The Golden Rule of Government Spending - Term Paper Example

Topic: accounting and non accounting case analysis Introduction When the output increases, then the inflation(Baranzini & Cencini,1996) rate of a nation increases also. Therefore measures must be taken to lessen the inflation rate. When the inflation rate increases, employment rate decreases. One of the main objectives of the United Kingdom, as is the case with other countries, is improve the management of state assets. This can be done only if the information received by the decision makers like Chancellor Brown will not be poor, lacking or far from the actual figures. One very good strategy is the United Kingdom government to make most government transactions with its constituents and other nations TRANSPARENT. One very good government strategy is the United Kingdom’s efforts to sell some of its idle assets which are recommended by the different departments. The different departments of the government is given a free hand to determine whether to maintain, reduce or increase the next accounting period’s budget. The government must continue its budgeting process by prioritizing its expenditures to health, infrastructure and the educational system, among other priority projects. Each department of the United Kingdom Government must be thrifty in its purchases and payments. This means that all unnecessary wastes of office supplies, electricity, light and water, telephone and other expenses must be minimized to the level of “necessary” and not “regular” expenses. The golden rule of government spending is for the United Kingdom government to limit the output or expenses to the inputs or resources. The government must also be complacent and continue its present sustainable fiscal policies. One of the major government moves is to target the annual inflation rate. There are many factors that affect inflation. Ordinary lay people interpret inflation as the monthly or even weekly increase of daily needs of man like food, clothing, and shelter. It is generally a persistent and readily felt rise in the prices of prime commodities. This rise in the prices of daily commodities results in the lower value of the monetary currency. The inflation rate can be triggered and increased by other factors like the unemployment rate, the gross domestic product, and other factors. The government now has to print more paper money because now the ordinary lay people need more paper currency to pay for the once lower priced basic goods like milk, fish, and others. The present rapidly expanding United Kingdom economy(Wormell, 2000) has contributed much to affect the inflation rate of the state. In an inflationary situation, the man on the street will have to spend more money to get the same quantity of basic needs they consume during the previous years. The United Kingdom must therefore constantly watch and take necessary steps to keep the prices of basic necessities or goods at stable, if not permitted to be lowered, prices. The present open policy of the United Kingdom government has helped much in alleviating the tight economic situation prevailing within its territories. The present increase in the unemployment situation has contributed to the inflation of goods. The daily moves of the Parliament and Chancellor Brown will also trigger the increase or decrease of the inflation rate. The present government is presently implementing the four principles of macroeconomics(Fleetwood, 1999) of the government which are (a) Principle of stability through constrained discretion, (b) Principle of credibility through sound long term policies, (c) Principle of credibility through maximum transparency and (d) Principle of credibility through commitment. Statements and Budgets The budget for the fourth quarter of the coming year 2007 is shown in Exhibit A below. The fourth quarter 2007 budget is based on the third quarter 2005 actual data taken. For the 4th quarter, 2007, the Gross Domestic Product at current market prices is 333.52 billion pounds whereas the households have 209.88 billion pounds. The non profit institutions will generate 7.5 billion pounds. The general government will generate 65.4 billion pounds. Acquisitions less disposals of valuables amounted to 0.1 billion pounds. We can also observe that the total exports amounted to 78.2 billion pounds and its counterpart, total imports, is estimated to reach a very high 88.2 billion pounds. Wages and earnings are forecasted to amount to 139.81 billion pounds. The consumer prices will amount to 123.09 billion pounds and 207.79 billion pounds. Revenue is expected to be at 136.4 billion pounds and expenditures amounting to 134,742 billion pounds will be lower than revenue that is listed earlier. Cost information with details. The International Monetary Fund has issued the Dissemination Standards Bulleting Board or (DSBB) which shows the Special Data Dissemination Standard (SDDS), the General Data Dissemination System and the Data Quality Reference (DQRD) The SDDS which implemented in 1996 to guide countries that seek access to international capital markets in the dissemination of financial and economic data to the public. The website gives fundamental information regarding implementation of the SDDS. This is a guide issued by the International Monetary Fund to it member states. The GDDS which was implemented only in 1997 is a simple guide to countries in the provision of comprehensive, accessible, reliable and timely financial, economic and socio demographic data. Reasoning of why did we analyze it in the certain way. The fourth quarter of the coming year 2007 has been patterned on the previously approved third quarter 2005 budget. The forecasted fourth quarter 2007 has been increased or decreased within the safe and relevant rage of ten or five percent. The main purpose is that since, the third quarter of 2003 budget has been approved, non accounting analysis of the information of the case. The five important factors that contributes to the completeness and up to date works submitted are inflation, unemployment rate, growth rate , gross domestics products and population. As explained above, Inflation is understood by the ordinary lay people as the increase in the prices of basic commodities. The next factor to be discussed is unemployment rate. Unemployment rate is the result when you divide the total number or persons that have no jobs at present and divide the result by the total number of the persons within a community. China has come up with a compulsory plan stating that every couple must have a maximum of only two children during their lifetime. This policy is strictly obeyed by its citizens. employment occurs because either there is no clear government policy that will create a more business invigorating situation where companies will easily generate profits in a market that is not saturated. When a market is saturated, this means that there are two many sellers than buyers. This will cause the market price to go down according to economics’ theory of supply and demand. As they say, a free economy will have a better chance of increasing the sales and increasing the market movements of products and money. Growth rate, just like what baby food advertisements offer, speaks of increases in the traffic, in terms of volume and monetary units. When the business environment is conducive to the market forces, the buyers and sellers will be happy to meet and offer and bid for the object being sold. Taxes will also help spur the United Kingdom. The taxes collected will be used constructed infrastructures. Management style. The management, in this particular case the United Kingdom Government, will have to follow strictness in the collection of data during the budget preparation stage to the budget deliberation phase and finally to the budget using state. There must be an open inter departmental communication from top management, this starts Chancellor Brown, to the line employees where the implementation process will start with. There must be transparency in all government transactions in order to show to the constituents that the United Kingdom government officials are really serious in their campaign to eradicate corruption in high places of the government. There must be a bidding process so that “under the table” illegal commissions. Things like these will make the purchaser “rich” because of the illegal commissions in exchange for approval. Chain of command. The chain of command will start from Chancellor Brown the highest ranked officer in the group. The next in line command are the department heads from different government departments. The department heads and the staff employees are the ones who have originally written the budget based their past daily needs. The forecasted expenses are generally based on the past expenses and plans for future hiring of additional qualified staff and expansion programs. The line employees will now have to maximize the money allocated to them which must not exceed the approved maximum amount for the year. Company structure. The company presented here is the United Kingdom government. The structure of the company is well known as a parliamentary form of government. The Parliament is composed of Lords. The United Kingdom has a monarch queen. BUDGETING ANALYSIS. The budget is based on actual or historical costs for the period covering the third quarter of 1995. The fourth quarter of the year 2007 budget is only an increase or decrease of five to ten percentage points of the third quarter 2005 actual budget. Conclusion based on the analysis. The present budget for the October to December 2007 budget is based on the actual budget that was approved for the period covering July to September 2005. Most of the line item budgets had a maximum of ten percent increase to the higher inflation rate which is expected. The budget will have the following: GDP at current market prices is 333.52 billion pounds. The households has 209.88 billion pounds. The non profit institutions will generate 7.5 billion pounds. The general government will generate 65.4 billion pounds. Acquisitions less disposals of valuables amounted to 0.1 billion pounds. We can also observe that the total exports amounted to 78.2 billion pounds and its counterpart, total imports, is estimated to reach a very high 88.2 billion pounds. Wages and earnings are forecasted to amount to 139.81 billion pounds. Revenue is expected to be at 136.4 billion pounds and expenditures amounting to 134,742 billion pounds will be lower than revenue that is listed earlier. The government policy of having all transactions made on a transparent basis helps a lot to eradicate graft and corruption in the government. The present government policy to keep the inflation rate in check is very successful for because it has implemented a strong open economy policy where the government does not tightly monitor business activities. It is as if the citizens are being literally choked to death thru the implementation of the many rules and regulations or laws. The inflation rate is continuously pegged at five percent to ten percent per year. The best way to combat the inflation to increase the number of investors and business entrepreneurs to the business world is thru putting infrastructure programs like bridges and roads from the farm to the market where the commodities or goods travel. Specific recommendations The government must implement the three pillars of government namely: (a) To deliver macroeconomic stability, tacking supply chain problems, (b) growth and, (c) Delivering employment and economic policies for the United Kingdom. The government will have a transparent business environment where all government transactions can be scrutinized by concerned citizens as to the involvement of under the table money or graft and corruption. The government departments under the United Kingdom must maximize their money by buying only supplies and other materials when necessary and to use liquid paper for erasing typing errors. The departments must not exceed the maximum allotted expenses or costs which has been approved by the head of government. The unemployment rate must be reduced. This can be done if the government will make statutes and regulations that will encourage the infusion of capital by both local investors and foreign capitalists. The government will tackle the inflation issue by hitting it head on with a vigorous economic reforms like giving tax incentives or discounts to present and future investors so that the volume and amount of business transactions will increase. BIBLIOGRAPHY: Baranzini & Cencini, Inflation and Unemployment: Contributions to a New Macroeconomic Approach, Routledge, London, 1996 Fleetwood, S., Critical Realism in Economics: Development and Debate, Routledge, London, 1999 Wormell, J., The Management of the National Debt of the United Kingdom, 1900-1932, Routledge, London, 2000 EXHIBIT A : (www.statistics.gov.uk/imf) PROPOSED NATIONAL BUDGET 3RD QUARTER 2007 REAL SECTOR SDDS data category and component Unit description Observations     Period of Data for Proposed     latest data Q3/05 Budget         Q4/07       Actual       National accounts               *  GDP at current market prices £ billion Q3/07 303.2 333.52       SA   **  Households £ billion Q3/07 190.8 209.88       SA   **  Non-profit institutions £ billion Q3/05 7.6 7.5       SA   **  General government £ billion Q3/05 65.9 65.4       SA   **  Gross fixed capital formation £ billion Q3/05 51.3 49.8       SA   **  Change in inventories £ billion Q3/05 1.8 0.3       SA   **  Acquisitions less disposals of valuables £ billion Q3/05 -0.2 0.1       SA   **  Total exports £ billion Q3/05 78 78.2       SA   **  Total imports £ billion Q3/05 91 88.2       SA   *  GDP at constant prices At 2001 prices Q3/05 282.7 281.5       £ billion   SA   **  Households At 2001 prices Q3/05 180.9 179.9       £ billion   SA   **  Non-profit institutions At 2001 prices Q3/05 6.9 6.8       £ billion   SA   **  General government At 2001 prices Q3/05 57.2 57.3       £ billion   SA   **  Gross fixed capital formation At 2001 prices Q3/05 47.3 46.3       £ billion   SA   **  Change in inventories At 2001 prices Q3/05 1.6 0.3       £ billion   SA   **  Acquisitions less disposals of valuables At 2001 prices Q3/05 -0.2 0.1       £ billion   SA   **  Total exports At 2001 prices Q3/05 76.5 76.8       £ billion   SA   **  Total imports At 2001 prices Q3/05 87.8 86.2       £ billion   SA   Production index Index of Production 6-Jan 99.4 119.28       SA   2002=100   Employment Workforce jobs Q4/05 30,919 34,011       '000   SA   Employment Labour Force Survey Nov/05 - Jan/06 28,806 31,687       '000   SA   Unemployment Claimant Count 6-Feb 884.2 928.41       '000   (2nd Thursday of each month)   SA   Unemployment Labour Force Survey Nov/05 - Jan/06 1,528 1,604       '000   Wages/Earnings Average earnings index 5-Jan 127.1 139.81       2000=100   Consumer prices Consumer Prices Index 6-Jan 111.9 123.09       1996=100   Consumer prices Retail Prices Index 6-Jan 188.9 207.79       1987=100   Producer prices Producer Price Index 6-Feb 102.3 107.415       2000=100   FISCAL SECTOR SDDS data category and component Unit description Observations     Period of Data for Proposed     latest data Q3/05 Budget         Q4/07       Actual       General government operations               *  Revenue £ billion Q3/05 124 136.4       *  Expenditure £ billion Q3/05 132.1 134.742       *  Balance, Deficit-/Surplus+ £ billion Q3/05   1.658       ( Read More