UD 10 PUBLIC SECTOR 4ºEnglish

AND TAX FRAUD

PUBLIC SECTOR

Pepa Azorín ForteIsabel Mora Zamorano

PUBLIC DEFICIT

1

THE PUBLIC SECTOR

2

ROLE OF THE PUBLIC SECTOR

3

STATE/GOVERNMENT BUDGET

3.1

GOVERNMENT REVENUE

3.2

GOVERNMENT EXPENSES

4

BUDGET DEFICIT

5

TAX EVASION

6

FISCAL POLICY

INDEX

4.1

WHAT DOES DEFICIT MEAN?

4.2

PUBLIC SECTOR BORROWING

1.- PUBLIC SECTOR

It is also called The STATE SECTOR

The public sector is the portion of the economy composed of all levels of government and government-controlled enterprises. It is controlled by national, state or provincial, and local governments.

ALSO CALLED STATE SECTOR

We may clasify the PUBLIC SECTOR as:

• Central Government
• Council of Minister
• President of the Government / Prime Minister
• Ministers
• Autonomous agencies/bodies – Public corporations
• Regional Authorities/entities
  • • • • Autonomous Regions/Communities
        • Provincial Councils (Diputaciones)
        • Local Governments: city council, town council
• Social Security

PROFITABLE: Public utility companies: They work like private companies although they use public capital. They control the strategic sectors (energy, transport, health..) Financial entity: El Banco de España Non financial entities: RENFE, Astilleros IZAR, Mail services

The typical division of the powers of a state government is into three branches: a legislature, an executive, and a judiciary, which is the trias politica model. Executive Power: It is the organ exercising authority in and holding responsibility for the governance of a state. The executive executes and enforces law. Legislative power: It is an assembly (Cortes Generales) with the authority to make laws for a political entity such as a country. Judiciary (judicial system): It is the system of courts that interprets and applies the law in the name of the state.

1

REGULATORY Role

Regulatory role of government involves regulation of varios businesses and economic activities by directing the businesses with set controls. These regulations aim to prevent concentration of power in few hands, localization of business in few areas. Example: It prevents monopolistic activities.

2

PUBLIC GOODS PROVIDER

The public sector offers public goods. A public good is a product that one individual can consume without reducing its availability to another individual, and from which no one is excluded. Examples: public schools and hospitals

3

FISCAL role

The government raises taxes to finance its expenses. Examples: Income tax, VAT

4

REDISTRIBUTION

Income redistribution is the policy of government to create balance in income level through taxation. It is designed to transfer the income from richer citizen to poorer citizen. Examples: Minimum wage, unemployment benefits, progressive tax rates.

5

STABILIZING role

The Government tries to control economic fluctuations so as to reduce unemployment in times of recession, and inflation in times of economic expansion. Economic growth should always be stable.

2. ROLES OF THE PUBLIC SECTOR

3. NATIONAL/GOVERNMENT BUDGET

A government budget is an annual financial statement presenting the government's proposed revenues and spending for a financial year.

GOVERNMENT BUDGET

PREVIEW

TAXES

SPECIAL CONTRIBUTIONS

INCOME TAX

GOVERNMENT REVENUE

GOVERNMENT EXPENSES

EDUCATION

HEALTH

DEFENCE

GOVERNMENT REVENUE AND EXPENSES

DIFFERENCE BETWEEN

BUDGET BALANCE

BALANCE = REVENUE - EXPENSES

TYPES OF BUDGET BALANCE

SURPLUS

DEFICIT

BALANCE

The budget balance is positive. Public revenues are higher than the public expenditure. Public Revenues>Public Expenditure The government may use its funding capacity to reduce debts from previous years.

The budget balance is negative. PUBLIC EXPENDITURE are higher than PUBLIC REVENUES. PUBLIC EXPENDITURE>PUBLIC REVENUES This is the ordinary situation for today's developed economies. It is due to an increase in public expenses, related to STATE SOCIAL BENIFITS. The government needs financial support. Its income/revenue is not high enough to cover its expenses. Therefore, financing will have to be requested to the private sector (families and enterprises) and to the foreign sector.

The budget balance is zero. Public revenues are equal to public expenses. Also called zero deficit. public expenditure=public revenue

TAX REVENUE

3.1 PUBLIC INCOME :

NON TAXREVENUE

The income of the government through all sources is called public income or public revenue.

• Typical of other economic entities, enterprises/companies, families (therefore, not connected to the government/state) Divided into: Property income: comes from heritage assets which belong to the government/state. An example is revenue from tickets to museums and other cultural heritage sites, or dividends from public enterprises, et cetera. Revenue from selling off state assets: State-owned companies become private. This represents an important income source. Current transfers and from capital received by the Government/state without costs: In the first case, the assets come from other entities, as the income from the lottery, and in the second case, we have European Cohesion and Structural Funds.

Related to different levels of Public administration: central, regional/autonomous, local. Taxes from citizens and enterprises are the main source of income. Tax: a compulsory contribution to state revenue, imposed by the government on workers' income and business profits, (or added to the cost of some goods, services, and transactions.)

TYPES OF TAXESI

DIRECTTHE TAXPAYER IS THE TAXABLE PERSON. COLLECTED DIRECTLY BY THE GOVERNMENT

INDIRECTEL TAXPAYER IS NOT THE TAXABLE PERSON. COLLECTED BY AN INTERMEDIARY (STORE..)

Direct taxes are taken directly from individuals or firms and their incomes or wealth. That is, the barden of a direct tax falls on the person or firm responsible for paying it. Direct taxes include: income taxes, corporation taxes on company profits, capital gains taxes on property and other valuable assets, and inheritance taxes.

It must be paid when purchasing a product or using a service. Indirect taxes are taken only indirectly from incomes when they are spent on goods and services. They are called expenditure or outlay taxes. This taxes are collected by sellers and then passed on the government. An indirect tax will normally be imposed on producers through higher prices. Examples: Sales taxes, ad valorem taxes, and tariffs and excise duties added to the price of goods and services.

TAXES

INCOME TAX

INCOME TAX is a tax payable from an individual's earnings usually on a pay-as-you-earn basis.

CORPORATION TAX

CORPORATION TAX is levied on the profits of limited companies or corporations and may also be called a profits tax if applied to unincorparated businesses, notable sole traders and partnerships.

DIRECT

INDIRECT

VAT

V.A.T. (Value Added Tax) is an ad valorem tax. This means it is charged as a percentage of the value of transactions including, for example, payments for electricity, restaurant bills ... This tax is collected by sellers and then passed on the government.

EXCISE DUTIES

EXCISE DUTIES are applied to specific goods, such alcohol, cigarettes, vehicles and petrol.

TAXES ON WEALTH

WEALTH TAXES can include taxes on the value of residential and commercial land and property. Wealth taxes can also include inheritance taxes on the transfer of wealth from one person to another upon their death.

V.A.T.: Impuesto sobre el Valor Añadido (IVA): EXCISE DUTIES: Impuestos sobre el alcohol y las bebidas alcohólicas, impuesto de hidrocarburos, impuestos sobre el tabaco, impuesto sobre la electricidad

Spanish Tax System: INCOME TAX: I.R.P.F. (IMPUESTO DE LA RENTA de las PERSONAS FÍSICAS) CORPORATION TAX (IMPUESTO DE SOCIEDADES o SOBRE EL BENEFICIO) TAXES ON WEALTH: (IMPUESTO SOBRE EL PATRIMONIO), I.B.I.(IMPUESTO DE BIENES INMUEBLES)

3.2. GOVERNMENT EXPENSESG

CONCEPT

PUBLIC SERVICES ARE OFFERED:

EDUCATION

To pay teachers' salaries,to build schools....

HEALTH

Hospitals, medicines, workers' wages, et cetera.

CULTURALACTIVITIES

Museums, parks, sports centres and so on.

NATIONAL DEFENSE

THE ARMY

COMMUNITYSERVICE

Water supply, waste collection service, public transport, and so on.



We may classify public spending depending on what the government spends the resources on:

• Housing and Community Services: water, public transport, waste disposal service....
• Cultural and recreational activities: museums, parks, sports centres....
• Social Welfare: Pensions, unemployment benefits, social benefits.
• Administration services: management of services, wages of civil servants...
• Protection of the environment: environmental policies and programmes
• Law and order: Police, Fire Department, National Judicial system and civil protection forces...
• To pay off public debt.And so on.

WATER SUPPLY, PUBLIC TRANSPORT, WASTE COLLECTION SERVICE

REVENUES

4. BUDGET DEFICIT

BALANCED BUDGET:EXPENDITURE=REVENUES

EXPENDITURE

4.1. DEFINITION OF DEFICIT

the government plans to SPEND MORE than it EXPECTS TO RAISE

the total amount of money BORROWED by the PUBLIC SECTOR of a country

4.2.- PUBLIC SECTOR BORROWING

NATIONAL DEBT

Governments usually borrow money from the private sector by selling loan stocks or securities, such as governments bonds.

NATIONAL DEBT

SHORT-TERM DEBT

LONG-TERM DEBT

MEDIUM-TERM DEBT

types of National debt:

It usually lasts for 10 years or more.

It is generally repaid with interest within one year or less.

MEDIUM-TERM DEBT reaches maturity somewhere between 1 and 10 years.

TAXES ARE COMPULSORY

SOME TAXES CAN BE AVOIDED

5. TAX EVASION AND AVOIDANCE

Wealthy people and multinational companies often avoid taxes in one country by moving their wealth to countries with lower tax rates.

Taxes are compulsory payments backed by laws. Non-payment of tax, or tax evasion, is a punishable offence.

Some taxes can be avoided legally, for example, taxes on cars or petroleum can be avoided by not owning or driving a car. Taxes on cigarettes can be avoided by not smoking.

6. FISCAL POLICY

involves varying the overall level of public expenditure and/or taxation

FISCAL POLICY MEASURES

The fiscal policy aims are:

• to manage aggregate demand
• to influence the level of economic activity

1

2

FISCAL POLICY MEASURES

EXPANSIONARY FISCAL POLICY

If a government wants to increase aggregate demand in the economy to boost employment and output it can increase its expenditure and/or reduce taxation. Cutting taxes on profits may provide firms with an incentive to increase output and investments in new productive capacity. Cutting taxes on personal incomes may encourage more people to participate in the workforce and motivates employees to increase their productivity. It will increase the amount of disposable income people have to spend.

CONTRACTIONARY FISCAL POLICY

A contractionary fiscal policy aims to reduce pressure on prices in the economy by cutting aggregate demand through a reduction in public expenditure and/or bu raising total taxation. for example, cutting public sector wages and raising personal taxes will reduce total disposable income and consumer expenditure.

FISCAL POLICY CAN ALSO AFFECTS...

Fiscal policy instruments may also be used to redistribute incomes between rich and poor people in an economy. For example, income taxes may be increased on those with the highest incomes and the money raised used to finance more public services and increased welfare for peole on the lowest incomes, or those unable to work because they are old, sick or unemployed.

Depending on the effects these measures may have, there are two kinds of fiscal policies.

An expansionary fiscal policy usually means running or increasing a budget deficit. Governments will often implement an expansionary fiscal policy during an economic downturn or recession.

The budget deficit will be cut or may even go into surplus if taxes revenues exceed public spending. However, a contractionary fiscal policy may reduce employment and growth in output. Governments will often implement a contractionary fiscal policy during an economic growth or expansion.

1

2

3

4

PROBLEMS WITH FISCAL POLICY

REDUCTION OF INCENTIVES TO WORK AND ENTERPRISE

If taxes are too high, people and firms may reduce their work effort. This will reduce labour productivity, total output and profits. As productivity falls the cost of production in many firms will increase and they will be less able to compete on product price and quality against more efficient producers overseas. As a result, demand of their goods and services may fall and unemployment may rise.

IT IS CUMBERSOME TO USE

It is difficult for a government to know precisely when and by how much to expand public spending or cut taxes by during an economic downturn. Boosting total demand by increasing public spending and/or cutting taxes may cause an economy to "overheat": the general level of prices will rise if aggregate demand expands faster than the aggregate supply of goods and services. Similarly, if an economy is overheating, deep cuts in public expenditure or increases in taxes that are too severe may result in rising unemployment instead as aggregate is reduced.

CROWDING OUT

To finance an increase in public spending and/or a cut in taxation a government may need to borrow the extra money it needs from the private sector. The more money the private sector lends to a government the less it has avalaible to spend itsef. This is called crowding out.

CREATION OF EXPECTATIONS OF INFLATION

Consumers and producers in an economy may come to expect a future rise in inflation following an expansionary fiscal policy, especially if attempts by their government in the past to boost demand on economic activity have caused the economy overheat.

keep in touch!

CONTACT

By Pepa Azorín Forte

azorin_josfor@gva.es teacherisabel1516@gmail.com

965938480

¡THANKS!

Pepa Azorín Forte

Isabel Mora zamorano