Fiscal Policy

What is Fiscal Policy?

Fiscal: pertains to Finance/public Finance.
Policy: Consists of guiding principles & course
of action.
It details what government will be spending
(Expenditure)
How government will meet these spending.
(Revenue)
 Defining Fiscal policy
 Fiscal policy is concerned with all those arrangements which
are adopted by the government to collect the revenue and
make the expenditures so that economic stability could be
attained/ maintained without inflation and deflation.
 Economic stability: A situation where an economy
experiences constant growth and stable/ low inflation.
 Economic growth: Increase in the capacity of an economy
to produce goods & services.
 Inflation: Increase in the level of prices of goods & services.
 Deflation: Reduction of general prices of goods & services.
 Ingredients of Fiscal policy

Imposition of Taxes
Government Expenditures
Public Debt
Management of Debt
 Objectives of Fiscal Policy
Economic Stability
Economic Growth
Encouragement of Exports
Increase in foreign reserves
Control Public Spending
Increase in Investment
Reducing Income disparity
 Tool of Fiscal Policy
Government Spending
Taxation
From where government Get Finances?
Taxing the citizens and their businesses (primary)
Domestic Borrowing (Loan from Banks, issuing
Bonds)
Foreign Debt/Loan/Grants(IMF,ADB)
Privatization or scale of state Resources. (3G 4G,
PTCL)
Income from state-owned Enterprises. (OGDCL,
PIA, Railway)
 Government Expenditure-1
• Current Expenditure: consumes almost 80% of the budget.
Debt servicing,
Defense,
General administration,
Social services,
Law and order,
Subsidies,
Community services,
Economic services,
Grants to Azad Jammu & Kashmir
Railway and others
 Government Expenditure-2
 Development Expenditure:
 Public Sector Development Programs (PSDF)
 (20%-30%) water, Power, communication
 and transport
 (20-30 %) other PSDP
 Types of Fiscal Policy
Expansionary Fiscal Policy
Contractionary Fiscal Policy
Neutral stage
Government revenue =Government Taxes
 Expansionary Policies
• During a contraction or recession, the
government can do two things:

1. Decrease Taxes
Or
2. Increase Spending
 Decreasing Taxes
1. Gives people more money to spend
2. More money = more demand
3. More demand = more production
4. More production = more jobs
5. More jobs = more demand etc. etc.
 Increasing Spending
1. Gives people more money to spend
2. More money = more demand
3. More demand = more production
4. More production = more jobs
5. More jobs = more demand etc. etc.
 Contractionary Policies
• During a period of excessive inflation (during
a period of expansion), the government can
do two things:

1. Increase Taxes
Or
2. Decrease Spending
 Increase Taxes
1. People have less money to spend
2. Less money = less demand
3. Less demand = lower inflation
 Decreasing Spending
1. Less money in economy
2. Less money = less demand
3. Less demand = lower inflation
Fiscal policy and Macroeconomic Objectives

Fiscal policy is concerned with government

spending and taxation
If government spending is increased, there will
be an increase in the amount of injections;
expenditure in an economy will rise so National
income would rise.
If taxation is increased, there will be an increase
in the withdrawals from the economy,
expenditure and national income will fall.
 Fiscal policy and National Budget
• As fiscal policy instrument, the government
can either introduce Tax changes or
Expenditure changes.
 Tax Changes in Pakistan
Vested political interest
Agriculture Lobby
 Vested economic interest
Industrial cartels and alliances
Pressure Groups
Party funding
Derailment of democracy
 Direct Taxes Indirect Taxes
Federal Government Income Tax Sales Tax
Corporate Tax Excise Tax
Wealth Tax Excise Duty
Property Tax Gas surcharge

Provincial Land revenue Stamp duty

Governments Transfer of property Motor Vehicles
Taxes Entertainment Tax
Agriculture Income Excise duty
Tax
 Last Year’s Facts (2015-2016)
GDP Growth 2015-16=4.7%
Per Capita Income=1506.7$
Core Inflation Rate=4.1%
Fiscal Deficit=4.3%
Current NFC in field is 7th .
Investment to GDP Ratio=15%
 Public Debt Rs 19,168 Billion
The debt which has a direct charges on the
government.
Domestic Debt to finance fiscal deficit. Rs
13,399 Billion.
External Debt to finance development
expenditure Rs 5769 Billion
 Major Initiative By FBR
Broadening of Tax Base
Withdrawal of Exemptions
Expansion of taxpayer Audit
Better Human resources
Automation
Stringent Enforcement
Thank YOU