The Ultimate Guide to Finances

Common Solutions to Budget Deficit

Budget deficit is common in our modern time today because governments are not able to sustain the corresponding level of revenues to which is needed in supporting the budgetary requirements. The budgetary requirements are then brought and dictated with the rising needs and expectations of a country, people and government, which has the responsibility in meeting and servicing them.

At time of good economic times, which is at the stage of the business cycle from expansion to peak, government revenues are actually at its highest as the private business sector could pay more taxes from good business which is brought by favorable economic environments. This in fact is axiomatic because during good times, the government usually has the tendency to correspondingly appropriate more expenses on its budget and even at times of increasing its budgetary appropriations in levels that are more than the increase on its revenues. This would be why a budgetary deficit still occurs.

To summarize it, a recession or a contraction of the economy with what was reflected in a budget deficit is neither going to be solved by the capping of governmental expenses or on the imposition of more taxes on the taxpayer in raising more revenues. The result with both instances is only prolonging the economic stagnation because there’s no catalysts to rev-up the economy because both of the government and private sectors are holding back on the investments on the case of the government because it is deliberately cutting back on expenses. On the private sector on the other hand, it has been burdened additionally with more taxes.

The government needs to consider during times of fiscal deficits and at times when the economy is on a sluggish mood, embarks with an expansionary monetary program to which is designed in shoring-up, rev-up and propel economic activities, which then will help extricate the economy from the current economic contraction it is in. Such expansionist monetary policy consist of the government in increasing the level of money supply up to a point that will enable it to expand economic activities through investments of income generating ventures, programs and projects.

This can actually be accomplished with government borrowing against the future taxes through selling long-term bonds and securities towards the central bank that shall issue the corresponding new local money. The new local money that was created is later on going to be used in financing development projects such as the construction and establishment of infrastructure and utilities which is all over the country, which would then catalyze the growth and expansion and also in creating more favorable business and economic climates for private businesses to thrive. Through such government assistance and business opportunities, the private sector will then be able to grow and also expand, make more profits, employ more people and also to pay more taxes to the government.