Dangerous Stratagems

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DANGEROUS STRATAGEMS 6

DangerousStratagems

Question1: Identify the weakness of each strategy

  1. Delaying maintenance and replacement of assets

Itseems easy to cut spending by delaying maintenance and replacement ofasset but at a closer look, it is costly, impacts negatively on anation’s economy and renders the government irresponsible. Delayedmaintenance results into more damages that in future will incur hugecosts that damage the economy. A government or administration that isreluctant in replacing assets is perceived by many as irresponsibleand hence lack support from the public (Starling,2010).

  1. Selling assets

Duringthe financial crisis, state and national governments can raise morerevenue through selling of assets. However, selling of assets is aweak strategy because it leads to loss of valuable public assets at athrow-away price. According to Starling, Selling of public assetsgives the public the impression that the government is inefficient inbalancing and utilizing the available resources to steer economicgrowth (2010).

  1. Rent instead of buying equipments

Theprimary weakness with the lease rather than buy strategy is the costinvolved. Governments lease for instance equipments or assets in aneffort to cut on spending. However, the cumulative cost of leasing atthe long run may turn to be higher than the cost of buying.

  1. Rob Peter to pay Paul

Agovernment can use the money from an off-budget account to care of acost in an on-budget account to cut budget deficit. The strategy mayseem harmless but it is highly dangerous because it renders oneaccount incapable of complete its tasks by depleting its resources toaccount for another account’s inadequacies. According toFlynn(2007), the strategy ends up weakening a nation’s economy and inthe future when all the off-budgets accounts are broke, thegovernment is forced to rely on external financial assistance.

  1. Nickel and dime employees

Theslashing of employee’s salaries or benefits to cut spending isdamaging to an administration’s ethics and reputation. In additionto being unethical, the strategy can result into high employeeturn-over making the administration incur more costs in recruitmentand training new employees.

  1. Make across-the-board cuts rather than the planned cuts

Across-the-boardcuts are less damaging to a nation’s reputation compared to all theother nine strategies. However, the cut in budgets allocated tovarious sectors may render them unable to execute their rolesefficiently, leading to slow or nil economic growth and financialcrisis in a country (Flynn,2007).

  1. Fudge the numbers

Fudgingnumbers involves manipulating the assumptions of a budget to makethem look realistic. The tactic is dangerous because it allows thegovernment to spend more, expecting economic growth to offset theexpenditure, which in the long run leads to high government debtsthat destroys the economy.

  1. Borrowing

Borrowingas a strategy to balance a budget is weak and highly damaging to anation’s economy. It weakness a nation’s economy, leads to highrates of unemployment and encourages irresponsible spending by bothnational and local governments.

  1. Accounting gimmicks

Accountinggimmicks can ensure short-term political success but with time, itproves a government insincere and less concerned with its people’swellbeing. This strategy leads to unfulfilled promises which changespublic’s perception about their government leading to politicalfailure and conflicts in a nation.

Question2: Which strategies are most dangerous? Least? Why?

Accountinggimmicks, borrowing and fudging numbers are most dangerous strategiesof balancing budgets. According to Mintzberg(1996), accounting gimmicks are mainly used by politicians who aim towin an election or a re-election. In accounting gimmicks, thepoliticians give more benefits to the current voters making itdifficult for the future generations to sustain the benefits. Cookedaccounts in reality cannot meet the planned expenditure to give thepromised benefits. Therefore, the strategy leads to more borrowingthat creates more dangerous national debts (Flynn,2007)). The strategy is very dangerous because it does not onlyaffect the performance of future governments but also makes it verydifficult for a nation or company to regain its economic stabilityand fulfill its promises.

Borrowingis a common strategy used by both developed and developing nations totake care of budget deficit (Starling,2010).Borrowing is dangerous because it encourages government spending thatincreases national debt. When a government borrows from the privatesector, it means that the latter has inadequate money to invest andspend. Therefore, government borrowing leads to reduced privatesector’s spending that causes low economic growth. Borrowing alsoleads to high unemployment rates. Governments borrow money from bondsbut are forced to pay at escalated interest rates making the strategycostly. According to Starling(2010),borrowing leads to higher taxes in the future. Huge national debtsforce governments to inflate taxes in the future to reduce borrowingas a percentage of the Gross Domestic Product (GDP).

Fudgingnumbers is a dangerous technique because it is deceitful andencourages governments or administrations to increase spending makingit necessary to borrow. According to Starling, fudging numberscreates an impression that a budget can work based on forecasts. Mostof the time the forecasts turn out to be very wrong long after thebudget was implemented leaving a nation or company in huge debts thatbecomes almost impossible to manage (2010).

Question3: Provide a recent example of each strategy

  1. Delaying maintenance and replacement of asset

Lastyear, the Dutch parliament rejected the proposal to renovate theoffshore grid system as a strategy to reduce the budget’sexpenditure.

  1. Selling assets

LateNovember 2015, the Malaysian government raised huge revenue byselling some of its energy assets to a Chinese firm. The money wasintended to cover up the annual budget deficit.

  1. Leasing equipments rather than buy

Junelast year, the French Finance Minister Michel Sapin proposed astrategy to lease many of the military equipments as a solution tocut the huge defense budget. The proposal was approved and led tosignificant reduction of the military budget.

  1. Rob Peter to pay Paul

Januarythis year, the Kenyan government has announced that the cost ofpurchasing academic laptops for class one pupils has been transferredto an off-budget account.

  1. Nickel and dime employees

Afterthe new Tanzanian government took office end of last year, thepresident John Magufuli has swore to ensure the huge salaries ofhigh-ranked government officials and public servants has been slashedto save revenue for more important projects.

  1. Make across-the-board cuts rather than the planned cuts

GeorgeOsborne, the chancellor of the FOR five years George Osborne, thechancellor of the exchequer, has been successful in balancingBritain’s budget for the last five years. Last year March, Osborneproposed across-the-board cut across all sectors which wereimplemented to raise more revenue to enhance Britain’s welfarestate.

  1. Fudge the numbers

TheGreece government is known for its efficiency in fudging numbers todeceive the public in accepting annual budget. Last year was nodifference. The government significantly reduced the national debtand predicted a GDP growth for the net twenty years that could helpin repaying the accumulated budget deficit.

  1. Borrowing

Somefew months ago, the Kenyan government borrowed a lot of money fromEurobonds to cover up budget deficit and allow the government tocontinue functioning. Before borrowing, the government had claimed tolack funds to sustain any of their projects.

  1. Accounting gimmicks

Inthe United States, accounting gimmicks is one of the commonly usedtactics to balance books. For instance, to make the current ObamacareAct viable, accounting gimmicks are played by counting revenues andrestraints on Medicare to take care of the Act’s expenses.

References

Flynn,N. (2007). Publicsector management.Sage.

Mintzberg,H. (1996). Managing government, governing management. HarvardBusiness Review,74(3),75.

Starling,G. (2010). Managingthe public sector.Cengage Learning.

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