : contractionary fiscal policy • decrease government expenditure • increase tax rate

  9. Deficit budget ( 赤字預算 ) • Economic condition: unemployment and falling real GDP growth • Aims: Reducing unemployment and economic growth • Policy : expansionary fiscal policy • increase government expenditure • decrease tax rate

  10. What type of budget policy would you advise the Financial Secretary of the HKSAR to adopt to achieve economic growth and high employment ? End