Role of Government Economy

POB
CUC –Form V
Updated April 2018

DEVOTION
&
PRAYER
Ezekiel 18
21 “But if a wicked man turns away from all his sins which
he has committed and keeps all my statutes and does
what is lawful and right, he shall surely live; he shall not
die. 22 None of the transgressions which he has
committed shall be remembered against him; for the
righteousness which he has done he shall live. 23 Have I
any pleasure in the death of the wicked, says the Lord
God, and not rather that he should turn from his way and
live?
Ezekiel 18
24 But when a righteous man turns away from
his righteousness and commits iniquity and
does the same abominable things that the
wicked man does, shall he live? None of the
righteous deeds which he has done shall be
remembered; for the treachery of which he is
guilty and the sin he has committed, he shall
die.
RC Cards
• Your Name: Kerwin Alexander
• Email Address: kerwinalexander@hotmail.com
• Telephone Contact/Whatsapp: 378-6790
• Favourite Song: Won’t Worry bout a thing– Life Tree Kids
• Which career you plan to pursue: Well?

Class Text
James 1: 2-4
2My brothers and sisters, when you have many kinds of
trials, you should be full of joy, 3 because you know that
these trials test your faith, and this will give you
patience. 4 Let your patience show itself perfectly in
what you do. Then you will be perfect and complete and
will have everything you need.
Class Watchwords
We Shall pass this way but once!

M. Chuma
Educate men without God
and you make them but
clever devils.
Arthur Wellesley
CLASS RULES
Listen attentively when others are
speaking
Open: Your to receive knowledge.
Your to give love
Your to help and serve others.
Voice thoughts, concerns and ideas in a
respectful manner
Electronic devices should only be used if it

pertains to classroom activities.
8 Business and government
Two views
Timothy Geithner Ronald Reagan

“In a financial crisis, the “The nine most terrifying words
biggest mistake that the in the English language are
government can make is to do ‘I’m from the government and
too little, not too much.” I’m here to help’.”
US Treasury Secretary Former US President
Caribbean Business for CSEC® Principles of Business © OUP 2010

Objectives
1. Outline responsibilities of government in an economy.
2. Describe how gov’t can influence businesses to
protect the environment
3. State the purposes of taxation
4. Distinguish between direct and indirect taxes
5. Distinguish between progressive, regressive and
proportional taxation
8.1 The role of government

Caribbean Business
Chapter Eight
Business and government


Two strategies
Usual in 1970s Usual today
State as entrepreneur State as facilitator

The government is a powerful force in most economy and in the

region it is no different.
 The government has a responsibility to its citizens to manage the
economy effectively.
 This is done by budgeting and allocating spending to various
governmental departments
 In order to have adequate funds government imposes taxes
 They may also collect funds from fines and penalties as well as
loans etc.
 Government spending (and other actions) AFFECTS businesses
1. Security of the state;

2. Protection and general welfare of citizens; provide recreation (increase
Standard of living)/reduce inequalities
3. Job security and severance benefits to workers;
4. Protection of the environment;
5. Maintenance of a safe environment for investors;
6. Manage the economy
7. Trade promotion (CARICOM) (Tourism Development Boards, etc.)
8. Consumer Protection (price controls, quality controls, etc.)
9. Regulation of business activity in terms of providing clear guidelines as how to
set up businesses.
10. To provide public goods (define)
The government’s responsibilities

● National security ● Economic management
● Health care ● Monetary policy
● Education ● Fiscal policy
● Social safety net ● Exchange rate policy
● National insurance ● Assistance to business
● Environment ● Security at work
● Infrastructure ● Investor security
• Essential for proper functioning of economy

• Usually a government responsibility
• Private sector may be involved
• Infrastructure includes
• Roads
• Ports and airports
• Water supply and waste disposal
• Electricity supply Caribbean Business for CSEC ® Principles of Business © OUP 2010
Security Of The State:

• Defence
• Justice
• Disaster relief
• Food security

Social Needs and General Welfare

• Health care provision
• Recreational provisions
• Unemployment and retirement benefits
• Education
• Transport
• Water and Sanitation
• Power
A vital safety net of aid citizens in

avoiding poverty which has a high cost for all society
• Employees make a regular payment
• Employers make a matching contribution
• Funds are managed by an independent board
• Placed in safe investments to earn interest
Benefits may include:
• Retirement pensions
• Sickness or invalidity benefits
• Many other benefits in well-funded schemes.
Large firms may hire

employment lawyers to ensure they stay within all legal framework to prevent
against litigation and loss of finance
• Employment Contracts
• Health and Safety Standards
• Dismissal and Hiring Practices
• Wages laws
• Working hours
• Discrimination Laws
• Trade Union Laws
• Tax laws
• Leave laws such as sick leave or maternity
Severance pay is the compensation an

employer provides to an employee who has been laid off, whose job has been
eliminated or made redundant, who has decided to leave the company through
mutual agreement.
 Severance pay is generally provided in cases where an employee is let go from a
position due to situations like downsizing or job elimination, rather than voluntary
job termination on the part of the employee.
 Employees must be given notice
 Must have adequate and valid reason; documentation


Through the Central Bank the government can

alter interest rate, stimulating or discouraging lending to businesses and
consumers
– The government may give tax breaks such as to
environmentally friendly consumption (e.g. buying solar power equipment or
hybrid vehicles) or even to encourage investment by foreign companies locally
The gov’t may implement or remove trade policies such as
tariffs, quotas and embargoes for either restrict or encourage international trade
(imports and exports). These affect businesses’ and consumers’ choices, option
to import/export goods and service; labour (importing cheaper labour), capital
equipment, etc.... ®
Caribbean Business for CSEC Principles of Business
© OUP 2010
Gov’t enact and enforce laws and

regulations to protect the environment:
o It may include laws such as ban on plastics, Styrofoam products, CFCs
o Recycling laws
o Dumping regulations
o Forestation laws
o Hunting laws (protecting species and hunting periods)
o This is especially critical in the oil producing region that transports millions of
barrels of oil per day – oil spill regulation and business responsibility are crucial
Gov’t enact and enforce laws and regulations to protect the

trust and the ownership of private property.
o The government may get into contract with private entities thereby stimulating
business activities (e.g. with private bus drivers to shuttle students or caterers for
school feeding, pavers for road works, etc....)
Gov’t has access to vast
amounts of funds especially via taxation of the population. They may
redistribute this to private persons and even business to ensure equality,
poverty reduction or even stimulate business activities through welfare
programs or other agencies e.g. The National Entrepreneurship
Development Company Limited (NEDCO) or ADB
A property rights to a good or

service includes the right to exclude others from using the good or service and
the right to transfer the ownership or use of the resource to others.
Markets do not allocate resources effectively if :
(1) property rights are not clearly defined or enforced,
(2) Externalities (spillover effects) affecting large numbers of people are associated
with the production or consumption of a product, or
(3) markets are not competitive.

A public good is a good that is both non-excludable and

non-rivalrous in that individuals cannot be effectively excluded from use and where use
by one individual does not reduce availability to others.
 A public good has two characteristics:
o Non-rivalry: This means that when a good is consumed, it doesn’t reduce the amount
available for others.
– E.g. benefiting from a street light doesn’t reduce the light available for others but eating an
apple would.
o Non-excludability: This occurs when it is not possible to provide a good without it being
possible for others to enjoy. For example, if you erect a dam to stop flooding – you
protect everyone in the area (whether they contributed to flooding defences or not.
A public good is often (though not always)

under-provided in a free market because its characteristics of non-rivalry and
non-excludability mean there is an incentive not to pay. In a free market, firms
may not provide the good as they have difficulty charging people for their use.

By establishing
secure property rights, the rule of law promotes voluntary exchange. When the
rule of law does not exist, the resulting uncertainties reduce willingness to trade.
 The rule of law exists when the rules that govern behavior and interactions
among individuals and groups of individuals apply to both the governed and the
governing.

 Under the rule of force, people own what they can defend. The allocation of goods is in
accord with individuals’ ability to manage violence, rather than in accord with the highest-
valued uses of those goods.
 Resources are consumed in the process of managing violence and the wealth of society is
lower than under the rule of law.
Examples : The illegal drug trade today, The rule of force is also observed in slavery, where
lawless bands of marauders take land from the indigenous who have cultivated it for many
years,

8.2 Taxation and the budget

Caribbean Business
Chapter Eight



 Raising revenue
 Redistribute Income
 Control spending (What do we call this policy Parks)

 Raising revenue – How does the government get money to

run the country?
An annual budget
Recurrent revenue + US$1,000 million
Recurrent expenditure - US$900 million
Current balance = + US$100 million
Capital revenue + US$150 million
Grants + US$50 million
Capital expenditure - US$350 million
Overall balance = - US$50
Caribbean Business for million
®
CSEC Principles of Business © OUP 2010

 Income
 Assets
 Purchases

Guyana’s budget for 2008

Budget deficits
With a fiscal deficit, the government may:
● Borrow money locally or overseas
● Create money –central bank increases money supply.
With a counter-cyclical policy
● Fiscal deficit stimulates economy in a downturn
● Fiscal surplus slows economy when growth is too fast.
When there is a large deficit…

If there is a large deficit for many years:
● Debt increases.
● Debt interest uses most of the tax revenue.
● Little remains for health, education, salaries and other
spending.
● Inflation accelerates.
● In Suriname, prices increased by 113% in 1999. Living
costs more than doubled. ®
Caribbean Business for CSEC Principles of Business © OUP 2010
Public spending: An economic classification

An economic classification
breaks spending down like
this:
● Salaries, pensions, etc.
● Goods and services
● Subsidies and transfers
● Debt service and interest
● Capital spending
Public spending: A functional classification

A functional classification breaks spending down like this:
● Education
● Health
● Social benefits and services
● Tourism promotion and other assistance to business
● Public order and defence
● Roads and transport
● Debt service and interest
● General government spending and otherCaribbeancategories. ®
Business for CSEC Principles of Business © OUP 2010
 Raising revenue
 Control spending (What do we call this policy Parks)

 Taxing those with higher income more

 Taxing those with lower income less or none
 Giving grants and subsidies to those of lower income

 Raising revenue
 Control spending

 Decrease inflation (deflation)

 Increase inflation
 Stimulate the economy (boost employment)
 Slow down the economy
 Disposable Personal Income (DPI),
- The money that households have available for spending and saving
after income taxes have been accounted for.

Adam Smith’s Four Principles Of
Taxation
● Equity
● Certainty
● Convenience
● Efficiency

Sources of Revenue
Taxes May be Classed as Either Direct or Indirect Taxes

Direct taxes, such as
● Personal and company income tax
● Property tax
Indirect taxes
● Value added tax (or general consumption tax)
● Customs duties
Non-tax revenue
● Fees, fines, dividends from state companies
Caribbean Business for CSEC ® Principles of Business © OUP 2010
A type of tax which is paid for by an individual directly to the

government (or other authority e.g. municipal or Boroughs). It includes:
 Personal Income Tax (PAYE)
 National Insurance
 Company or corporation tax
 Property tax
 Poll tax
 Capital Gains Tax
 Capital Transfer tax
 NOTE: The cost of this form of tax cannot be shifted to someone else
 Poll tax - A tax determined as a uniform, fixed amount per individual

that must be paid in order to vote
 Capital Gains Tax – A capital gains tax is a tax levied on capital gains or
profits from the sale of specific types of assets. This tax is calculated on
the profits or positive difference between the sale price and the
original purchase price of the asset. Capital gains taxes are only
triggered when an asset is realized, not while it is held by an investor.
That means he can own stock shares, for example, that appreciate
every year, but does not owe a capital gains tax on the shares until he
sells them, no matter how long they're held.
 Capital Transfer tax - a tax levied on the transfer of capital by gift or
bequest (A bequest is property given by will.)
 Income tax in Trinidad & Tobago is charged at a flat rate of 25% (above
the TT$72,000.00 threshold).
 Salaries above TT$1 million are taxed at 30%.
 A health surcharge is due from all taxable individuals.
 The surcharge is set at TT$4.25 for incomes of less than TT$469.99 a
month, and TT$8.40 for incomes over that amount.

 A Trinidad and Tobago resident corporation is taxed on worldwide income. A non-

resident company engaged in business in Trinidad and Tobago is taxed only on
income directly or indirectly accruing in or derived from Trinidad and Tobago.
 The standard corporation tax rate is 30%, but this varies in the case of certain classes
of companies. The current corporation tax rates are as follows:

A tax which is imposed on a transaction and paid to the

government by the firm after the good has been bought.
 Value added tax (or general consumption tax)
 Customs duties


Income Tax – An Example

Value Added Tax – An Example

Caribbean Tax Systems
● The Bahamas has

no income tax but
high customs
duties.
● Trinidad and
Tobago benefits
from energy
revenue.

 A progressive tax is a tax that imposes a lower tax rate on low-income earners compared to
those with a higher income, making it based on the taxpayer's ability to pay. That means it
takes a larger percentage from high-income earners than it does from low-income
individuals.: Usually income taxes
 A regressive tax is a tax that takes a greater percentage of income from those who earn
less, than from those with a higher income. E.g. VAT – buying a BMW
 A proportional tax is an income tax system where the same percentage of tax is
levied on all taxpayers, regardless of their income. A proportional tax applies the
same tax rate across low, middle, and high-income taxpayers.
 VAT is usually the most commonly cited example of regressive taxation.

Research has consistently proved that the poor pay a higher share of their
income in VAT than the rich. This is due to the Marginal Propensity to
Consume (poor people spend a higher proportion of their income, rich people
save a higher proportion).

 A proportional tax is an income tax system where the same percentage

of tax is levied on all taxpayers, regardless of their income. A proportional
tax applies the same tax rate across low, middle, and high-income
taxpayers.
 Proponents of proportional taxes believe they stimulate the economy by
encouraging people to work more because there's no tax penalty for earning more
(the tax does not increase or decrease as wage changes). They also believe that
businesses are likely to spend and invest more under a flat tax system, putting more
dollars into the economy.

Progressive And Regressive Tax
 Progressive tax: wealthy pay greater percentage of their income.

 Regressive tax: falls more heavily on low-income households.
 Proportional tax: everyone pays the same percentage of income.

 Shoppers pay a 6% sales tax on their groceries whether they earn

$30,000 or $130,000 annually, so those with lesser incomes end up
paying a greater portion of total income than those who earn more. If
someone makes $20,000 a year and pays $1,000 in sales taxes consumer
goods, 5% of his annual income goes to sales tax. But if he earns
$100,000 a year and pays the same $1,000 in sales taxes, this represents
only 1% of his income.
Answer - Regressive
 Individual taxpayers pay a set percentage of annual income regardless of

the amount of that income. The fixed rate doesn't increase or decrease
as income rises or falls. An individual who earns $25,000 annually would
pay $1,250 at a 5% rate, whereas someone who earns $250,000 each
year would pay pays $12,500 at that same rate.
Proportional - Regressive

 Federal progressive tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37% as of 2019. The
first tax rate of 10% applies to incomes of $9,700 or less for single individuals, and $19,400
for married couples filing joint tax returns. The highest tax rate of 37% applies to incomes
over $510,300 for single taxpayers, $612,35 for joint married filers.
 A single taxpayer who has taxable income of $50,000 would not pay the third rate of 22%
on her full income. Instead, she would owe 10% on the first $9,700 of income, 12% on her
income from $9,701 to $39,475, and 22% for the balance that falls into the third tax
bracket. The taxpayer in this example owes a total of $6,858.50: The 10% rate on the first
$9,700 is $970, the 12% rate on the next $29,775 is $3,573, and the 22% rate on the
remaining $10,525 is $2,315.50.
 A single taxpayer with taxable income of $25,000 would owe $970 on the first $9,700 and
12% or $1,836 on the balance, for a total of $2,806. ®
Caribbean Business for CSEC Principles of Business
© OUP 2010
What Type of Tax?

What Type of Tax?

Aims of Tax Policy Include…
● Raising revenue ● Support for business

● Income redistribution ● Environmental protection
● Progressive tax ● Encouraging personal savings and
system investment
● Social programmes ● Encouraging business investment.
● Discouraging alcohol
and tobacco
● Control of demand in
the economy Caribbean Business for CSEC® Principles of Business © OUP 2010
8.3 Government and business

Caribbean Business
Chapter Eight

Objectives
Outline responsibilities of government in an economy.
Describe how gov’t can influence businesses to protect the
environment
State the purposes of taxation
Distinguish between direct and indirect taxes
Distinguish between progressive, regressive and proportional taxation
1. Discuss the forms of assistance offered by government
to businesses
2. Discuss the social services provided by government.


 Taxation – Government seek to safeguard their source of revenue by

discouraging tax evasion/avoidance and encouraging tax payments
 Labour – These seek to protect both employers and employees life,
limb and rewards as per factor inputs
 Environment – These seek to create a sustainable planet for present
and future generations

 Taxation
 Labour
 Environment

Reasons for regulating business include:

 International treaty obligations
 Protecting consumers
 Protecting employees
 Protecting other businesses
 Protecting the environment
 Taxation
 Tax concessions for investments

 Training and technical assistance
 Marketing – tourism and exports
 Real estate – industrial estates
 Loans and grants for small business
 Research and information
 Subsidies – direct and indirect
 Land-use planning and zoning may be by:

 National government
 Local government.
 Planning controls may cover:
 Preservation of agricultural land
 Residential or commercial development
 Protection of beach-front land
 Quarrying and mineral extraction.
Caribbean Business for CSEC ® Principles of Business © OUP 2010
 Waste disposal is regulated for environmental and health reasons.

 There may be special controls for:
 Hazardous waste
 Liquid waste and sewage
 Scrap metal.
Businesses must organize and pay for waste disposal, showing proof of
correct procedures.
 Businesses can reduce their ‘carbon footprint’.

 Fuel-efficient aircraft
 Natural ventilation for new buildings
 Energy-saving lighting and cooling systems
 Electricity generation from renewable sources
 Reduced staff travel

Representing business interests:

 Chambers of commerce
 Employers’ organizations
 Manufacturers’ organizations
 Hotel and tourism associations.
Representing other interests:
 Trade unions
 Religious organizations
 Voluntary sector groups. Caribbean Business for CSEC® Principles of Business © OUP 2010
Government Protect Consumer Through Measures Such as:

 Food and Drug Standards
 Hire purchase legislation
 Sometimes even price controls (Gas Prices)
 By providing avenue such as via the Ombudsman or Consumer
Affairs Division ®
Caribbean Business for CSEC Principles of Business © OUP 2010
Government Protect Consumer Through Measures Such as:

 Food and Drug Standards
 Hire purchase legislation
 Sometimes even price controls (Gas Prices)
 By providing avenue such as via the Ombudsman or Consumer
Affairs Division

 Gov’t invest huge amounts in social services

 These huge amounts come at great costs
 The hope is that if the population is functioning harmoniously, then
the entire economy would be better off

DEVOTION
&
PRAYER
God Cares For Us More Than We Can Imagine
Are not five sparrows sold for two pennies? And not one of them is
forgotten before God. In fact, even the hairs on your head are all
numbered. Do not be afraid; you are more valuable than many sparrows.
Luke 12:6-7
SOCIAL SERVICE
SOCIAL SERVICE
SOCIAL SERVICE
SOCIAL SERVICE
SOCIAL SERVICE
SOCIAL SERVICE
 Brings higher productivity

 Less sick days
 Higher levels of labour _______
 Less burden or cost on the health care system and a
reduction of other accompanying challenges
 Higher quality of life for citizens
 NIS is a system of contributions paid by employers and employees

to meet the cost of pensions and other state benefits.
 Aids the elderly in security of income after retirement
 May reduce poverty and other social challenges
 Reduces the burden of care and cost from family members and
even the state

 Ensures an informed and literate population

 Increases level of workers’ skills, productivity and innovation
 Create higher standard and levels of job
 Reduces unemployment as persons are now employable
 Educated and Informed person should be healthier

 Access to goods and services (e.g.

Health care and education)
 Delays mean cost (time and
money etc.)
 Lack of facilities can mean lost
investment (no ports or
international airports can mean
no tourist visiting via large planes
or cruise ships)

1.Describe TWO ways in which a government may benefit the citizens of a country
and TWO ways it may benefit private sector businesses. (8mks)
2.List Four principles of taxation describe by Adam Smith (4 mks)
3.Distinguish between direct and indirect taxes and give an example of each (4 mks)
4.Describe ONE way in which the government may use the tax system to
i. Redistribute income (2mks)
ii. Encourage saving (2mks)
5. Discuss briefly hire purchase legislation in any Caribbean country of your
choice and write a short review of the same in 2 paragraph (10 mks)
See You Guys Next Time!
Examination Next Class and Supply Chain

and Logistics
When I Think About PLACE in marketing, I Think about ?
Domestic
2. D_______ Trade
T_____ Shipping Ports
4. P_________
7. S_____
Shipping D____
Documents
1. P__________
Pipes
Trucks
3. T___________
5.Couriers
C_________ 6. Airport
A_________
1 2 3 4 5 6 7
1. What is meant by place in marketing? - Chioke
The route that the product takes to reach the customer from the manufacturer
1. When is think about place in marketing I think

about___
Distribution; Transportation; Wholesalers; Retailers; Channels; Consumers
1. When is think about business transportation I think
about___
Domestic trade; Regional trade; Intercontinental trade; Trucking companies;
Shipping companies; Ports; Airports; Airlines; Courier services
Resource for Schoology
• https://tradeind.gov.tt/category/media-releases/
• https://tradeind.gov.tt/documents-resources/legislation/
• https://www.bbc.com/bitesize/guides/zw987ty/test -Quiz
• Consumer Protection -
https://www.bbc.com/bitesize/guides/zw987ty/revision/3
See You Guys Next Time!
May The Lord Bless and Keep You Until…

1. No Text
6 Marketing
5. (a) (i) State TWO functions of transportation in business. (2 marks)

(ii) Outline TWO advantages of road or land transport. (4 marks)
(b) (i) Describe TWO problems related to the distribution of goods in your country.
(4 marks)
(ii) Outline ONE measure that can be used to solve EACH problem described in
(b) (i) above. (4 marks)

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POB

Updated April 2018

• Email Address: kerwinalexander@hotmail.com

• Telephone Contact/Whatsapp: 378-6790

• Favourite Song: Won’t Worry bout a thing– Life Tree Kids

• Which career you plan to pursue: Well?

We Shall pass this way but once!

Electronic devices should only be used if it

Timothy Geithner Ronald Reagan

US Treasury Secretary Former US President

Caribbean Business for CSEC® Principles of Business © OUP 2010

8.1 The role of government

Caribbean Business for CSEC® Principles of Business © OUP 2010

Caribbean Business for CSEC® Principles of Business © OUP 2010

Caribbean Business for CSEC® Principles of Business © OUP 2010

The government is a powerful force in most economy and in the

1. Security of the state;

The government’s responsibilities

• Essential for proper functioning of economy

Security Of The State:

Caribbean Business for CSEC® Principles of Business © OUP 2010

Social Needs and General Welfare

A vital safety net of aid citizens in

Large firms may hire

Severance pay is the compensation an

Caribbean Business for CSEC® Principles of Business © OUP 2010

Caribbean Business for CSEC® Principles of Business © OUP 2010

Through the Central Bank the government can

Gov’t enact and enforce laws and

Gov’t enact and enforce laws and regulations to protect the

A property rights to a good or

Caribbean Business for CSEC® Principles of Business © OUP 2010

A public good is a good that is both non-excludable and

A public good is often (though not always)

Caribbean Business for CSEC® Principles of Business © OUP 2010

Caribbean Business for CSEC® Principles of Business © OUP 2010

Caribbean Business for CSEC® Principles of Business © OUP 2010

8.2 Taxation and the budget

Caribbean Business for CSEC® Principles of Business © OUP 2010

Caribbean Business for CSEC® Principles of Business © OUP 2010

Caribbean Business for CSEC® Principles of Business © OUP 2010

Caribbean Business for CSEC® Principles of Business © OUP 2010

 Raising revenue – How does the government get money to

Caribbean Business for CSEC® Principles of Business © OUP 2010

Caribbean Business for CSEC® Principles of Business © OUP 2010

Guyana’s budget for 2008

Caribbean Business for CSEC® Principles of Business © OUP 2010

When there is a large deficit…

Public spending: An economic classification

Public spending: A functional classification

Caribbean Business for CSEC® Principles of Business © OUP 2010

 Taxing those with higher income more

Caribbean Business for CSEC® Principles of Business © OUP 2010

Caribbean Business for CSEC® Principles of Business © OUP 2010

 Decrease inflation (deflation)

Caribbean Business for CSEC® Principles of Business © OUP 2010

Caribbean Business for CSEC® Principles of Business © OUP 2010

Taxes May be Classed as Either Direct or Indirect Taxes

A type of tax which is paid for by an individual directly to the