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A) Financial Policy

... term is broad and its definition is likely to differ somewhat from country to country. On the widest definition, it covers ... fiscal policy (budgetary policy, i.e. policy on government revenues and expenditures), monetary policy, credit policy and management of government debt. The core of financial policy is fiscal policy. Some economists believe that fiscal policy is synonymous with ... state budgetary policy. There exists, however,... wider definition that would cover the policy on the level and composition of all central and local government revenues and expenditures.

Financial policy whose main goal is provision of financial resources for ... implementation of ... state programmes of economic and social development is part of ... complex of economic policies influencing ... level and pattern of economic activity and income distribution.

The economic policy of... Russian Federation is aimed at creating conditions for sustained economic growth by reducing ... inflation, by ensuring ... free operation of markets of goods and factors of production, by achieving ... balance of payments stability. These goals can be achieved mainly by elaborating and implementing ... adequate fiscal policy.

The fiscal policy implemented these days in Russia presupposes first of all the reform of... federal budget. The ongoing budget reform includes ... shift to the new budget classification, introduction of ... better system of interbudgetary relations, changes of budget planning principles, shift to ... treasury system of budget execution. Over ... last few years the collection of tax revenue has tended to fall. Thus the Government's fiscal adjustment programme provides for a package of measures aimed at increasing revenue collection through the reform. Attention is being paid to improvement of ... tax legislation. The new tax administration system shall meet... following requirements: broad tax base, well-balanced system, equitabable and transparent character, symplicity of administration. The main aim of ... tax reform is to strengthen ... budget, to provide financial resources for the budget system in the amount necessary to finance ... state spendings for ... state apparatus, for defence, health care, and ... culture.

Words you may need:

management of government debt управление государственным долгом

core n сердцевина

treasury system of budget execution казначейская система исполнения бюджета

B) Fiscal Policy in the uk

Fiscal policy in ... UK is guided by two strict rules:

• ... Government will borrow only to invest and not to fund current spending;

and

• net public debt as ... proportion of GDP will be held at ... stable and prudent level.

These rules mean that... taxpayers pay for ... current spending and require public borrowing to be kept under firm control.

The Finance Act 1998 established a new Code for Fiscal Stability, which requires fiscal and debt management policy to be carried out in accordance with five key principles:

• transparency in setting fiscal policy objectives, the implementation of fiscal policy and the publication of the public accounts;

• stability in ... fiscal policy-making process and in ... way that fiscal policy affects ... economy;

• responsibility in the management of the public finances;

• fairness, including between ... generations; and

• efficiency in the design and implementation of fiscal policy, and in managing both sides of... public sector balance sheet.

In practice it means that the public finance and fiscal strategy in ... UK will be aimed at setting overall spending limits for individual departments and planning and controlling public expenditure more strictly within ... framework of capital and current budgets.

Ex. 9. a) Supply the prepositions where necessary,

b) Write down 3-5 questions about the text.

Focus on Fiscal Consolidation

The past two decades have seen the development of a worrisome and unprecedented phenomenon – the ballooning of public debt in industrial countries during a period of general peace and economic prosperity. In the past, large but temporary budget deficits arose in response ... extreme circumstances, such as major wars or global economic depression. But these debt problems were transitory, because in their wake, governments tightened their belts and cut back ... spending.

A striking characteristic of modern fiscal imbalances is that they originate ... dramatically increased spending rather than falling revenues.

Economists identify several forces that may be behind these imbalances in industrial countries, including:

• The growth of public pension and social spending. Aging populations in industrial countries are growing dramatically, which means more elderly people to support, much higher health care bills, and a smaller share ... the population to work and pay taxes. These future liabilities dramatically worsen the budget prospects of industrial countries. According ... IMF staff estimates, public pension liabilities in 1994 exceeded 68 per cent ... GDP in all major industrial countries. The situation is even worse when commitments to provide future health care benefits are taken ... account. The bad news conveyed ... these figures is that public pension programs are much more generous than governments are likely to be able to support. Future generations of workers will thus face ... either much higher tax burdens to maintain the levels of benefits or sharply reduced benefits;

• Unemployment benefits;

• The productivity slowdown since the early 1970s;

• Increased exchange rate flexibility since 1973 and growing

• integration of world capital markets, which make it easier for governments to run large budget deficits.

Persistently high levels of government debt are a threat ... economic health. The heavy public debt burdens in most industrial countries make it imperative ... governments to take unpopular and painful... people remedial actions.

Words you may need:

fiscal consolidation укрепление бюджетно-налоговой политики

worrisome adj вызывающий беспокойство

balooning n раздувание, расширение

transitory adj временный

in the wake of по следам, по пятам (чего-л.)

to tighten one's belt затягивать пояс

public pension liabilities обязательства по выплате пенсий

imperative adj настоятельный

painful adj болезненный

remedial adj (зд.) коррективный

Ex. 10. Open the brackets putting the verbs in the correct form:

Transition economies recently (to make) impressive steps towards reducing fiscal imbalances. Cuts of cash expenditure (to bring) about a decline of fiscal deficits for the CEE countries as a whole to about 4 per cent of GDP in 1995 from 10 per cent in 1994 on average. This was mainly the result of large reductions in enterprise subsidies, military spending, and capital expenditures. Despite these spending cuts, however, outlays for social services (such as schools and hospitals) and social security (to remain) relatively stable, relative to GDP. Over the same period, general government expenditures (to fall) on average to 30 per cent of GDP from 38 per cent. While the economies in transition (to make) solid progress over the past few years toward fiscal consolidation, macroeconomic stabilization (to require) additional reduction of inflation and successful implementation of:

• structural reforms, including reform of the tax system and the public expenditure system;

• improved revenue collection through elimination of loopholes, tax evasion and exemptions, broadening of the tax base;

• greater political leadership of the reform process – especially by formulating long-term fiscal adjustment policies.

Words you may need:

transition economies страны с переходной экономикой

on average в среднем

loophole n лазейка

tax evasion уклонение от уплаты налогов

leadership n руководство

Ex. 11. a) Fill each gap with a suitable word from the box.

b) Sum up the text in 5-7 sentences and present your summary in class.

repaid reliance leads

supply adversely bank

occur reduced limit

Financing the Deficit

Since the early 1970s quite a number of countries have been experiencing serious financial problems which have caused growing budget deficits.

Trying to find solutions to swollen budget deficits, governments undertake austerity programmes, work out harsh budgets, implement macroeconomic stabilization, establish priorities for government spendings, analyse effects of different ways of financing their budget deficits.

In principle, budget deficits may be _____ by borrowing from domestic bank and nonbank sources, and from the rest of the world.

Excessive_____ on any of these methods of finance may be dangerous because:

• Government borrowing from the central_____directly affects the monetary base and the money_____. Excessive growth in the money supply leads to high inflation rates and balance-of-payments problems.

• Substantial borrowing from the nonbank sector may _____ affect the structure of demand and growth potential. In particular, this borrowing may_____the availability of resources to finance private investment. Such "crowding out" of private investment may_____ through the impact of government borrowing on domestic interest rates.

• Reliance on external finance_____to the accumulation of debt, which needs to be serviced and eventually_____.

A prudent fiscal policy permits a public deficit, but it must be maintained at a level consistent with other macroeconomic objectives: controlling inflation, promoting private investment, and maintaining external creditworthiness.

Words you may need:

austerity programme программа жесткой экономии

harsh adj жесткий, суровый

"crowding out" вытеснение частных инвестиций государственными расходами

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