Politics in Minutes (2016)

Economic policy and taxation

In order to fund goods and services provided by the state, the people contribute financially through taxation. It is one of the major responsibilities of a government to determine the income and expenditure of the ‘public purse’, by deciding how much this contribution should be, how it should be raised and how it should be spent, and overseeing the management of its economic policy by the finance department or treasury.

Taxation can take several different forms, either as direct taxes on income or wealth, or as indirect tax on transactions, such as sales tax or value-added tax, and excise duty on goods. A government’s economic policy, the way it balances its books between tax and public spending, is very much a reflection of its political ideology. Governments to the right of centre tend to minimize public spending, and so tax less and more indirectly than left-of-centre governments, to encourage the prosperity of businesses; left-leaning governments tend to have higher direct taxes to fund larger public expenditure.