Budget deficits are common occurrence in today’s modern times because most governments cannot sustain the corresponding level of revenues that’s needed in order to support the budgetary requirements. A budgetary requirement will then be brought and dictated with the rising needs and expectations of a country, its people and government, which comes with the responsibility in meeting and servicing them.
At time of good economic times, which is at the stage of the business cycle from expansion to peak, government revenues are actually at its highest as the private business sector could pay more taxes from good business which is brought by favorable economic environments. This however is axiomatic because during good times, the government has the tendency to correspond appropriate more expenses with its budget and during at times of increasing its budgetary appropriations in a level that’s more than the increase on its revenues. This in fact is why a budgetary deficit still occurs.
To summarize it, a recession or a contraction of the economy with what was reflected in a budget deficit is neither going to be solved by the capping of governmental expenses or on the imposition of more taxes on the taxpayer in raising more revenues. The results to both instances is only prolonging the economic stagnation due to the reason where there’s no catalysts to rev-up the economy because both of the private and government sectors are holding back on the investments with the government’s case because this is cutting back on expenses. On the private sector on the other hand, it has been burdened additionally with more taxes.
The government needs to consider during times of fiscal deficits and at times when the economy is on a sluggish mood, embarks with an expansionary monetary program to which is designed in shoring-up, rev-up and propel economic activities, which then will help extricate the economy from the current economic contraction it is in. This kind of expansionist monetary policy consist of the government on increasing the level of money supply in circulation up to a point which is going to enable it to expand its economic activities through investments on income generating ventures, projects and programs.
This actually could be accomplished with the government borrowing against the future taxes by selling long-term bonds and securities to the central bank which then shall issue the corresponding new local money. The new local money that had been created then will be used in financing development projects like the construction and establishment of infrastructure and utilities that’s all over the country, which will catalyze growth and expansion and in creating a more favorable business and economic climate in order for private businesses to thrive. With such government assistance and more business opportunities, the private sector could then expand and grow, making more profits, employing more people and pay more taxes to the government.