Austerity measures are used by governments to reduce budget deficits and government debt. Typically, governments achieve this by implementing a number of policies that simultaneously reduce spending while raising revenues. Following the 2008 financial crisis many governments within the European Union, including Greece, Spain, Germany and the United Kingdom, implemented austerity measures in an effort to reduce government deficit and debt.

Proponents of austerity sight its ability to reduce government debt. However, opponents believe that austerity measures cause a deepening of recessionary conditions within an economy because of the lack of government spending (commonly used to stimulate economic growth).

Below is a list of examples of typical austerity measures implemented by governments:

Trinidad and Tobago is in the midst of a recession, marked by falling GDP, rising unemployment and debt. The recession is triggered by the fall in oil and gas prices. The government’s response has thus far been in the line of several austerity measures, designed to reduce both budget deficits and sovereign debt. For example, the increase in taxes on the gambling and banking sector; and the reduction in the fuel subsidy that resulted in an increase in the price of Super gasoline from $3.58 to $3.97 and an increase in Diesel from $2.30 to $3.47, outlined in the 2018 Budget Statement, are intended to increase revenue and reduce government spending respectively.

However, austerity measures, such as those highlighted above, increases the cost of living while the economy continues to contract. Consequently, a more balanced approach may soon become necessary in order to stimulate an increase in economic activity.

 

By

Jade De Labastide (MSc., BSc,)

JDL Business