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Tuesday, 8 November 2011

Code for Fiscal Stability (1998)

·     Based on the 5 principles of tax
o      Equitable
o      Economical
o      Efficient
o      Convenient
o      Flexible


·     The Golden Rule
o      The government should only borrow to fund new social capital (capital spending, i.e. schools, roads…etc) and not current spending (e.g. welfare benefits)

·     The Sustainable Investment Rule
o      Public sector net debt should not rise above 40% of national income at the end of each financial year of the economic cycle

·     If the government stuck to the two rules, the public sector budget should, in theory, balance out over the course of one economic cycle because the government is not increasing current spending. A deficit is run on capital spending instead, thus balancing it out.

·     Aims
o      To limit how much the government borrows and for what purpose
o      Allow automatic stabilisers (see here) to smooth over the economy
o      Support the role of the monetary policy
o      Avoid an unsustainable increase in public sector debt
o      Ensure that tax revenues that are collected finance public spending as far as possible

·     Australia and New Zealand had a similar code

·     The government complied with the rules from the full economic cycle between 1997-1998 to 2006-2007, just before the recessions/economic crisis.

·     In November 2008, it was written in the pre-budget report that the code had been suspended to allow for the government to act appropriately in response to the global recession.

·     It was replaced by a less restrictive ‘temporary operating rule’ where the target was to manage public finances over the medium term. 

Please note, the Fiscal Policy Framework and the Code for Fiscal Stability should be used in the exam for demonstrating your understanding of past and previous fiscal policy used by governments. As it is no longer in use, be careful when mentioning in the exam.

Stealth Tax

An indirect tax that government's try to implement as they think people will not notice them. They can be thought of as being 'secretly' implemented.

When the UK government introduced the Fiscal Policy Framework and the Code of Fiscal Stability (1998), one disadvantage was that it didn't stop the introduction of stealth taxes. For more on the Code of Fiscal Stability, look here

Tuition fees

Hi everyone, I would first like to apologise for the inactivity on my blog.

Second, I've just read something intriguing about universities and tuition fees. This article here, from The Independent, explains that universities have appealed to the Offa (Office for Fair Access), the universities watchdog, to try and amend the agreement they made earlier this year, to try to reduce their fees.

27 universities have appealed, possibly suggesting a price war in the higher education market. Is this a case against the market provision of higher education?

This is a good example of a possible price war that is currently occurring and a good example to use in the exam.