Final answer:
Long-term liabilities from differences between accounting standards and tax legislation are known as deferred tax liabilities. Governments cover budget deficits by borrowing or using reserves. Fiscal policies such as tax cuts or increased public spending have various short-term and long-term economic impacts.
Step-by-step explanation:
Long-term liabilities that arise as a result of differences between accounting standards and the Income Tax Act are typically referred to as deferred tax liabilities. These occur because the timing of income recognition may differ between accounting rules, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), and tax legislation, leading to temporary differences in taxable income. When an expense is recognized for accounting purposes before it is deductible for tax purposes, or when revenue is taxed before it is recognized in financial statements, this creates a liability that a company must eventually settle with the tax authorities.
When governments run budget deficits, they must make up the difference between tax revenue and spending through various methods such as borrowing money, typically by issuing government bonds, or by drawing from reserves if available. Over time, these deficits can add to a nation's debt and affect its economic policy and stability.
The annual budget deficit or surplus, an integral part of government fiscal policy, impacts the overall economy. For instance, a tax cut on income may stimulate economic growth in the short term by increasing consumer spending, but could result in higher deficits if not offset by reduced government spending or increased revenue from other sources. Conversely, increased government spending on infrastructure can boost economic activity and job creation in the short term, leading to potential long-term benefits in terms of improved efficiency and productivity for the economy.