Did You Know?The Fiscal Responsibility Act, which was introduced in December 2012, was a part of a bigger plan that involved reformation of the budget. The Irish Fiscal Advisory Council was established as a statutory body through this Act.
The definition of fiscal responsibility varies as per the situation. It is used mainly in politics, and in certain scenarios, in the subject of pure finance as well. In the simplest terms, it means using your money wisely, without overspending or otherwise. With reference to the broader spectrum, this spending could involve the firm/country's economy and its effects on people. The paragraphs below will explain this concept in detail.
- Fiscal responsibility is a term used to indicate the spending of money.
- As already mentioned, it can have different meanings depending on the context.
- Consider a simple example. Let's say, you are a simple, salaried employee. You have some mouths to feed and some debts to pay.
- In such a scenario, you should concentrate on paying the debt sooner and reducing surplus costs.
- This indicates that you need to draw up a budget, wherein a stipulated amount should be kept to keep the home fires burning, some amount should be paid off for the debt, and whatever remains should add up as savings.
- What you should do here is to cut off extra costs, like buying expensive groceries or devices; in fact, abstain from introducing any new costs, and concentrate on improving the existing costs.
- Roughly, this is what fiscal responsibility comprises; however, the meaning is interpreted differently by different people.
- Similar to how the common man would cut off luxuries to maintain his monthly budget, the government has its restrictions on the taxation and other monetary policies too.
For the Government
- The above paragraph would have given you a general idea about this term.
- However, as already mentioned, the interpretation is different with different people.
- To begin with a neutral view, a government is said to be fiscally responsible, if its expenditure equals to what it gains by means of taxation.
- This means that it should either reduce spending or increase taxation, and the process should be done slowly.
- On the contrary, a fiscally irresponsible government introduces newer ways of spending and exercises monetary policies.
- They are of the view that the national debt and deficit should be reduced, and this, they believe, can be achieved by exercising extra taxes on the wealthy.
- They are of the view that the high class should pay more in taxes than the middle class, so as to increase fiscal responsibility.
- Though their aim is the same as those of the liberals, they believe it can be achieved in a different way.
- Their view is that reduced debt can be achieved by means of a balanced budget.
- They also support cutting off government expenditure (which the liberals don't) as well as imposing lesser regulations for stimulating the economy.
- An important point to remember here is that economists do not consider national debt to be an important point of fiscal responsibility.
- Even between economists, these topics are controversial.
- Some justify deficit spending, citing the reduced interest rates on the national debt as a main reason.
- They state that deficit spending leads to investment and economic growth, and this is much more beneficial (in the long run) than paying a low interest on the national debt.
- Others are of the opinion that the economic growth of a country is slowed down due to excess national debt.
In Personal Finance
- Though this term is mainly associated with politics and economics, it is used in finance as well.
- In this scenario, a firm is said to be fiscally responsible if it reduces personal debt, like student loans, auto loans, credit cards, etc.
- It also involves strict budgeting and not introducing newer projects for the moment.
- Whether a budget deficit or surplus is introduced, depends on the market position of the firm.
- In general, fiscal responsibility can affect the finance of the company.
- This term is very important for the nation's economy.
- There is a relationship between budget deficits and the country's economic future.
- It will take time for the government to become fiscally responsible, even when all the possible means for debt reduction and tax increase are undertaken.
- It also involves long-term economic growth and national saving.
- Unnecessary expenditure and increase in labor growth can be introduced for growth in productivity.
- Again, bear in mind that reduced deficit spending will not automatically elevate the country's economic future. There are other factors to be considered like increased savings and investments, improved quality of education, reduced inflation rate, etc.
- The long and short of it is that proper means need to be undertaken, cautiously, if I might add, in order that the fiscal responsibility increases and the country is more economically stable. Only then will the world be a safer and secure place for the future generations.
Fiscal responsibility is a topic of debate in the economic and political circles. With a multitude of contrasting viewpoints, it has a variety of definitions in different scenarios, as seen above. Leaving aside the heated discussions for a moment about its repercussions on the economy, it would be more prudent to sit and think if any point has not been considered in this debate about its existence. Perhaps this will make things more clear, and give us a conclusion to this argument.