Explain any three of the following: - Current Budget Deficit; - Progressive Tax; - Nationalisation; - Economic recession. - Leaving Cert Economics - Question 8 - 2012

A progressive tax is a taxation system where the tax rate increases as the taxable amount increases. In this system, individuals with higher incomes pay a higher percentage in taxes compared to those with lower incomes, which helps to reduce income inequality.

Nationalisation refers to the process where the government takes control of private sector companies or assets. This may be done to ensure that essential services remain available to the public or to prevent economic crises from affecting vital industries. The aim is often to prioritize public welfare over profit.

An economic recession is a significant decline in economic activity spread across the economy, lasting longer than a few months. It is observed through a fall in GDP, income, employment, manufacturing, and retail sales. This situation generally leads to higher unemployment rates and reduced consumer spending.

1. VAT: VAT (Value Added Tax) is a consumption tax placed on goods and services, calculated based on the value added at each stage of production.
2. Carbon Tax: A carbon tax is an environmental tax imposed on fossil fuels, aimed at reducing carbon emissions and promoting cleaner energy sources.
3. Household Charge: The household charge is an annual fee that homeowners must pay to local authorities to fund essential services.

The increase in VAT and household charges may lead to a higher cost of living for households. As prices rise, families will have to allocate more of their disposable income to cover basic needs, potentially resulting in financial strain and reduced spending on non-essential items.

For retailers, the increase in VAT could lead to decreased consumer spending, as higher prices may deter potential buyers. Retailers might respond by reducing their staff or closing stores to manage their operations under tightening profit margins.

The increased revenue from VAT and household charges could improve the government’s budget deficit situation. Higher tax revenue allows the government to fund essential services without resorting to increased borrowing, potentially stabilizing public finances.

The initials NTMA stand for the National Treasury Management Agency.

National Debt refers to the total amount of money that a government's borrowing exceeds its revenue. It accounts for the cumulative financial obligations that the government owes to creditors.

1. Opportunity Costs: Increased national debt requires significant resources for interest payments and debt servicing, thereby reducing the budget available for essential public services.

2. Increased Burden on Taxpayers: To manage the national debt, the government may have to impose higher taxes. This burden can lead to lower disposable income for citizens, potentially harming their living standards.