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role of the public sector Evaluation of the role of the public sector in the economy with special reference to its socio- economic responsibility in the.

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Presentation on theme: "role of the public sector Evaluation of the role of the public sector in the economy with special reference to its socio- economic responsibility in the."— Presentation transcript:

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2 role of the public sector Evaluation of the role of the public sector in the economy with special reference to its socio- economic responsibility in the South African context. compositionnecessity The composition and necessity of the public sector Problems Problems of public sector provisioning Objectivesbudgets Objectives of the public sector and its budgets Laffer curve Fiscal policy (including the Laffer curve) public sector failure Reasons for public sector failure

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4 Assists the private sector when there is market failure. when free market unable to allocate resources and/or goods and services efficiently. Market failure: when free market unable to allocate resources and/or goods and services efficiently. Gov. has socio-economic responsibility that it must fulfil. Adam Smith (1723–1790) identified responsibilities of gov.: protect To protect its citizens against foreign threats maintain To maintain law and order provide To provide certain essential goods and services.

5 Provide community (public) goods non-rivalnon-excludable Public goods are non-rival & non-excludable Reduce demerit goods Drugs, pollution etc. Children's rights Compensation for human rights abuses in the past Redressing inequalities of apartheid, reduce poverty & unemployment. Eg. BBBEE

6 Social security Welfare grants to decrease poverty Protection of the environment Manage the economy Fiscal & monetary policy Encourage Competition Regulate monopolies & promote competition

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8 contract between gov. institution & private businesses where private organisation takes responsibility for some of the financial, technical and operational risks of the project. Public–private partnership (PPP): contract between gov. institution & private businesses where private organisation takes responsibility for some of the financial, technical and operational risks of the project. DO DO Challenge – pg 64

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10 Answer Answer Activity 1 - pg 64 Q 1.1 – 1.4

11 Accountability Not driven by a profit motive Monopolies in some cases Leads to low productivity & lack of accountability In SA, accountability underpinned by… Ministerial responsibilities Parliamentary questioning by opposition party & regulators. Treasury control –controls expenditure of gov. departments

12 Efficiency Necessities (health, education, policing etc) provided by public sector to even out social welfare imbalances. : providing goods and services in a way that no one can be made better off without making someone else worse off. Pareto efficiency: providing goods and services in a way that no one can be made better off without making someone else worse off. Problems in achieving this… Bureaucracy and red tape –procedure over individual needs. Lack of training – civil servants not adequately trained. Corruption – lower-than-average wages make corruption ‘acceptable’.

13 Assessing needs and correct planning Public enterprises do not operate under market conditions – not responding to demand (money votes).Problems… undersupply of public goods inefficient forecasting of future needs

14 Correct pricing Lack of money should not exclude people from public goods - provided under cost or free. Free services and goods are frequently abused Eg, people employed in informal sector claiming unemployment benefits. Means testing can solve problem investigation into finances of individuals/households to determine necessity of financial assistance Means test: investigation into finances of individuals/households to determine necessity of financial assistance

15 State-owned enterprises (parastatals) State-owned enterprises (parastatals) Inefficiency due to skills gap - private sector offer better pay and working conditions. Parastatals are created in one of two ways: government starts an enterprise an existing enterprise is nationalised.

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21 Objectives of the public sector… Economic growth Full employment Price stability Exchange rate stability Economic equity

22 The budgets a plan for raising and spending the money of the people of the country. National budget: a plan for raising and spending the money of the people of the country. Receives from… Taxation state-owned enterprises loans Spends on… Social services economic growth Government worker salaries (among other things).

23 Medium-term budget policy statement (MTBPS) Info about how government expects economy to perform over the next three years How much tax is expected to be collected Levels of government spending for next 3 years and government deficit How revenue will be shared between national, provincial and local government Delivered by Minister of Finance in last week of October.

24 Using the table below, answer Activity 4 on page 73

25 The main budget Budget of central government Presented second half of February by MOF. Fiscal year = 1 April to 31 March. Provinces/local authorities allocated revenue in 2 forms: Equitable share: according to pop. Conditional grants: paid for specific Projects/infrastructure.

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30 Provincial and Local Budgets Provincial Budgets Provinces raise some revenue - vehicle licences, duties and taxes; most from national budget Provinces spending - education (40%), health (20%) & social welfare (18%).

31 Local government budgets Municipal councils receive revenue through property rates, service fees for water and electricity, and fines. Metros (largest municipalities) get portion of fuel levy. Smaller councils rely central government grants.

32 Please complete Activity 5 on pages 77 & 78

33 how gov. raises money (forms of taxation) and spends money (expenditure). Fiscal policy: how gov. raises money (forms of taxation) and spends money (expenditure). Fiscal policy is… goal-bound –budgetary process used to determine economic and social goals demand-based – main policy instrument in demand-side policies. cyclical –business cycle affects fiscal policy.

34 Direct taxation Person/organisation makes payment straight to the tax authority. – Standard Income Tax on Employees (SITE) and Pay As You Earn (PAYE)

35 Indirect taxation Intermediary pays tax to authority. Eg. VAT – customer pays their portion of VAT to shop – shop pays total VAT to SARS – shop serves as intermediary

36 Forms of indirect taxation are… excise duties customs duties

37 value-added tax – a 14% spending tax on value of most goods capital gains tax –tax on gain from sale of certain assets inheritance tax – tax on transfer of wealth at death or on gifts during lifetime

38 Taxes should be: fair: treat those in same circumstances equally easy to understand: easy to calculate and pay easy and cheap to collect an encouragement to work: mustn’t disincentivize work

39 Proportional: Proportional: % same regardless of income. Progressive: Progressive: % increases as income increases Regressive: Regressive: lower incomes pay higher % of income in taxes than do the rich, for example excise duties and VAT.

40 shows the relationship between possible tax rates and the resulting government revenue at each rate. Laffer curve: shows the relationship between possible tax rates and the resulting government revenue at each rate.

41 country’s resources mismanaged - welfare people not maximised & delivery of services ineffective and inefficient. Public sector failure: country’s resources mismanaged - welfare people not maximised & delivery of services ineffective and inefficient.

42 Inability to perform services efficiently. Lack of school facilities Hospitals running out of medicines Lack of proper sanitation Funds often not spent even when needed.

43 Exhibit A

44 Poverty in rural areas led to rapid rate of urbanisation Difficult to keep up with social services.

45 Lack of leadership – lack of skilled leaders due to lower pay. Not directly accountable to taxpayers – little motivation. No incentives for efficient service delivery.

46 No market mechanism to guide allocation of resources.

47 Political cycle = 5 years. Spending/taxation plans geared around re- election, not around best interests of citizens.

48 Macroeconomic objectives VERY difficult for government to influence with little tax collected and HUGE demands for state provision.

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