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Identify the budget type.

Business/Management

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Part a· 2 steps

  1. Identify the budget type.

    From Table 3, the "Budget Position (Deficit/Surplus)" for all three years (2024, 2025, 2026) shows negative values (-K3.4b, -K2.6b, -K3.2b). This indicates a budget deficit for all three years.

  2. Calculate the average annual deficit.

    The deficits are K3.4 billion, K2.6 billion, and K3.2 billion.

    Average annual deficit=K3.4b+K2.6b+K3.2b3\text{Average annual deficit} = \frac{\text{K}3.4\text{b} + \text{K}2.6\text{b} + \text{K}3.2\text{b}}{3} Average annual deficit=K9.2b3\text{Average annual deficit} = \frac{\text{K}9.2\text{b}}{3} Average annual deficit=K3.067b\text{Average annual deficit} = \text{K}3.067\text{b}

    The PNG government has run a budget deficit in all three years. The average annual deficit across the three years is K3.067 billion.

    Budget Deficit, Average Annual Deficit: K3.067 billion\boxed{\text{Budget Deficit, Average Annual Deficit: K3.067 billion}}

Part b(i)

What type of tax is this? Justify.

Based on Table 4, as annual taxable income increases, the tax rate also increases (from 0% to 40%). This is a progressive tax system.
Justification: A progressive tax system means that individuals with higher incomes pay a larger percentage of their income in taxes compared to those with lower incomes.

Part b(ii)

Why is this type of tax considered fairer than a flat-rate tax?

A progressive tax is considered fairer because it aligns with the ability-to-pay principle. Those with higher incomes are deemed to have a greater capacity to contribute to public services without significantly impacting their basic living standards, thus promoting greater income equality. A flat-rate tax, while simple, takes the same percentage from everyone, which can disproportionately burden lower-income individuals.

Part c· 2 steps

  1. Identify one economic risk of rising public debt as a percentage of GDP.

    A rising public debt as a percentage of GDP can lead to increased interest payments on the debt, which diverts government funds away from essential public services or investments.

  2. Suggest one fiscal policy action.

    One fiscal policy action the PNG government could take is to reduce government expenditure (e.g., by cutting spending on non-essential projects or improving efficiency) to decrease the budget deficit and slow the growth of public debt.

    Risk: Increased interest payments. Action: Reduce government expenditure.\boxed{\text{Risk: Increased interest payments. Action: Reduce government expenditure.}}
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