What is an Austerity Package?
To a majority of Europeans and in the future Japanese, a new buzzword has dominated the national news- austerity. Austerity measures are now a vital fact of life as many governments start tackling their national debts. What is an austerity package?
[caption id="attachment_912" align="aligncenter" width="500"]
What is an Austerity Package?[/caption]In economic terms, when any kind if government, whether it is a local, regional or national has to reduce its spending and perhaps raise its fees and taxes to pay back creditors. This is an austerity package.
Depending on the nature of the economy, and amount of debts the government has accumulated, each austerity package differs. However, the effects of cuts, does trickle down to the economy, and creates adverse effects.
Sharp austerity measures made by the current Greek government have led to violence on the streets, and bitterness within Greek society. In Ireland and Spain it has led to some demonstrations, but a silent acknowledgment that these measures had to be implemented.
The Five basic Ingredients of an Austerity Package can be:
1. Pay Cuts
Generally the civil service is first to be hit with an austerity package. Usually salaries are either cut or frozen, whilst departments cut or merged. In some cases staff are laid-off, or their working hours reduced. Recently in Greece, public servants and politicians has to accept a 10-15% cut in salaries. The new UK government has also cut pay to ministers by 5%, and stopped most civil servant bonuses.
2. Reduced Subsidies
Some countries subsidize transport, petrol costs and even new business start-ups. In the European Union most new business start-ups are subsidized, as well as some public transport, and sectors involved in agriculture. If these are cut or a subsidy is phased out, the effect could range from higher priced food to less new businesses.
3. Increased Taxes
In times of austerity, some taxes will have to naturally rise, whether it's a 'wealth tax" or an increased luxury goods tax. Some taxes are placed on alcohol sales or cigarettes, which often raise in price during times of austerity, even local rates on your home or business could rise.
4. Social Security
California recently announced it would evaluate its existing social security system, in order to save billions the state owes due to its massive deficit. Greece, the UK and Spain also are currently re-evaluating their current welfare systems.
In 2005, Germany cut its once generous social security system, creating a "means tested" work fare system- based in part on a community work model. The age of eligibility for a state pension has increased in many countries, whilst student and poverty- based programs are often cut.
5. The Sale of State Assets
Germany's example of sharp austerity measures in the mid-2000s, led to the sale of state buildings, and new rent-lease agreements with the new owners. This led to a reduction in state ownership, whilst releasing immediate funds to the government. Schools sometimes were sold, whilst services privatized or simply shelved.
6. Lay-offs
State Governments often trim or even close down departments to save money. In many of California's schools, teachers have been replaced by television sets, and schools once opened only four days a week. Theatres may close, whilst public transport is cut. State lay-offs add to unemployment queues,- which is one reason many economists argue that in a deep recession, the state should employ more people rather than cut jobs.
The effects of any austerity budget, depends on how far people are ready to accept it. In many societies- cutting state funded social safety nets are unpopular, and could have a destabilizing effect on society.
Much depends on how the government stimulates the economy, whilst implementing austerity measures, in the hope that a new economy will offset the consequences of any cut backs- either way 2010 is the year of austerity for many.
Discover how to survive and thrive in a changing economy
Article Source: http://EzineArticles.com/?expert=Mark_W._Medley
http://EzineArticles.com/?What-is-an-Austerity-Package?&id=4314616
Image Credit :
