Presentation Of

Macro
Economics

Hamza
Presented Afeef Sikander Sohail Taimoor
Rehman
By: Javed Fiaz Ejaz Rashid Khalid
Butt
Fiscal
Policy
 Introduction:


 Fiscal policy is an important part of overall economic
Framework of country.

 The Fiscal policy is formed by Central Govt (Federal

Govt)----Ministry of Finance.
 “According to Arthur Smith”

 Fiscal policy refers to the policy under which
government uses its expenditure and revenue
program to produce the desirable effect of national
income , production and employment.
 Collection of Revenue:

 Taxes
 Direct tax
 Indirect Tax
 Fees
 Aids
 Fines
 Loan
Objectives of Fiscal Policy:
 Development of country

 Expansion of Employment
 Fixation of Govt Policy
 Economic Growth
 Controlling Inflation
 Check imbalance the various sectors
 Reduce inequality the income and wealth
 Increasing the Investment
 Optimum allocation of Resources
 Instrument or Tools of
Fiscal Policy:

 Implementing the Fiscal policy of the Nation
 Govt revenue
 Expenditure
 Budget

 The Budget of the Govt is main instrument of the

Fiscal Policy.
 Budget:

 The Estimated Revenue and Expenditure of the next
year and the Future year of the Govt with specific
time.

 Fiscal policy involves the Revenue and Expenditure

pattern to achieve the range of Economics Objectives.
 Methodes of Raising
funds

Governments expenditure can be funded in a number of
different ways:
 Taxation of the population
 Non Tax
 Borrowing money from the population,resulting in a
fiscal deficit.
 External resources: Foreign grant and loans etc
 Types of Taxes
1) Direct:

Direct tax is the one paid directly to the Govt. By the
persons on whom it is imposed
Income Tax, Property Tax, Capital Value Tax etc

2) Indirect:
It is collected by an intermediary(such as a retail store)
from the person who bears the ultimate economic
burden of the tax(such as the customer).
Sales Tax
 Common issue regarding
collection of taxes

 Tax Evasion
It is an illegal practice where a person, organization or
corporation intentionally avoids paying his/her/its
true tax liability.
 Causes of Tax Evasion

 People do not want to disclose their true income
 Too many unlawful business activities such as drugs,
hoarding, black money, etc.
 No fear of punishment
 Complex tax structure
 Uncontrolled inflation and high cost of living
 Low level of literacy among tax payers
 Some economic sectors are exempted:
Agriculture,real estate and capital gain
Weakness of Tax System

The principal reason lies in the structural weaknesses
of Pakistan’s tax system which is:

 Complex
 Inefficient
 Unfair
 Principles of tax Policy

 Lowering tax rates
 Taxing all value additions including services,not
just manufacturing sector
 Establish an effective and efficient tax system.
 Overcome the culture of tax avoidance and evasion
 Types of fiscal Policy
 Expansionary:

An increase in government purchases of goods and services, a
decrease in net taxes, or some combination of two for the purpose of
increasing aggregate demand and expanding real output.

Aggregate demand= consumption+investment+Govt spending+net Exports

 Contractionary:
A decrease in government purchases of goods and services, an
increase in net taxes, or some combination of the two for the
purpose of decreasing aggregate demand and thus controlling
inflation.
 Fiscal Deficit

Fiscal deficit is the difference between the government’s expenditures
and its revenues (excluding the money it’s borrowed). A country’s
fiscal deficit is usually communicated as a percentage of its gross
domestic product (GDP).

Fiscal Deficit=Govt. Spending –Govt. Earning

Causes of Fiscal Deficit

 High Govt. Spending
 Lower Revenue
 Inflation
 Economist’s opinions

Economist John Maynard Keynes believed that
deficits help countries climb out of economic recession.

On the other hand, fiscal conservatives feel that

governments should avoid deficits in favor of a
balanced budget policy.
 Factors of Deviation in
fiscal Deficit

The deviation from initial estimates was largely on
account of three factors:

 underestimation of subsidies
 underestimation of interest payments
 overestimation of FBR tax revenue.
 Why Pakistan is Facing
budget shortfall

 Increase in non-development expenditure

32%
Of the total expenditure is spend 32%

on the Defense &

68%
Interest Payments.

Interest & Defense Total Expanditure

 Why Pakistan is Facing
budget shortfall(Cont.)

 Too many factories are closed or in partial
production for want of power and gas
 Tax Evasion by well performing industries
 Corruption by Tax Officials
 Law and Order causing burden on the Expenditure
side by way of compensation to the affected and
mobilization to send forces to such areas.
 How Pakistan can avoid
Surge in Fiscal Deficit?

 Govt should impose new taxes
 Increase the price of utilities
 Decrease in development spending
 Conclusion

 Pakistan fiscal position worsened because of unexpected
events occurred on domestic and external scene.
 High proportion of revenues being spent on defense and
interest payments.
 Lower industrial productivity leads to lower tax
collection because of high interest rates.
 Pakistan needs to increase tax base by imposing tax on
agriculture and capital gain to increase revenue.