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Government Budget

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Government Budget

  1. 1. Contents Government Budget – Meaning, Objective • Components of Government Budget. • Classification of receipts – Capital and revenue . • Classification of expenditure - Capital and revenue . • Balanced budget surplus budget, deficit budget - meaning and implication . • Revenue deficit, Fiscal deficit, primary deficit - Meaning and implication
  2. 2. Meaning of Government Budget • A government budget is an annual statement of the estimated receipts and estimated expenditure of the government during a fiscal year . • Fiscal year is taken from 1st April to 31st March.
  3. 3. Objective of the Government Budget • It means managed and proper distribution of resources. As private sector can not provide all the goods and services the government has to provide these goods. • Through budget government tries to reduce the gap between Rich and poor. This is achieved through taxing the rich and subsidizing the needs of poor people. • There may be inflation or depression in the economy. Inflation is the situation of rise in price level whereas depression is lack of demand. Both the situations are undesirable. During depression government reduces rate of tax and borrowing and increases public expenditure. During inflation government increases the rate of tax and borrowing and decreases public expenditure. Reallocation of resources -: To reduce inequalities in income and wealth-: . To achieve economic stability -:
  4. 4. Objective of the Government Budget • IV. Large no: of Public Enterprises which are established and managed for social welfare of the public. V. depends upon rate of saving and investment. • Through taxation and expenditure policy. Management of Public Enterprises . To achieve economic growth Reducing regional disparities.
  5. 5. Components of Government Budget: Components of budget refer to structure of the budget. Two main components are: • Revenue Budget • Capital Budget
  6. 6. Components of budget can also be categorized according to receipts and expenditures • Budget Receipts • Budget Expenditure
  7. 7. Budget Receipts • Budget receipts refer to the estimated money receipts of the government from all sources during a given fiscal year. Budget Receipts Revenue receipts Capital receipts Tax revenue Non-tax revenue Recovery of loans Borrowing Other receipts
  8. 8. How to classify Expenditure as Revenue of Capital Expenditure? An expenditure is a capital expenditure, if it creates an asset or reduces a liability. An expenditure is revenue expenditure, if it neither creates any asset nor reduces an liability.
  9. 9. Capital Receipts: - • Capital Receipts refer to those receipts of the government which i) tend to create a liability or ii) Causes reduction in its assets. All the Capital receipts are broadly classified into three categories. • Recovery of loans :- These are Capital receipts because they reduce financial assets of the government . • Borrowings: - Funds raised by the government form the borrowing are treated as capital receipts such receipts creates liability. • Other Receipts: - Funds raised through disinvestment are included in this category. By this government assets are reduced.
  10. 10. Revenue Receipts • Any receipts which do not either create a liability or lead to reduction in assets is called revenue receipts. Two sources of revenue receipts Tax Revenue Non-Tax Revenue. Revenue receipts Tax revenue Non-tax revenue Direct Tax Indirect Tax. Interest Profit and dividend Fees and fines Gifts and grants .
  11. 11. How to classify a tax as Direct Tax or Indirect Tax • A tax is a direct tax, if its burden cannot be shifted. For example, income tax is a burden tax as its impact and incidence is on the same person. • A tax is a indirect tax, if its burden can be shifted. For example, sales tax is an indirect tax as its impact and incidence is on different persons.
  12. 12. • Corporation tax • Value added tax • Service tax • Excise duty • Wealth tax • Sales tax
  13. 13. How to classify a receipt as Revenue Receipt or Capital Receipt? • A receipt is a capital receipt, if it creates a liability or reduces an asset. • A receipt is a revenue receipt, if it neither creates a liability nor reduces any asset.
  14. 14. Budget Expenditure • Budget expenditure refers to the estimated expenditure of the government during a given fiscal year.
  15. 15. Revenue Expenditure • An expenditure which do not creates assets or reduces liability is called Revenue Expenditure. • It is recurring nature. • It is incurred on normal functioning of the government and the provisions for various services. • Examples are – Salaries of government employees, interest payment on loan taken by the government, pension,
  16. 16. An expenditure is a revenue expenditure ,if it satisfies the following two essential condition.: • The expenditure must not create an asset of the government. The expenditure must not cause decrease in any liability. • Revenue expenditure Neither creates an Asset Nor reduces any liability
  17. 17. CAPITAL EXPENDITURE:-  It refers to the expenditure which leads to creation of assets and reduction in liabilities .  It is non-recurring in nature  It adds to capital stock of the economy and increases its productivity through expenditure in long period development programmes like Metro or Flyover.  eg. Expenditure incurred on construction of building, roads, bridges etc.
  18. 18. An expenditure is a capital expenditure, if it satisfies any one of the following two conditions:  The expenditure must create an asset for the government. Eg: construction of metro.  The expenditure must cause a decrease in the liabilities. Eg: repayment of borrowings. Capital expenditure Either creates an Asset Or reduces a liability
  19. 19. Plan and Non- plan Expenditure • Plan expenditure refers to the expenditure that is incurred on the programmes detailed in the current five year. • Non-plan expenditure refers to the expenditure other than the expenditure related to the current five-year plan. Budget expenditure Plan expenditure Non- expenditure
  20. 20. Plan expenditure vs. non-plan expenditure Plan expenditure • Plan expenditure is spent on current development and investment outlays. • It arises only when the plans provide for such expenditure. non-plan expenditure . It is spent on the routine functioning of the government. • It is a must for every economy and the government cannot escape from it.
  21. 21. How to classify an expenditure as plan or non- plan expenditure? • An expenditure is a plan expenditure, if it arises due to planned proposals. • An expenditure is a non-plan expenditure, if it is out of the scope off government plans.
  22. 22. Developmental and Non- developmental Expenditure Developmental Expenditure • It refers to the expenditure which is directly related to economic and social development of the country. • It directly contributes to development of the economy.  It is productive in nature as it adds to the flow of goods and services. Non- developmental Expenditure .  It refers to the expenditure which is incurred on the essential general services of the government .  It does not contribute directly to the development , but it lubricates the wheels of economic development.  It is not concerned with the productivity of working class.
  23. 23. How to classify an expenditure as developmental expenditure and non developmental expenditure • An expenditure is a developmental expenditure, if it directly adds to the flow of goods and services. • An expenditure is a non-developmental expenditure, if it indirectly contributes to economic development.
  24. 24. Types:- Deficit Budget:- When government expenditure exceeds government receipts in the budget is said to be a deficit budget. Government deficit Revenue Deficit:- Fiscal deficit & Primary deficit:-
  25. 25. Revenue Deficit • Revenue deficit refers to the excess of revenue expenditure of the government over its revenue receipts. • Revenue deficit = Total revenue expenditure – Total revenue receipts.
  26. 26. Fiscal deficit • Fiscal deficit is defined as excess of total expenditure over total receipts . • Fiscal Deficit = Total budget expenditure - Total budget receipts net of borrowings.
  27. 27. Primary deficit • It refers to the difference between fiscal deficit of the current year and interest payments on the previous borrowings. • Primary deficit= fiscal deficit - interest payments .

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