Fiscal Policy

Fiscal policy is the government managing the economy through taxes and spending. With monetary policy, which handles interest rates, it forms one of the two levers moving an economy.

When conditions weaken, governments spend. They build roads, pay subsidies and cut taxes to put money into people's hands. When the economy overheats, they cut spending and raise taxes to cool it.

Unlike monetary policy, it can be targeted. Interest rates apply to everyone equally, while fiscal measures can concentrate on a particular industry or income group. The trade-off is that it must pass a legislature, so it is slow.

Funding is the limit. Government money is either tax or debt, and continuous borrowing accumulates national debt and interest costs, shrinking the room to act later.

For investors, fiscal direction hits specific sectors directly. A larger infrastructure budget moves construction and materials; a larger defence budget moves defence contractors. That is why budget announcements are worth watching.