Government should introduce Austerity

The economic growth of country is determined by factors such as Capital structure, Human resources, Natural resources and revenue generation of businesses operating within the nation. A decline in the economic development can impact all the four factors of a government system.

One of the main contributors of decline in the economic system is debts.
A country borrows money from creditors, with the view of accelerating its capital, thus ensuring stability. When the percentage of debts exceed the Debt-GDP Ratio, they could be declared bankrupt and lead to severe crisis.

In order to bring down the expenses on debts that are beyond control, governments take cautious measures.

What is Austerity?
Austerity is defined as the condition of a government or nation adopting serious policies to bring down the impacts of an economic crisis. Austerity measures are implemented to avoid debt crisis. These assist a country in tracking the expenses of the government, controlling them and regulating new policies in the annual budgeting. According to a statement by The World Bank, if the Debt-GDP Ratio reaches a value beyond 77%, a country is believed to undergo an economic crisis. In such an emergency, the economic growth drops down by 2% every year.
Such financial dangers, often are linked to Higher Unemployment rates and low progress. To cope with the effects, administrations take actions as increasing taxes and cutting down unnecessary expenses other than needs. It is also important to remember, that an increase in tax during a stable economic condition is not an austerity measure.
Austerity Measures

Austerity measures are the strict guidelines adopted by governments to reduce the overall budget to avoid worsening the debt crisis. These measures work in three ways,
By Revamping programs executed by the Government – for example, the retirement age can be extended so that more labor can be extracted; which means more work done for a much better revenue. The wages of employees working for the public sector can be lowered as to save the overall budget expenses. More work opportunities at lower costs can also lead to less unemployment.
By Reforming Tax regulations – More taxes can be levied to promote contributions to the economy that can assist in debt clearance. Fraudulent activities and citizens evading tax payments can be detected and relevant actions can be taken to help tax amounts reach the government at the earliest. Public or Government-funded sectors (for instance, the transport industry or telecom industry) can be privatized in order to receive more funding.
By bringing down Business Costs – Regulations can be made to increase the work hours to track the expenses. Work hours of staff can be increased to boost labor and revenue. A check on the number of wrong terminations and lay-offs can be done, so the quality of work is not compromised.
Austerity Examples
In 2008, the United Kingdom faced the worst Recession of their times. The government imposed stringent regulations and guidelines on the expenses made by the public and increased taxes for nearly everything. Though the system excluded the services by the National Health Service (NHS) from the policies, the Austerity measures were widely criticized by economic experts.
The Great Depression of the United States in the 1920s, pressurized the government to adopt frugal spending methods and increase taxes on its people. Perhaps it helped the economy to bring down the crisis rate by 50%. It was still criticized by politicians and economists across the globe, claiming it unnecessary.
Importance of Austerity
Austerity measures are quick solutions to economic crises of countries.

  • They help in managing the national budget effectively especially during a time of weak economic growth. The reforms ensure unnecessary expenses are diagnosed and dropped at once.
  • The interest of government debts may spike up which makes it hard for the country to refinance the debt. Austerity Measures can help the economy recover from the damages caused.
  • It helps a nation to have at least a momentary positivity during the times of financial predicament.
  • Criticism on Austerity

Though Austerity policies offer temporary relief to the governing authorities, it is believed to have adverse effects on the citizens. Low Wage workers are the most affected while implementing strict monetary rules. They may not be able to afford high taxes and cuts in remuneration especially during recessions. Economists consider austerity measures, the causes that could cripple a country’s economy.
What is the meaning of Austerity?
Austerity means a restricted condition of living in order to cope with the negative economic fluctuations of a country.
Can austerity cause poverty?
Though austerity cannot be completely responsible for poverty of a nation, it contributes to low wages, unemployment and increased cost of living.
Are Austerity Measures and Austerity program similar?
Austerity program and Austerity measures are synonymous. Austerity program is the agenda that comprises of the measures that can be implemented to see results.
Why is austerity bad?
Austerity measures can become bad when it impacts the financial lives of the citizens by reducing wages, retirement pensions and increasing taxes on almost everything.
How does Austerity work?
When governments undergo financial crises, because of debts and interests, they formulate stringent policies called as Austerity Measures, to overcome the damage caused – by reforming taxes and revamping public programs to restore the financial health.

Leave a Reply

Your email address will not be published. Required fields are marked *