Through an increase in the direct taxes charged on thecommodities, the overall government revenue can increase significantly. This isbecause the government is the only body that is charged with the mandate ofcollecting taxes from the several sectors of the economy in order to boost itsexpenditure. In majority of the economies, it is clear that the income they getis normally short of the total expenditure (Mitchell, 2008). This normallyleads to a budget deficit which makes the economy not to be doing so well.
Budget deficit suppresses the government so much such that it has to findalternative means so that it can perform its national mandate to its citizens.This is to mean that it has to see ways through which it will be responsibleenough in meeting the expectations of its citizens which is its chief role. There are so many ways through which the governmentcan sort out the budget deficit including borrowing from both internal andexternal organizations including lending institutions, (Gillitzer Kleven&Slemrod,2017). Borrowing from any lender by the government has aconsequence of increasing the debt capacity of a nation and this is normallydiscouraged by most of the states. This is to mean that the government has tolook for alternative solutions to see to it that it tries to solve its internalproblems from the internal capacities to reduce the burden of debt .This isgood for making the state decisions without any foreign burden that could be abig bother to the state in general. The government controls most of themacroeconomic and microeconomic variables including taxation, interest rate,inflation, exchange rates among others. This puts it in a center of controlsince it can do what it can to see to it that it heals its economic wounds.
This is because these economic variables alwaysdictate the cause of action as far as the state economic plans are concerned,(Gillitzer Kleven& Slemrod,2017). Asfar as the case at hand is concerned, the government wants to raise the taxesfor UK so that it can raise revenue which can be used to offset the deficitbalance in the long run. To some extent, this can be an advantage to thegovernment because it will eventually raise this needed amount from the taxesit will collect fro, the people. This is because the taxes will be direct andno one in the tax bracket will be able to evade the tax, (Mitchell, 2008). Thismeans that the target of raising this revenue would be made a success by theincrease in price of the taxed commodity. The offsetting of the deficit balanceis likely to return the economy of the nation to its original state since itwill make it to have limited financial challenges because of the relief or theburden that will have been done away with. However, this needs to be done withcaution because the gathered finances can channel a temptation of beingchanneled to other uses. This requires better budgeting that is supposed toensure and see to meet that there is some equilibrium in the balance ofpayments.
Should a case come where there is still a deficit, some other statealternatives should be sought to make the state to achieve its goals. This shouldbe done in conjunction with the budgetary procedures in the country (Mitchell,2008). According to the issue at hand, the politician under discussion arguesthat the government should place an increase in tax for all the food productsbecause people must eat. This is to mean that the people of the said state willhave to buy the food products at a slightly higher price than the one that theyused to buy with initially.
Again, it also implies that the consumptionpatterns of the individuals will have to vary at a reducing ratio. This isbecause not all the individuals have the same purchasing capacity .The lowincome earners are likely to be severely affected by this state rule hencebarring the quantity purchased in the long run. Theamount that will be available in the market is also likely to reduce since eventhe sellers would be affected by the tax regime (Gillitzer Kleven&Slemrod,2017). This is because they have a likelihood of havinglimited number of consumers because of the unanticipated price rise that wouldhave faced them. The suggestion that tax regime should only be applicable tothe sellers of groceries as given by the politician has a number of advantagesand disadvantages.
As the politician argues, this is aimed at protecting thelow income earners. This could be fair to the low income earners who would beadversely affected if the prices of the grocers are hiked to accommodate thetax issue. This is because the increase in price would mean that they will bebuying the same commodity at a higher price than they used to but initiallywith the same amount of fixed income.
This is likely to reduce their purchasingpower as well as making the value of their money to be low .This is becausethey are spending more on less income which is uneconomically viable. The highincome earners, on the other hand, are affected by the price rise of thecommodities to accommodate tax rise. This is because they will have to shifttheir budgets so that they buy the products. The sellers too have to feel the burdenof buying the same commodity at high price. This is because they are notcertain whether the small income earners will be in a position to afford theproducts.
According to me, I agree with the politician on the need to reducebudget deficit. This is because budget deficit makes the state tobe in a position where it can’t perform its obligations effectively due tofinancial limitations (Fairfield& Garay,2017). Thereforeit needs to do its best to see to it that the budget is able to sort out itsresponsibilities. This calls to measures to increase its revenue and do itsbest to see to it that its expenditure is reduced. The government can alsoraise taxes on other essential goods like the transport and communicationservice. This hike in tax is likely to affect all the citizens hence promotingequity which is a principle requirement of any tax system. This is because allthe people will feel the same impact and incidence hence placing equal burdento all the citizens .
The government increase in tax in these two sectors islikely to fetch good revenue for the state because it is they are essentialservices for all the citizens .They are very instrumental for the existence ofall the citizens since they can hardly live without them. ReferencesMitchell, D. (2008).
A note on rising food prices (Vol. 4682). Washington, DC:World Bank. Fairfield, T.
, & Garay, C. (2017). Redistribution under theright in Latin America: electoral competition and organized actors inpolicymaking. Comparative Political Studies , 0010414017695331. Gillitzer, C.,Kleven, H.
J., & Slemrod, J. (2017). A Characteristics Approach to OptimalTaxation: Line Drawing and Tax ? Driven ProductInnovation. The Scandinavian Journal of Economics , 119 (2), 240-267.
