Unit : 4

What Are Government Budget And The Economy ?

Government Budget

It refers to the estimation of the total receipts and total expenditure of the government for the next fiscal year.

Objectives of Government Budget

  • Balanced regional Growth
  • Higher GDP Growth
  • Reduction of inequalities of income and wealth
  • Generating employment opportunities
  • Stabilizing Economic Activities
  • Reallocation of Resources

Components of Government Budget

  • Revenue budget
  • Revenue Receipts

These are the receipts which do not create any liability or reduce the assets of the government. Revenue receipts of the government include tax receipts and non-tax
receipts.

Tax Revenue

• Income tax

• Corporation tax

• Estate duty

• Gift tax

• Custom duty

• Goods and services tax

• Excise duty

• Sales tax, etc

Non-Tax Revenue

• Fees

• Fines

• Special assessment

• Income from public enterprises

• Grants and donations, etc.

Revenue Expenditures

Those expenditures which do not create any asset nor do they reduce the liability of the government.

• Salaries of government employees

• Interest Payment

• Subsidies

• Defence and transfer payments.

Capital Budget

Capital Receipts

These are the receipts that either create a liability or reduce government assets. The various constituents of capital receipts are recovery of loans, borrowings and receipts from disinvestment etc.

• Recovery of loans

• Disinvestment

• Borrowings and receipts

Capital Expenditures

Expenditures of the government either create an asset or reduce the liability of the government.
For example, expenditure on acquiring land for road and constructing building, buying machinery and equipment and loans to other government etc.

• Expenditure on acquiring land for road and constructing builiding.

• Buying machinery and equipments

• Loans to other governments, etc.

Revenue Expenditures

  • Interest payment subsidies
  • Salaries of government employees
  • Defence and transfer payments

Public Expenditure

It refers to the expenses incurred by the government for the  maintenance of the government and to preserve the welfare of the society as a whole.

  • Plan Expenditure

It refers to the government expenditure which relates to a particular plan and programs of the development of the  government.

  • Non-plan Expenditures

These are the expenditures which are incurred on the heads which are not included in plans of development of the governments.

Types of Budget

  • Balanced Budget

It takes place when the total expenditure of the government is equal to the total receipts.

Total Receipts = Total Expenditure

  • Surplus Budget

It takes place when the total expenditure of the government is less than the total receipts.

Total Receipts > Total Expenditure

  • Budgetary Deficit

It is a situation when the total expenditure of the government is in excess of the total receipts.

Total Receipts < Total Expenditure

Revenue deficit refers to a situation when the government revenue expenditure is in excess of the revenue receipts.

Fiscal deficit is a situation when the total government expenditure is in excess of total government receipts other than the borrowings.

Primary deficit refers to the difference between fiscal deficit and interest payment.