The Solution 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. A budgetary requirement will then be brought and dictated with the rising needs and expectations of a country, its people and government, which comes with the responsibility in meeting and servicing them.
With today’s good economic times which is at the stage of business cycle from expansion to peak, a government revenue is at its highest when the private business sector is not capable of paying more taxes from a good business that’s brought about by favorable economic environment. This actually is axiomatic because during good times, the government have the tendency in correspondingly appropriate more expenses on its budget and at times of increasing its budgetary appropriations in a level which is more than the increase of revenues. This would be why a budgetary deficit still occurs.
To recapitulate, a contraction or recession of the economy as reflected in a budget deficit is never solved with the capping of governmental expenses or with the imposition of more taxes upon the taxpayer in raising more revenues. The result on both instances is just prolonging the economic stagnation because there’s no catalysts to rev-up the economy because both of the private and government sectors are holding back with the investments in the government’s case because it’s cutting back on expenses. On the private sector, 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 in fact can be accomplished with government borrowing against future taxes by selling long-term bonds and securities to the central bank of which shall issue the corresponding new local money. The new local money that had been created then will be used in financing development projects like the construction and establishment of infrastructure and utilities that’s all over the country, which will catalyze growth and expansion and in creating a more favorable business and economic climate in order for private businesses to thrive. With such government assistance and more business opportunities, the private sector could then expand and grow, making more profits, employing more people and pay more taxes to the government.