5. Mixed economies = government + private sector What is the best mix???

6. What is the best mix? Consider the following… Private sector (market forces) generally more efficient. Private sector (market forces) generally more efficient. Can best decide on: What? How? and For Whom? enforcement of the rules. Free markets cannot function properly without gov. enforcement of the rules. Markets sometimes fail Markets sometimes fail and need government intervention.

7. equitable distribution of income and wealth Market systems do not produce equitable distribution of income and wealth. business cycles. Market systems tend to experience business cycles.

9. Read pages 74 – 81 in preparation for a quick check quiz… Kahoot Quiz: Fiscal Policy and the Budget

10. Governments need to make decisions on… how much to spend what to spend it on how to finance its expenditure fiscal policy. This is called fiscal policy. Budget speech outlines government’s spending plans for the financial year (1 April - 31 March)

12. With regards to the 2015/16 budget… 1.What is the biggest source of tax revenue forecast to be in 2015/16? 2.What is the biggest expense that the government will face in 2015/16? 3.Which 3 taxes have increased from the previous fiscal year? 4.What are 3 aims of the major aims of the government’s 2015/16 budget?

15. Highlights from the 2015/16 Budget Speech Assessing Brand SA after the Budget 2015 Full Budget Speech 2015

21. Expansionary fiscal policies stimulate economic activity Government spending raised and taxes reduced Budget deficit will tend to increase. Contractionary fiscal policies restrict economic activity Government spending reduced and taxes increased Budget deficit reduced, or surplus budgeted for Helps curb inflationary pressures

22. Gov. involvement in economic activity measured by share of government spending in total spending.

24. Possible explanations for this… Political and other shocks Increased exp. on defence, law and order, education. Sanctions - spending on local manufacture of fuel & gas by gov. (Armscor, Sasol and Mossgas) Redistribution of income Democratisation - balance of power towards to lower-income groups More attention given to income equality – spending on social services increased. Population growth and urbanisation Increases in demand for public goods and services like education and health. Exacerbated by urbanisation (roads, sewerage, electricity, etc), High incidence of HIV/AIDS.

26. Government spending financed by… Income from property interest and dividend income Eskom, Telkom and Transnet, sale of agricultural, forestry and fishing products, mining rights Taxation Borrowing Domestic/international capital markets & central bank increases quantity of money - potentially inflationary.

28. Criterion for a good tax… Neutrality Should have minimum effect on relative prices – signalling function.Equity Ability to pay principle pay according to their ability Benefit principle Pay for benefits derived Administrative simplicity Compliance and administration costs as low as possible.

29. http://www.taxpolicy.com/ What would your tax policy look like???

30. If you had the ability to introduce a new tax and scrap an existing tax, what would it be and why? Think about… 1.Who would it benefit? 2.Who would pay/save? 3.How would it affect the macroeconomic objectives of a SA?

31. Please research and get definitions for the following… Direct taxesIndirect taxes Progressive taxesProportional taxes Regressive taxesGeneral taxes Selective taxesPg 84, 85, 86 in text book Kahoot!

32. Direct taxes: levied on income/wealth of individuals & companies. income tax company tax Indirect taxes: levied on transactions (eg purchase of goods and services). Paid by those who consume goods/services. VAT customs duties excise duties.

33. most General tax: levied on most goods and services. – VAT specific Selective taxes: levied on specific goods only. – excise duty on tobacco & alcohol

34. Distinction based on ratio of tax paid to taxable income (ie the average tax rate). Progressive tax: Progressive tax: ratio of tax paid to taxable income increases as taxable income increases. Personal income tax in SA. Proportionaltax: Proportional tax: ratio of tax paid to taxable income is the same at all levels of income. Basic company tax in SA (fixed % of company profits) Regressive tax: Regressive tax: ratio between tax paid and taxable income decreases as taxable income increases (or rises as taxable income falls). Takes larger % of income of low-income individuals than those with higher incomes. Indirect taxes (eg VAT) are often regressive.

35. The three main taxes in South Africa are… 1.Personal income tax 2.Company tax 3.VAT

36. Most important single source of tax revenue. total income - personal and other allowances. Taxable income = total income - personal and other allowances.

37. the rate at which each additional rand of income is taxed. Marginal tax rate: the rate at which each additional rand of income is taxed. the ratio between the amount of tax paid and taxable income - also called the effective tax rate. Average tax rate: the ratio between the amount of tax paid and taxable income - also called the effective tax rate.

38. Personal Income Tax is a progressive tax. Average tax rate increases as income increases because marginal tax rate increases. a tax levied on the gains resulting from the sale of assets such as shares and fixed property. Capital gains tax: a tax levied on the gains resulting from the sale of assets such as shares and fixed property. Introduced in 2001 to ensure horizontal equity.

39. Profits are taxed at a uniform rate A proportional tax rate Average tax rate = marginal tax rate.

40. 2 nd most valuable source of tax revenue in SA Regressive tax Ratio between tax paid & income greater for low-income than high-income households. Tax burden increases as income decreases

41. Fiscal policy is an instrument used by government to influence the economy. Discuss in detail the effects of fiscal policy. (26 marks) To what extent was the South African government successful in the implementation of its fiscal policy? (10 marks)