Business, the Economy and the Government

The Government

How do the government help business?
How do the government impact the labour force?
How do the government impact business?

The political parties running the Irish government are Fine Gael and The Labour party.

• Involved in National Agreements

The government work with the social partners (ICTU, IBEC, CIF, IFA) to reach agreements in areas such as pay and conditions for workers.  They do this to help improve industrial relations and help the business plan for the future.  These agreements are made to help business survive and expand, generating profits and creating jobs.

• Set up government agencies

The government have set up a number of agencies to help expand, succeed and create employment.
Enterprise Ireland: Help indigenous business expand and export offering advice, grants and support
FÁS: Trains potential workers with skills needed for business
Bord Bia: Helps Irish food and drink business to sell their products abroad
IDA: attracts transnational to Ireland

• Pay out government grants

A grant is a one off lump sum that does not have to be paid back once the recipient meets the grants criteria. Government give grants to help with business start up, purchasing assets, providing training, carrying out feasibility studies.  Grants allow business to set up and expand, generating profits and creating jobs.

• Pass laws

Government regulations is the laws the government pass to control business activities and protect all parties involved in business.  Laws include:
Sale of goods and supply of services Act 1980 - retailer responsibilities
Consumer protection Act 2007 - advertising, pyramid schemes and set up NCA
Industrial relations Act 1990 - industrial action
Unfair dismissal Act 1977 / 1993 - dismissing staff, fair, unfair, how it should be done, redress
Employment equality Act 1998 /2002 - deals with discrimination under 9 grounds
Data Protection Act 1988 - information held on computers
Companies Act 1990 - ensures companies are set up correctly and accounts are monitored

• Set taxes

When the government lower tax it helps all parties in business.

Corporation tax - helps companies become more profitable and attracts TNC's - 12.5%
PAYE - helps workers giving them more disposable income -  lower rate 20% upper rate 41%

• Government as an employer

 The Irish government is the biggest employer in Ireland, creating 1000's of jobs. It employs people in
Civil service - government departments
Public service - doctors, nurses, teachers
State owned enterprise - CIE, An Post
Not only is it creating jobs but also providing vital service to other businesses to succeed

Exam Papers

1. 2013 Q2 b
2. 2011 SQ6
3. 2010 Q2 c
4. 2004Q2a

Business impact on the Economy

Business have a big significance (positive and negative) on the economy.

 

Positive impact

• Create jobs

Employment leads to lower unemployment and demands on the government for social welfare. 

• Buy materials and services

Business buy from other business, this leads to the creation of more enterprise and wealth in the economy

• Low Inflation

Competition between business forces business o lower their prices and in turn this leads to lower inflation.

• Creates wealth

Entrepreneurs spend their profits and employees spend their wages, this spending generates wealth for an economy

 

Negative impact

• Environment

In order to cut costs business may think of profits over environmental issues.  This can have a big impact on the tourism industry as people will not holiday in an area they consider polluted.

• Close down

If a business closes down it can have a huge impact on the local economy of that area.  This can cause mass unemployment

• Pressure on infastructure

Succesfull business can cause problems such as traffic jams trying to gain access to them.  This slows down the transporting of goods to aeas and increases coasts of doing business.

• Main aim is profit

In order to increase profit a business may increase price and this will lead to increase in inflation and this is negative for economy

Explain the significance (negatives and positives) business have on the economy.  20 marks

Economic Variables

These are factors that rise and fall and impact the Irish Economy.

 

Inflation

• Annual percentage increase in the level of prices in the economy.
• Measured using CPI (Consumer Price Index)
• Ireland's inflation rates
  

  CPI Ireland 2012	1.22 %
  CPI Ireland 2011	2.45 %
  CPI Ireland 2010	1.29 %

Rise in inflation:

• Bad for the economy

• Demands for higher wages

As prices of goods and services rise employees will seek higher wage to afford the cost of living.  If business refuse pay rise this may lead to bad industrial relations.

• Rise in business expenses

Cost of raw materials for business will increase and this will result in less profit for the business.

 

Fall in inflation:

• Good for economy

• More spending

If goods and services cost less people will have more money to spend

• Business expansion

If there are less wage demands and raw materials are low price, this will increase a business profits and encourage them to expand

 

Interest rates

• Cost of borrowing
• Expressed as a percentage of the amount borrowed
• Interest rates in Ireland are determined by the ECB (European Central Bank)
• The European Central Bank,  cut its main interest rate to a new low of 0.25 per cent in November 2013

Rise in interest:

• Bad for economy:
• Less profit

Interest on loans is a business expense and if it rises will result in less profit for the business

• Harder to expand

If interest rates goes up a business may not be able to afford the loan and may not have the finance to expand

 

Fall in interest rates:

• Good for economy
• More disposable income

If mortgage rates go down this gives consumers more money to spend on goods and services

• Less business expenses

Business expenses will decrease and this will increase the business profits and allow them to spend in other areas.

 

Unemployment

• % of the labour force that does not have a job
• Ireland's unemployment rate is 13.7%

Rise in unemployment:

• Bad for economy:
• Social welfare demands

Unemployed receive a weekly income from the government known as unemployment benefit.  This is a current expense for the government and a rise in unemployment puts a strain on government spending.  In order to pay current expenditure the government increase current income (tax)

 

• Crime rates increase

When more people are unemployed  statistics show that there is an increase in theft.  Business need to spend more on security and this leads to less profits

Fall in unemployment:

• Good for economy:
• More disposable income

When people are working they receive a higher income than social welfare payments.  In turn they have more money to spend on products and services.

• More government spending

If the government don't have so much to pay out on social welfare this will allow them to spend more on big projects like improving infrastructure (roads).  Better infrastructure creates a better business environment.

Taxation

• Source of current income for the government
• Compulsory payment
• Examples:
• PAYE - tax on employee wages 20% & 41%
• Corporation tax - tax on company profits 12.5%
• VAT - tax on consumer spending 23%
• Motor tax - tax of vehicles, ranges depending on year and engine size

Rise in Tax:

• Bad for economy:
• Cost of goods increase

If VAT increases goods and services become more expensive and consumer spending will decrease, this will decrease business profits.

• Turn TNC's away

If Corporation tax was to rise this would have a negative impact on Transnational companies profits.  If these business giants did not find our corporation tax to be a fair rate, they would leave and cause mass unemployment to local economies.

Fall in tax:

• Good for economy:
• More disposable income

If PAYE was less this would give employees a higher net income and mor money to spend on goods and services.

• Higher profits

If business taxes such as motor tax were reduced this would mean lower expenses for business and higher profits.

Exchange Rates

• The value of one currrency over another
• How much €1 is worth in terms of other currency
• Rule 1:
  ·         To convert euro to another currency  Multiply
  ·         To convert another currency in to euro Divide
  Rule 2:
  ·         If you want to sell a currency to the bank the BANK  BUYS the currency from you
  ·         If you want to buy currency from the bank the BANK SELLS the currency to you

See example in book p459

Rise in Exchange Rates:

• Bad for economy:
• Increase in imports

When the euro increases in value, the price of non-eurozone goods sold in Ireland decreases.  This means that Irish import increase, Irish business sales will drop  and this may result in a deficit in the balance of trade and payments.

• Decrease in exports

When the euro increases in value, the price of Irish products sold in non-eurozone countries increases.  This means that Irish exporters will sell fewer products in non-eurozone countries.  This may result in a deficit in the balance of trade and payments.

Fall in Exchange Rate:

• Good for economy:
• Irish goods become attractive abroad

When the euro decreases in value, the price of Irish products sold in non-eurozone countries decreases and price is more attractive.  People will buy more Irish products and exports will increase.  This helps towards a surplus in the balance of trade and payments

• Increased tourism

When euro decreases in value it becomes more afforadble to tourists and Ireland becomes an attractive place to holiday.  Increase in tourists will increases sales for Irish products and services.