Lower Income Assistance and Government Spend
Low income is a significant aspect of being underprivileged, whereas low income rate indicates the proportion of a population living with an income below a given threshold in a region. Persons living under the level of low-income are at high risk of being poor; however, the government should take solution measures to help people combat low-income and start living a standard life.
Developing economies in many countries worldwide have faced increased government operations on public spending towards economic growth. Public outlay involves the total cost which the public sector spends on its sustenance to promote socio-economy. In addition, the government expenditures can be defined as the expenses that the government incurs for the maintenance of the government and society in general (Okafor & Eiya, 2011).
Unemployment is an urgent factor that should be considered if any solution is to be found for the communities living under low-income level. It is certain that the rising rate of unemployment in most countries has considerably contributed greatly to poor world socio-economic growth, which is recorded annually. People living under low-income level do not have sufficient savings that can sustain them for at least three months. That is they do not have any income source on which to depend to meet their basic needs. However, the government incentives and strategies on job creation, creation of opportunities to employ man-power, and broad investment on workforce development in low-income communities should be focused on the improvement of the status of low-income earners. It should also help low-skilled workers access well paying jobs to exit low-income status.
Unemployment rates have risen quite severely among low-income communities in the ancient decades. This is a clear indication that job retention and lack of advancement are major factors for low-income earners. These issues should be addressed, for they are the causes of increasing joblessness in most countries, leading to poor socio-economic growth. Low skilled workers lose or leave their jobs frequently to seek for better opportunities elsewhere; however, due to lack of enough expertise, they may seek a new job for a quite long period. This joblessness reduces their annual earnings and inhibits wage growth (Holzer, Stoll, & Wissoker, 2004). The government should lay down policies for improving job retention and advancement of low-income workers. The federal government of United States of America had introduced financial incentive programs to support low-income workers living below poverty level by providing an Earned Income Tax Credit subsidy for 40 percent to workers who earned up to $10,000 (Holzer, Stoll, & Wissoker, 2004).
In situations where such incentive programs are common, low-income rate would be zero rated, where people living under low-income level would benefit and live a standard life. However, financial incentives might not be effective to the society if they are temporary. Therefore, the government should ensure permanent financial incentives to workers throughout the working period. Less fortunate persons must be given an opportunity to access well-paying jobs in firms and sectors to encourage retention and advancement. If training facilities for less-skilled workers in firms and sectors, man-power demand would increase intensely, hence, leading to job retention and advancement for low-skilled persons who would have lost their jobs due to having less expertise and skills.
The government should also take an initiative of investing on a comprehensive employment and training policies that are easily accessible. This will be useful for low-skilled and poor families in low-income communities in order to decrease the rate of unemployment. On the other hand, to improve the employment rates and earnings of low-income persons, it is needed to create more-consistent and helpful education and personnel development systems, focusing mainly on low-income persons and with training and education upgrade plainly targeted towards privatized firms and sectors that provide well-paid jobs (Holzer & Nightingale, 2006). Economists also noted that direct expenditures and indirect costs for medical and other overheads for unemployed people have led to the increased rate of crimes, incarceration, and family severances among the low-income communities.
The government should also introduce a welfare system of aiding the low-income communities by offering medical aid programs to the needy families. Moreover, it should insist on health medical insurance coverage, child care, and housing subsidies being provided to workers. The welfare system would help families, and workers living under the poverty level should achieve financial stability and independency towards their basic needs. The below graph illustrates grants, loans, and equity investments during the period from 1960 – 2010. The motive for Official Development Assistance is an increase in grants that are provided over a long period, as illustrated on the chart.
(Source: OECD DAC CRS data)
The above chart illustrates that Net Official Development Assistance, which is made from grants by official agencies of the members of the development Assistance Committees, multilateral institutions, and non development assistance committee countries to promote economic development and welfare in low-income countries and other low-income geographical regions have been declining year after year. The estimated figures on the chart represent government spending on loans and aid grants with an element of at least 25 percent (calculated at a rate of 10 percent discount).
On the other hand, privatization is another method that can be used to eradicate low-income rate in any country where all investors are fairly, equally treated, and where transparency of their transactions is reflected efficiently. Privatization has a positive impact on unemployment, since it decreases the rate of unemployment in developing countries and increases the socio-economic growth. Government should use privatization of industries as a device to generate increased income through stock markets, which are counter-productive, in terms of employment. Privatized firms and sectors focus on production by employing effective and competitive personnel with enough expertise to deliver quality products and services. Therefore, uncompetitive staff members become dismissed by the new firm management to create job opportunities for the unemployed skilled personnel’s in the society.
The International Conference on Population and Development suggested that high population increase is a core issue that has led to low-income among the highly populated countries. Rural-urban distribution of a country’s population has a significant impact on its development prospects on the living standards of the low-income countries (UNDPI, 1995). The primary goal of the government on population growth control is to ensure that family planning is affordable to all persons living under the poverty line in low-income regions. The government should also take an initiative of introducing early child education towards early marriages, which have contributed considerably to high population rate. The International Conference on Population and Development realized that investing in people and empowering individual women and men by providing affordable education, gender equality, and ways to decide on the number, time of giving birth, and spacing of their infants would create the condition to allow the poor exit low-income lives.
Controlled population growth in any country helps the government budget to be evenly apportioned among estimated number and focus on its spending, enabling it to improve the global economic uncertainty to reduce debt crisis. Researches that were conducted in many countries indicated that population has a positive impact on total government’s expenditure on high population. Thus, an increase in population growth rate would lead to increased government expenditure. The government should reduce tax revenue in low-income countries to eradicate poverty, promote economic growth, and facilitate a more complex management of the government expenditure, since high tax rate encourages high spending rate.
On the other hand, government borrowing is an essential factor to be considered in any fiscal year. If the government runs a budget deficit, it means there is a need to borrow money for maintaining the economic growth. A budget deficit is a state when the total government expenditure exceeds total revenue. The rising budget deficit in many countries has been due to a slow growing economy and effects of increasing government spending on low-income persons in the country, which includes health, education, transportation, and defense. Budget deficit in any country leads to accumulated national debt. This makes the government spend more in every financial year in debt-interest payments to holders of the government bonds and other institutions which it owes the borrowed money. Money that is spent on debt-interests can be invested in unique incentives to improve the socio-economy for the low-income geographic regions in the country. Government spending on public debts can also lead to income transfer from businesses and the country’s citizen who pays high rates of tax to offset the budget deficit. Therefore, this may lead to imbalance of wealth distribution, which undoubtedly affects the economic growth.
The government should also reduce cost of production in low-income countries to ensure importation and exportation of goods at affordable rates. The cost of goods production increases intensely due to increased custom duties that are imposed on imported raw materials being used in production industries. These rates become imposed to consumers or the end users of the product by the manufacturing sectors, hence, making the product unaffordable to low-income persons. The government should also adopt globalization trend to promote global marketing of goods.
In conclusion, to lower the income assistance and public expenditure, the government should concentrate on the core causes of low-income rate in the society. The focus ought to be placed on policies that will encourage job creation by providing well paying jobs, control inflation, public debt, population, and tax revenue, which are the main causes of low-income rate. Reduction of fiscal deficits by lessening expenditure would also decrease the rate of low-income.
Holzer, H.J., & Nightingale, D. (Eds.). (2006). Workforce policies for a changing economy. Washington, DC: Urban Institute Press.
Holzer, H.J., Stoll, M., & Wissoker, D. (2004). Job retention and advancement among welfare recipients. Social Services Review, 78, 343-369.
OECD DAC CRS data. (2013). Development initiatives. Retrieved from http://www.oecd.org/dac/stats/databaseupdatesfordacandcrsonline.htm.
Okafor, C., & Eiya, O. (2011). Determinants of growth and advancement in government expenditure: An empirical analysis of Nigeria. Research Journal of Business Management, 5, 44-50.
United Nations Department of Public Information. (1995). Population distribution, urbanization and internal migration. Retrieved from http://www.unfpa.org/public/icpd/.