Name : Maseleka Ndivho
Surname : Mkobi
Student number : 18HA2302311
Support centre : Boston city campus (Krugersdorp)
Module name : Public Accounting Administration
Module code : HPAA200-1
Assessment type : Formative Assessment 1
Question 1
1.1 {UNIT 1 -Page 5-9}
Laissez- faire
➢ This is a French term that means “let do” or “let go". It refers to an economic
system in which the government does not interfere with market forces of supply and
demand, allowing individuals and enterprises to act in their own self-interest.
Laissez-faire supporters believe that the market is the best vehicle for efficiently
allocating resources and promoting economic growth.
Welfare
➢ In this economic system, the government prioritizes providing social services and
benefits to citizens, particularly the poor and disadvantaged. Welfare supporters
argue that the market alone cannot provide social justice and equality, and that the
government must safeguard the public interest and redistribute wealth. Welfare
policies cover public education, health care, unemployment insurance, pensions, and
subsidies.
Neo-Classical
➢ This modern economics approach combines traditional cost of production theory with
utility maximization and marginalism. Neoclassical economists acknowledge the
likelihood of market failures and argue that government intervention may be required
in some situations, such as externalities, public goods, and monopolies. They also
contend that government action should be limited and cost-effective.
{UNIT 1- Page 16-18}
The main objectives of governmental monetary policy.
Price Stability
This relates to keeping inflation, or the overall growth in prices, under check.
Monetary policy seeks to keep the value of money stable across time. High inflation
reduces purchasing power, meaning your money will purchase less tomorrow than it
does today. In contrast, deflation (lower prices) can discourage consumption and
investment, stifling economic growth. Central banks normally aim for moderate and
predictable inflation rates, which are often around 2% in many industrialized nations.
To maintain a low and stable inflation rate so that the buying power of money is not
undermined, and economic decisions are not affected by unforeseen price
movements.
Economic Growth
Monetary policy is critical to promoting economic health and growth. It thrives
when given adequate water. By lowering interest rates, the central bank supports
lending and investment. This injects money into the economy, boosting corporate
activity, consumer spending, and, ultimately, economic growth.
Full Employment
High unemployment represents wasted resources and lost potential. Monetary
policy strives to maintain a low unemployment rate, often referred to as the
natural rate of unemployment. To promote the optimal use of labour resources
and reduce unemployment, which is a social and economic problem By
supporting economic growth, monetary policy indirectly helps create more job
opportunities.
Balance of payments equilibrium
To maintain a steady and favourable balance between the exports and imports of
goods and services, as well as the inflows and outflows of capital, which affect
the exchange rate and the external value of the currency.
The main objectives of governmental fiscal policy
Income Inequality
Unlike monetary policy, fiscal policy can directly address income disparities.
The government can raise taxes on high-income earners (progressive tax)
and use that money to fund programs like education and welfare that benefit
low-income people.
Economic Growth
Fiscal policy can help to drive long-term growth. The government invests in
infrastructure (roads and bridges), education, and research to lay a solid foundation
for future economic growth.
Economic Stabilization
Fiscal policy works as a method for adjusting the economy's direction. The
government may raise spending on infrastructure projects or social initiatives. This
adds money to the economy, boosting activity and encouraging businesses to invest.
Furthermore, they may reduce taxes, putting more money straight into people's
pockets. Conversely, during periods of severe inflation (rapid price increases), the
economy grows too quickly. Fiscal policy serves as a tool to limit this expansion. The
government may reduce spending or boost taxes. This removes money from
circulation, which reduces activity and, ultimately, slows inflation.
1.2 {UNIT 1- Page 23}
Main differences between private goods & services and public goods &
services.
The private sector produces private products and services for individual use,
whereas the government produces and distributes public goods and services for
common consumption. The primary goal of the government is to provide services
to its population, whereas the private sector seeks to profit. Public goods and
services are inherently non-rivalrous and non-excludable..
1.4{UNIT 1- Page 23}
Non- rival public goods and services
Non-rival public goods and services are those that can be consumed by one
individual without limiting the consumption opportunities of others. In other words,
just because one individual appreciates a non-rival item does not mean that others
cannot.
The consumption of a non-rival commodity or service by one person does not
impede or diminish its availability to others. In reality, adding a unit of these
commodities or services can benefit all users.
Examples of non-rival public goods and services are public radio and television
broadcasts, national defense, clean air, and streetlights.
Non-excludability public goods and services
It means that it is difficult or expensive to prevent people from using the good or
service, whether they pay for it. It generates a free-rider dilemma, which means that
people have an incentive to use the commodity or service without paying for it
because they can't be denied its benefits. This diminishes individuals' willingness to
contribute to the provision of the good or service, resulting in a lower level of
provision than is socially ideal. For example, public recreation sites such as parks
may hire a gatekeeper to collect entrance fees during peak seasons when the
revenue exceeds the expense of collection. Free entrance would be permitted
during the off-season, when revenue generated is lower than the cost of collection
(i.e. the salary of the gatekeeper); clearly non-excludable goods are defence, police
services and streetlights.
Question 2
2.1 {UNIT 3- page 74}
A public finance management system is a framework that governs how public
monies are received, allocated, spent, and tracked across various sectors and levels
of government. It consists of a system of rules, institutions, policies, and practices
designed to promote accountability, efficiency, and effectiveness in the use of public
funds. It addresses several areas of public finance, including taxation, budgeting,
debt management, subsidies, and state-owned firms. It is also vital for attaining
economic and social goals, such as economic growth, poverty reduction, and public
service delivery.
2.2 { UNIT 3- page 79}
Regulating financial management within national and provincial governments.
Ensuring the effective and efficient management of revenue, expenditure, assets,
and liabilities of these governments.
Assigning responsibilities to individuals tasked with financial management in these
governments.
Addressing related matters.
2.3 {UNIT 3: Page 88}
The functions, powers and responsibilities of the national treasury in terms of
section 6 of the Public Finance Management Act (PFMA).
To develop the comprehensive macroeconomic and fiscal framework,
coordinate intergovernmental fiscal relations, and oversee the budget
preparation process.
To manage the execution of the budget, promote and enforce the
management of revenue, assets, and liabilities.
To monitor and evaluate the implementation of the budget and financial
management by national and provincial departments, public entities,
constitutional institutions, and municipalities.
To establish uniform treasury norms and standards, and provide instructions
and guidelines for implementing the PFMA.
To compile and disseminate national financial statements, statistics, and
reports, as well as consolidate the financial statements of all government
spheres.
To oversee the banking, cash management, and investment framework for
national and provincial governments.
To carry out any additional functions assigned by the Constitution, the PFMA,
or other legislation.
2.4) {Unit 3: Page 74}
FOUR reasons why a strong public finance management system is essential.
• Support the achievement of economic and social goals, including economic
expansion, poverty alleviation, and the delivery of public services, by aligning
public funds with national priorities and the needs of the populace.
• Enhance government credibility and legitimacy by demonstrating its capacity and
commitment to managing public resources transparently, accountably, and
inclusively, while delivering outcomes and value for money.
• Mitigate the risks of corruption, fraud, and mismanagement by implementing
clear, enforceable rules and standards, alongside effective oversight, and
auditing mechanisms.
• Promote fiscal sustainability and stability by ensuring public expenditures remain
within available resources, and by maintaining public debt and deficits at
manageable levels.
2.5 {Unit 3: Page 110}
Why the MFMA go about promoting sound financial governance in the
municipality?
• Clarify the roles and responsibilities of the council, mayor, and officials.
• Ensure transparency and accountability in the use of public funds.
• Improve the efficiency and effectiveness of public budget allocation and its
implementation.
• Ensure equitable access to quality public services.
• Encourage flexibility and innovation within the public sector.
Question 3
3.1 {UNIT 4- Page 160}
TWO Characteristics of taxation
Compulsory
Taxes are mandatory contributions levied by the government's legislative
authority. As such, they are not subject to negotiation, and failure to pay is
subject to legal penalties.
Absence of direct quid pro quo
This implies that the taxpayer does not obtain equivalent value in goods or
services for the taxes paid.
3.2 {UNIT 4- Page 161}
• The function of wealth redistribution occurs when taxes are levied more
heavily on high earners and utilized for public services that benefit all,
thereby fostering a more equitable society.
• The function of economic regulation allows taxation to affect inflation and
unemployment, thereby promoting economic growth and stability.
• The tax system can discourage the consumption of certain goods and
services by imposing higher fees, such as sin taxes on tobacco products
and alcohol. This can also be achieved by deterring the consumption of
foreign goods through high customs duties.
• Reduced inequality can be achieved through progressive taxation systems,
where those with higher incomes pay a larger percentage of their income
in taxes, thus helping to narrow the gaps in wealth and income.
3.3) {UNIT 4-page 165}
Direct Tax
Taxes that are paid directly by the individuals or organizations who earn income or
profits. The government collects direct taxes from the taxpayers based on their
income level or wealth.
Examples:
Personal Income Tax: Levied on an individual's or company's income. You pay this
directly to the government based on your earnings.
CoporateTax: Assessed on the value of real estate you own. You receive a bill
directly from the government and are responsible for payment.
Indirect Tax
Consumers pay indirect taxes on goods and services. The government collects
indirect taxes from manufacturers or sellers of products and services, which are
subsequently passed on to consumers by increasing the price of the product or
service.
Examples:
Sales Tax: A levy on the sale of certain goods and services. Businesses collect it at
the point of purchase and then remit it to the government.
Value Added Tax (VAT) : is a tax charged on the majority of products and services
sold in South Africa. The standard rate of VAT is now 15%, but some items and
services are exempt or subject to a reduced rate of VAT. Similar to sales tax but
levied at all stages of manufacturing and distribution. Businesses include VAT in
their pricing, and the consumer eventually pays the accumulated tax. Registered
businesses collect VAT on behalf of the government and pay it to the South African
Revenue Service (SARS) on a regular basis.
Question 4
{ UNIT 4- page 162}
4.1
Aligadede (2012) defines tax as a mandatory contribution from individuals or entities
to the government, which is not tied to any direct or specific benefit in return. This
contribution is utilized to fund public expenditures, including public goods, social
services, and infrastructure development. Additionally, taxes fulfil other roles such as
redistributing wealth, regulating economic activities, and stabilizing the economy."
4.2
Compulsory contribution
Taxation is not a voluntary contribution, but rather a mandatory requirement of
taxpayers. The government has the legal jurisdiction to collect taxes and impose
fines for noncompliance. Taxpayers cannot refuse to pay taxes because they do not
use government-provided public services or goods.
Absence of quid pro quo
Taxation does not involve a direct monetary exchange for a specific benefit or
service. The tax amount a taxpayer pays does not correlate with the quantity or
quality of public services or goods provided by the government. Instead, the
government allocates tax revenue to cover its general expenses, which may or may
not offer direct or proportional advantages to the taxpayer.
4.3
• Taxation is a mechanism used to distribute income and wealth among different
societal groups, such as from the rich to low-income individuals or from urban to
rural areas. This redistribution helps to reduce inequality and poverty, which
promotes social justice and welfare.
• Taxation serves as a regulatory tool that influences the behaviour of economic entities
such as consumers, producers, and investors. For example, imposing fees on harmful
items (such as tobacco or alcohol) or activities (such as pollution or gambling) can
discourage their usage or production. On the other hand, providing tax breaks for
beneficial products (such as education or healthcare) or actions (such as saving or
innovation) can increase their consumption or production.
• Taxation serves multiple purposes beyond the redistribution of income and wealth.
It acts as a mechanism to regulate the size and scope of government, ensuring
accountability and transparency. Taxes fund public goods and services like defence
or infrastructure, which are crucial for societal function. Furthermore, taxation can
restrain government power by necessitating legislative or judicial approval and
oversight.
• Additionally, taxation supports sectors or industries critical to national interests or
strategic development. For example, taxes can protect local manufacturers from
international competition through tariffs or import quotas. Taxes can also
encourage domestic production by offering tax deductions or credits for exports or
investments.
