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How Governments Reduce the National Debt

Added on - 23 Nov 2020

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Ways to reduce AnnualFinancial Deficit
TABLE OF CONTENTSConsidering the position of the Government and discuss various ways in which it can attemptto reice the deficit to nil, and the political ramifications of doing so..........................................1
Considering the position of the Government and discuss various ways in which it can attempt toreice the deficit to nil, and the political ramifications of doing so.Annual financial deficit refers to the difference between total expenditure and totalrevenue of the government. It indicates the requirement of total borrowings by the government.Borrowings are not included while calculating the total revenue. The current budget deficit forthe fiscal year March 2019 ending is estimated to be 1.9 billion pound and the differencebetween expenditure and revenue is estimated to be 52.8 billion pound. In this report differentmethods for reducing budget has been described . As the obvious way to nil the budget deficit isto cut government spending and increasing tax rate but difficulty is that this tightening may leadto lowering the economic growth which in reverse can cause more cyclical deficit. If deficits arenot sustainable (Müller, Lammert and Hovemann, 2012), then it may cause rise in bond yieldsand if in worst scenario, it will decrease the confidence in the government.Different policies can be used for reducing the financial deficit like the government cancuts its public spending. In the same series, Canada applied this policy for reducing deficit, theyreduced public spending very significantly. They did the evaluation process of many departmentsand cut down the spending by 20% in 4 years across the board. Canada achieved a great successafter applying to this policy even there economy was growing (Braun, 2018). Economy also gotbenefited from less interest rate to increase spending, more exports to US, and weaker exchangerate. If any country will cut down its spending, then there will be negative effect on tax revenue,and more harmful effect on the economic growth of country and its development. If the financeminister will cut spending on building hospitals, roads, schools so this will directly reflect in thefinancials of construction sector and economic activity will be reduced in this sector and thesecompanies will be getting less margin and after that they will pay less corporation tax.Every government of the world finance their budget by combining both national debt anddomestic revenue. So this will make sense that government not only borrows money forfinancing budget but to pay for investment which will lead to make country productive. Mostlythe deficit of budget are financed by bonds of country like treasure bills and government bonds(Heinemann, Moessinger and Yeter, 2018). National debt got increased whenever thegovernment borrows to finance budget deficit and whenever debt grows, deficit is increased intwo ways. So debt's interest should be paid every year which leads to spending increase with not1
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