Government Austerity Can Rescue the Economy by Cutting Costs

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The COVID-19 pandemic has caused a lot of financial strain around the world. Countries are scrambling to cover the costs of their operations. For those heavily affected by the pandemic, emergency measures have been set up and followed. The measures are meant to flatten the curve.

At the same time, governments are planning how to get back to a typical social environment. Besides lockdowns and quarantines, austerity measures are also considered keeping the private sector and businesses working.

Health and Finance Problems

For governments, the pandemic presents multiple related problems. Countries want their population safe and lessen the number of infected cases and deaths. The health and welfare costs are staggering; at the same time, businesses also suffer less volume and sales.

With health costs rising, and companies suffering, the tax collection would also become lower. The internal deficit can be debilitating. The country ends up in a situation where it will take years to pay off debts or rebuild the economy.

In most instances, external financial forces dictate that austerity measures are implemented. Lenders usually dictate conditions for countries to maintain their good financial standing.

Part of the requirements for loans is for the government borrower to enforce laws, taxes, and economic policies. These policies are meant to keep the government functioning and financially viable. In turn, the government will be able to continue repaying the loans.

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Common Austerity Measures

The principles behind austerity measure include increasing taxes on the rich, retrenchment of government employees, lowering government employees’ salaries, selling government assets to the private sector, reducing pension benefits, and raising property taxes. These measures were implemented in one form or another during the 2008 financial crisis.

Countries in the European Union and the Union itself had to implement measures to cut down on expenses and increase tax collection. Among the countries that were severely affected were Ireland, Spain, Italy, Greece, and Portugal.

The 2008 financial crisis caused plenty of backlashes and further caused some other countries’ 2011 financial crisis. At the same time, industries, banks, and financial companies were also adversely affected by these financial crises. The 2008 financial crisis forced big banks and lending institutions to fold, merge, or ask for bailouts.

Companies that we’re unable to pay off their loans availed of protection like the chapter 7 bankruptcy laws. These laws help companies to operate while they restructure their debts.

However, in most instances, individuals and companies under these protections could not file for new loans during this period.

Austerity measures are significant undertakings with short-term benefits. Countries are given some reprieve allowing them to extend their loan repayment period, continue providing public services, and for the government to function.

These are belt-tightening procedures where citizens feel some hardships, but it keeps the government afloat and enables local businesses to continue transacting internationally. The alternative would be sanctions against the government and banks and economic failure for the citizens.

Austerity measures are forced on a government to ensure that the economy would hold itself together through the bad times. In the meantime, the citizens and businesses would be implementing their own policies to operate profitably while the economy shrinks.

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