Unit 38: Business and the Economic Environment
M2: analyze the effects of fiscal and monetary policies for a selected business in
terms of the market it operates in.
D2: suggest and justify elements of fiscal and monetary policies that would help a
selected business achieve its objectives.
Introduction
This assignment focuses on analyzing the effects of the government policies; fiscal
and monetary policy, on PJ Hegarty and Sons in relation to the market that it
operates under. It further will suggest recommendations that will assist in the
business achieving its objectives in relation to these policies as well.
About PJ Hegarty and Sons
This business was established in 1952 and is one of Ireland's most
progressive building and civil engineering companies. With over 90 years in
business, P.J. Hegarty has built up significant resources and expertise and has an
annual turnover of €350 million, with 350+ people directly employed. Their
primary activity is undertaking large, complex projects in commercial, retail, tourism,
pharmaceutical, high-tech and institutional buildings, refurbishment and civil
engineering works. This business falls under the industrial and construction
market/industry.
Industrial Industry- this is the industry in the economy that is involved with
aerospace and defense, industrial machinery, tools, lumber production,
construction, waste management, manufactured housing, and cement and metal
fabrication.
Construction industry- this is an industry that includes activities such as mining,
quarrying and forestry to the construction of infrastructure and buildings and the
manufacture and supply of products as well as maintenance, operation and disposal.
Fiscal Policy
This is a policy used by the government in order to influence the economy. Factors
such as government spending and tax collection play a major role in influencing the
economy. These factors allow the government to be able to maintain control other
factors such as inflation, deflation, unemployment, etc. The changes can affect the
business and this is how.
Increase in Tax
There are many different forms of tax. This includes; income tax, national insurance
tax, corporation tax, value added tax (VAT), excise duty and air passenger duty. All
of these taxes affect PJ Hegarty and Sons as a business as mentioned in the previous
assignment. However, the more in depth affects in relation to being in the industrial,
manufacturing and construction market will be explained. It very important for the
government to collect tax because this money is used in other areas of the economy
such as health, public services, transportation, etc. for the population.
The government may choose to increase tax because;
1. They are not obtaining enough to put back into important areas of the
economy.
2. Decrease inflation in the economy.
, However, these reasons to increase the tax, has a heavy impact on PJ Hegarty and
Sons and their customers such as;
1. Less money for the business- this can impact the business because
projects in the industrial industry are big and tend to be expensive. If more
money comes out in the form of corporation tax, the business may not be able
to conduct projects. This may also cause more issues if the business has not
been seeing any production lately and this would be there chance. However,
they may not be able to tackle bigger and more expensive projects because
they cannot afford to pay money in certain areas. Other bigger companies will
be chosen to do the job because they may have access to more financial
resources.
2. Less disposable income for employees- the jobs that businesses in the
industrial market perform, require a lot of employees because these projects
tend to be big. If the business will be losing more money because of tax, then
they will not be able to pay all the employees they have and need for
projects. Besides increasing the unemployment level, this will further lead to
the project taking more time to complete and this may also prevent them
from taking on other projects. Some building projects have a time limit and if
this is the case, it may risk their chances of completing on time.
3. Increase in the price of materials- projects require all types of materials
and equipment. And increase in tax will cause an increase in items because
other business will be trying to sustain their business and ensure that they
have profit because this increase in tax will affect them as well. It may be
difficult for the business to get all the materials they need because of this,
again causing projects to take longer because they have to wait. This may
also push the business to borrow from the bank in order to get all the
materials they need, then pay back once they have been paid for the project.
4. Low disposable income and decrease in demand- since the increase in
tax will affect every business, it will also affect the businesses who want to PJ
Hegarty and Son to build something for them. This means that they may not
have enough money to pay the business for the project. This might also
decrease other opportunities because other businesses who need this service
cannot afford it at the moment. However, the business may still take on the
activity and receive the rest of the money later. This means though, that they
business will have to put in their money (that they do not have) for other
materials and equipment to complete the project.
Decrease in Tax
The government may choose to decrease tax after an inflation. This will create many
buying opportunities for individuals and for businesses as well.
The government may decrease tax because;
1. They want to increase consumer spending because this will also increase
how much money the government receives in tax as well.
2. Increase economic growth.
3. Decrease unemployment rates, because the more people who have tax
paying jobs means more money for the government.
