Q. Consider the following statements:
1.The primary deficit is the difference between government revenues and spending, excluding interest payments.
2.Reducing government expenditure and/or increasing tax revenue can help reduce a primary deficit.
3.A progressive tax system means indirect taxes form the largest part of the tax revenue.
How many of the statements given above are correct?
Answer: B
Notes:
Explanation-
Statements 1 and 2 are correct. The primary deficit is the difference between government revenues and spending, excluding interest payments on debt. This is a crucial measure of a government’s fiscal health, as it shows how much new borrowing is required beyond existing debt obligations. Reducing government expenditure through efficient allocation and cutting unnecessary costs, or increasing tax revenue through various sources, can both positively impact the primary deficit.
Statement 3 is incorrect. A progressive tax system is one where the average tax burden increases with income, and it imposes a lower tax rate on low-income earners and a higher tax rate on those with a higher income.
Source: Forum IAS
