What does Maintaining Fiscal Balance mean? (1 Viewer)

[michaeljennings]

Could someone explain this to me i have no idea what it means

 

[tambam]

Fiscal balance is the money that the government gets from taxes and the assets they sell off, minus the money they spend.
So maintaining fiscal balance means ensuring that the money they spend does not exceed the money the receive, or their fiscal balance is in deficit.
If they receive more money than they spend, then they have a fiscal balance surplus, which is good, meaning the fiscal balance has been well maintained

 

[michaeljennings]

okayy but how does this "ensure that the public sector doesnt draw on savings that could otherwise be used to fund domestic investment"?

 

[tambam]

okayy but how does this "ensure that the public sector doesnt draw on savings that could otherwise be used to fund domestic investment"?

It means that the government needs to ensure they have fiscal surplus, by not spending all the money they have acquired (ie. drawing on savings). Instead they need to ensure that they invest the money/save it for future purposes
(Sorry if I'm wrong, I kinda made it all up, but it makes sense right?)

 

[enoilgam]

okayy but how does this "ensure that the public sector doesnt draw on savings that could otherwise be used to fund domestic investment"?

When the government borrows to fund a deficit this causes the "crowding out effect", whereby the government is consuming money from the economy which would otherwise be used to fund domestic investment. I think thats how it works, but I'm a little rusty, maybe someone could explain it a little better.

 

[Bobbo1]

When the government borrows to fund a deficit this causes the "crowding out effect", whereby the government is consuming money from the economy which would otherwise be used to fund domestic investment. I think thats how it works, but I'm a little rusty, maybe someone could explain it a little better.

Makes sense to me, and also this can cause higher interest rates from banks who have to compete with safe and higher returns from government securities. And the government has to pay it back with interest rates so more servicing costs...