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. Adapted from “Everything You Need to Know about South Africa’s Massive Gas Find” by Helena Wasserman, Business Insider SA

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

4.1.2 Government spending on the provision of goods and services

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

4.3 Discuss the main type of unemployment that would be reduced.

Answer 1

So, let's look at it on a bigger picture. Facts are: a natural resource is found, which results in mining and drill operations- auctions by companies to work on that site (which means a windfall gain for the government of South Africa), over that, top bidder will work on that site, which means potential tax revenue for the government, and to work on that site, that company will need some men, which means increase in employment, which means more tax from the people who start working.

Now, Main Answer:

1. Government Budget has zero balance, which means neither surplus, nor deficit.
   1. Collection of revenue through taxation on personal income will increase the Government budget, which means the government's fiscal budget will go in surplus.
   2. Government spending on the provision of goods and services will decrease the Government budget which means that the government's fiscal budget will go in deficit, given Ceteris Paribus.
2. Diagram below-

3.The main type of unemployment reduction will be of oil rig workers, and construction workers who indulge in construction of oil drilling site.