Question

Total has discovered a potential 1 billion barrels of “wet” gas off the coast of South Africa. The gas could be used as petrol or perhaps even converted into electricity, according to one expert. The Brulpadda gas find should mean more tax revenue and a stronger rand. How Will It Affect South Africans Firstly, government will earn more tax. Total and its partners will pay the regular 28% corporate tax on all taxable income from Brulpadda. According to the most optimistic estimates, the Brulpadda find could yield $1 trillion (R14.4 trillion) for Total and its partners, which would mean a massive tax windfall for South Africa. Certain Businesses and Skills Will Be in Demand The Brulpadda find could have a massive boost to all kinds of businesses in South Africa. Companies providing helicopters, marine services, catering supplies and transport to get supplies to the site would be required.

4.1 Assuming that government budget is at zero balance discuss the implication of the gas find in terms of government’s fiscal policy for the following economic factors:

4.1.1 Collection of revenue through taxation on personal income (6)

4.1.2 Government spending on the provision of goods and services (7)

4.2 Explain, with the aid of a diagram, the economic impact on cost-push inflation and aggregate output. (12)

4.3 Discuss the main type of unemployment that would be reduced

Answer 1

4.1.1. The government can earn massive revenue in the form of personal income tax, not only from the owners of the plant but also from all the many jobs that will be created in the form of employment in the plant.

4.1.2. The government will be in a position to porvide even more goods and services now that it is earning more revenue, which might not have been possible before due to their zero balance budget. This will give the government more fiscal space and hence it will be able to increase its expenditure on public services.

4.2. The economic impact of cost-push inflation can be illustrated as follows -

When the cost of porduction increases due to an increase in the cost of raw materials or increase in factor prices like rent or wages, the supply curve shifts to the left, and this causes the prices to increase and the quantity to reduce, as shown in the diagram.

4.3. The main kind of unemployment that would be reduced is that of semi-skilled labour. The kind of jobs created, as mentioned above, is not for unskilled labour, but semi-skilled labour will be employed. This will reduce the frictional and structural unemployment in the economy by giving jobs to people who are looking for it and are not able to get one because of lack of more employment opportunities in the economy.