Plan expenditure: It refers to that expenditure which is incurred by the government to fulfill its planned development programmes. Non-Plan Expenditure: This refers to all such government expenditures which are beyond the scope of its planned development programmes. They do so by imposing taxes on the affluent classes of society and spending them for welfare of the economically weaker section of the community. It refers to the excess of total estimated budget expenditure (Revenue Expenditure + Capital Expenditure) over total budget recipients, excluding borrowing. Some of the important objectives of government budget are as follows: 1. (a) Meaning: Therefore, fiscal deficit should be as low as possible. (iv) By doing it the government tries to achieve the state of economic stability. Financing Public Enterprises- Several public sector industries are established for the social welfare of the public. Here, the government … This includes both consumption and investment expenditure by the government or Planning Commission of a country. objectives of government budget reallocation of resources management of public enterprises economic stability reducing inequalities in income and wealth 3. 12. As a result, government assets are reduced. A CEO would be well advised to impose a budget on a … 5,00,000; 20% on incomes between Rs. When The Government of Delhi repaid Rs. Thus, a vicious circle is set wherein the government takes more loans to repay earlier loans, which is called Debt Trap. For instance, sales tax is an indirect tax because indirect tax is collected by government from the seller of the commodity who in turn realizes the tax amount from the buyer by including it in the price of the commodity. 4. 1. (a) Activities to secure a reallocation of resources: For instance, no government can escape from its basic function of protecting the lives and properties of the people. Thus, it forms the basis for planning what to do next. 1. It means that the Government is taking more money under its control which leads to fall in prices. Budget is a crucial activity as it shapes economic development and progress of a nation. -> Neither create any liabilities for the government; and Revenue Expenditure: An expenditure that (a) Neither creates any assets (b) nor causes any reduction of liability. 20,000 per year as tax. It may be of two types: (b) Implications of primary deficit: While fiscal deficit shows borrowing requirement of the government for financing the expenditure inclusive of interest payments, primary deficit reflects the borrowing requirements of the government for meeting expenditures other than interest payments on earlier loans. Allocates money for improving educational facilities. Proportional Taxation: A tax is called proportional when the rate of taxation remains constant as the income of the taxpayer increases. ♦ Government gives loan to State Government, union territories, private enterprises and to general public and earns interest receipts from these loans. are effectively used to achieve this goal. Budgetary policies are hence introduced to infuse enough recourse in different public sectors. • Recovery of Loans and Advances: Loans offered to others are assets of the government. (iv) Another point to be noted here is that as the government borrowing increases, its liability in future to repay loan with interest also increases leading to a higher revenue deficit. OR ADVERTISEMENTS: Define government budget. Successfully handles the economic infatuation of the country by balancing inflation and deflation. Lesson 3 of 20 • 48 upvotes • 10:46 mins. It is a projection or estimation of financial trends and its outcome, prepared solely depending on the previous years’ data. In other words, it shows the extent of government dependence on borrowing to meet its budget expenditure. (iii) A government reduces the inequality in the distribution of income and wealth by imposing taxes on the rich and giving subsidies to the poor, or spending more on welfare of the poor. The higher is the income of a taxpayer, the higher is proportionate tax he pays. 900 crore. Tax Revenue: Tax revenue refers to receipts from all kinds of taxes such as income tax, corporate tax, excise duty etc. 2,00,000 but the.rate of income tax increases with the increase in incomes. Revenue Deficit: Revenue deficit refers to the excess of revenue expenditure of the government over its revenue receipts. Let us discuss them in detail: This can be expressed symbolically like, Balanced Budget = (Assumed collected revenues = Assumed expenditure). (vi) So, finally government has to reallocate resources in accordance to social and economic considerations in case the free market fails to do or does so inefficiently. (b) Revenue and capital expenditure This objective organically strengthens the economic structure of a nation. A surplus budget occurs when the estimated revenues exceed the expected expenditure. Reallocation of Resources: Through the budgetary policy, the Government aims to reallocate resources in accordance with the economic and social priorities of the country. (i) Plan Expenditure: Plan expenditure refers to that expenditure which is incurred by the government to fulfill its planned development programmes. If so, how? (i) Meaning: The Government tries to bring economic equality of society. In this case, imposed taxes surpass the expenses. ♦ Administrative Revenue: The revenue that arises on account of the administrative function of the government. In other words, indirect taxes are the taxes of whose burden can be shifted to others. 1. This type of budget is best suited for developing economies, such as India. A government budget is a document prepared by the government and/or other political entity presenting its anticipated tax revenues and proposed spending/expenditure for the coming financial year. Original and Final Budget 11. Government makes provision to boost the rate of savings and investments made within the economy. Indirect Tax: When (a) liability to pay a tax (Impact of tax) is on one person; and 3. (a) Plan and non-plan expenditure: • Borrowing (Domestic and External): Borrowings are made to meet the financial requirement of the country. Save. It includes tax revenues like income tax, corporation tax and non-tax revenue like fines and penalties, special assessment, escheat etc. -> Nor cause any reduction in assets of the government, are called revenue receipts. (v) Fiscal deficit for the year 2012-2013 is 4,89,890 crore which is 4.9% of GDP. By the end of this budgeting 101 class … Announces financial and economic policies for the upcoming year. Capital recipients are government liabilities (borrowings, disinvestments like shares of public enterprises). (ii) Capital Expenditure: This expenditure of the government either creates physical or financial assets or reduction of its liability. Ans. However, capital expenditure is long-term investments that the government makes by creating assets like building roads, hospitals etc. Revenue budget- It comprises revenue receipts and revenue expenditure of a government. What is a Budget ? Government … Pro Lite, CBSE Previous Year Question Paper for Class 10, CBSE Previous Year Question Paper for Class 12. (i) Fiscal deficit is defined as excess of total expenditure over total receipts (revenue and capital receipts) excluding borrowing. Zero budget starts from the zero base, and it is made based on needs and cost of government. 20 lessons • 3h 8m . Capital Budget: Capital budget contains capital receipts and capital expenditure of the government. 3. 1. (a) Receipts; and (b) Expenditure. They do so by imposing taxes on the affluent classes of society and spending them for welfare of the economically weaker section of the community. 28. (b) Capital Budget: Capital budget contains capital receipts and capital expenditure of the government. Topics include The Objectives of Government Economic Policy, Factors that Influence the Goverments ability to achieve Objectives, Conflicts between Objectives, Healthy Growth and Balance of Payments Equilibrium and Low Unemployment & Low Inflation. The government budget is an annual fiscal statement depicting the revenues and spending for a financial year that is often moved by the legislature, sanctioned by the chief executive or president and given by the Finance Minister to the country. When it comes to budgeting, identifying areas of weakness helps the government to allocate resources in a useful and sustainable manner. (c) Measures to reduce revenue deficit are: (i) Private enterprises always desire to allocate resources to those areas of production where profits are high. ♦ Forfeitures are in the form of penalties imposed by courts that a person needs to pay in the court of law for failing to comply with court orders. Such expenditure is incurred on long period development. Also by producing goods and supply directly. It comprises revenue receipts and revenue expenditure of a government. II. Task for you – Identify the characteristics of a robust as well as weak budget using the above mentioned objectives. This is one of the most fundamental objectives behind framing a government budget. For example, in India income tax is considered a progressive tax because its rate goes on increasing with the increase in annual income. It increases circulation of money and causes inflation. Government Budget is an annual statement showing item wise estimates of receipts and expenditures during a fiscal year. It increases our dependence on other countries. A few significant aspects of the Union Budget are. Financial stability- Budget keenly focuses on lowering the price fluctuations in the market. • Tax Revenue: It is 10% on incomes between Rs. Government budget primarily addresses monetary needs and problems of a country and how to resolve it. It’s important for the government to ensure that funds reach where it’s required the most. Through this budget, the government implements economic policy and realizes its program priorities. A direct tax is paid directly by the same person on whom it has been levied. For example, if value of a property near a metro station has increased, then a part of developmental expenditure made by government is recovered from owners of such property. The objectives of government budget are already explained in our study material. (a) Today every country aims at its economic growth to improve living standard of its people. Regressive Tax: In a regressive tax system, the rate of tax falls as the tax base increases. This budget keeps records of each ministry of country and their functions, activities during a financial year. Government makes provision to boost the rate of savings and investments made within the … Profits and Dividends: Government earns profit through public sector undertakings like Indian railways, LIC, BHEL, etc. Class 12 Business Studies Planning – Get here the Notes for Class 12 Business Studies Planning. Non-developmental expenditure: Non-developmental expenditure of the government is the expenditure on the essential general services of the government. Pro Lite, NEET • Government receipts, that either creates liabilities (of payment of loan) or reduce assets (on disinvestment) are called capital receipts. In general, the four government macroeconomic objectives can be split into two pairs of two that go together. ♦ Special Assessment: Sometimes government undertakes developmental activities by which value of nearby property appreciates, which leads to increase in wealth. It prepares appraisal reports for each major central sector projects/programmes to keep a track of parity between the taxpayers’ fund and the services provided by state and central government. (i) Revenue Receipts: These are the receipts that neither create any liability nor reduction in assets of the government. (b) The budget shows the fiscal policy. A government may borrow money: -> These are incomes, which the government gets by way of sale of goods and services rendered by different government departments. (a) Balanced Budget: If the government revenue is just equal to the government expenditure made by the general government, then it is known as balanced budget. expenditure and capital expenditure) over total budgetary receipts (both revenue receipt and capital receipt). Importance of a budget: Other examples of indirect taxes are excise duty, custom duty, entertainment tax, service tax etc. It brings discipline to fiscal planning through controlled expenditure, allocating several revenues. Explain the Role of Government Budget in Fighting Inflationary and Deflationary Tendencies. Government receives interest on loans given by it to state governments, union territories, private enterprises and general public. A budget is a document containing a preliminary approved plan of public revenues and expenditure. Redistribution of income- To close the income gap between rich and poor, several budgetary schemes are launched from the government's end. Reducing inequalities in income and wealth 3. This is because the first two objectives would benefit from a high level of demand in the economy because … 1000 crore as a loan to The Government of Delhi. What is the “Fiscal Deficit” in the Government Budget? 2,00,000, then he will have to pay Rs. 10,00,000. 21. Especially helpful at times of recession, a deficit budget helps generate additional demand and boost the rate of economic growth. Such grants and gifts are received during national crisis such as earthquakes, flood, war etc. The various objectives of Government Budget etc. In capital expenditure any one of the above conditions must be satisfied. They are: Provide structure. The overall economic growth of a nation relies on savings and investments. Developmental Expenditure: Developmental expenditure is the expenditure on activities which are directly related to economic and social development of the country. Meanwhile, the board has uploaded the sample papers on its official website, the link for which is cbse.nic.in. 3. Government budget - Government budget - The budgetary process: The budgetary process is the means by which the executive and legislative branches together formulate a coherent set of taxing and spending proposals. 1. Reserve Bank of India. Follow the given link and scroll down to the topic 'Objectives of Budget' to view the same. 5,00,000 and Rs.10,00,000 and 30% on incomes above Rs. 3. It estimates capital receipts and revenues. Primary Deficit = Fiscal Deficit – Interest Payments 5. (i) Revenue Expenditure: An expenditure that (a) Neither creates any assets (b) nor causes any reduction of liability. -> A tax is a legally compulsory payment imposed by the government on income and profit of persons and companies without reference to any benefit. for rendering services by the hospital is revenue expenditure. Several public sector industries are established for the social welfare of the public. Bringing down economic inequality- The Government tries to bring economic equality of society. Revenue Budget: Revenue Budget contains both types of the revenue receipts of the government, i.e., Tax revenue and Non tax revenue ; and the Revenue expenditure. Primarily the budget is divided into 3 types. Thus, it refers to expenditure that leads to creation of assets and reduction in liabilities. For implementing these policies, it has to spend huge amount of funds on defence, administration, and development, welfare projects & various other relief operations. 7. business cycles. Budget is estimated for a fixed period, typically for a year. (ii) The government of India budget for the year 2012-2013, fiscal deficit is 4,89,890 crore and Interest Payment is 3,11,996 crore. (v) Expenditure on special anti poverty and employment schemes will be increased to bring more people above poverty line. A budget is a formal statement of management’s plans for a specified method of communicating the agreed-upon objective of the organization. What you will learn in this budgeting 101 course. Deficit Budget- A budget is in deficit if the expenditure of the government is higher than that revenue generated in a fiscal year. (v) Economic stability leads to more investment and increases the rate of growth and development. A government budget is said to be a deficit budget if the estimated government expenditure exceeds the expected government revenue in a particular financial year. Conclusion: A basic difference between capital expenditure and revenue expenditure is that the capital expenditure is incurred on creation or acquisition of assets, whereas, the revenue expenditure is incurred on rendering services. (i) Government should reduce its unproductive or unnecessary expenditure. 27. Budget deficit: (i) A government undertakes commercial activities that are of the nature of natural monopolies; and which are established and managed for social welfare of the public. Example: If tax rate is 10% and the annual income of a person is Rs. Main objectives of budget are: (i) Reallocation of resources. (v) On the other hand, production of “socially useful goods” (like electricity, ‘Khadi’) is encouraged through subsidies. Objectives of Government Budget. • Capital receipts include items which are non-repetitive and non-routine in nature, This can be expressed symbolically like, Balanced Budget = (Assumed collected revenues = Assumed expenditure). Apart from the three main types of budget, there are Zero budgeting, Outcome Budget and Gender budgeting. (ii) Reduction of poverty and employment: To eradicate mass poverty and unemployment by creating maximum employment opportunities and providing maximum social benefits to the poor. 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If a budget is not approved prior to the beginning of the budget period, the original budget is the budget that was first approved for application in the budget year. In this case, imposed taxes surpass the expenses. It is for future generations to repay loans as well as the mounting interest thereon. Budget is used as an important policy instrument to combat (solve) the situations of deflation and inflation. Symbolically, (iv) By doing it the government tries to achieve the state of economic stability. What are the Different types of Government Budget? Reallocation of Resources 2. A government budget is an annual financial statement showing item wise estimates of This online budgeting class is designed for those who are responsible for financial management, budgeting, and forecasting within their organizations. The main objective of the government is to maintain law and rules in the country. Yet, they all exist and function simultaneously under federal law. Proportional Taxation: A tax is called proportional when the rate of taxation remains constant as the income of the taxpayer increases. Budget has two parts: One of the chief aims of the Government budget is to alleviate social disproportion. Since a budget is introduced to diminish any financial discrepancy within a country, its effects on society are far-reaching. ♦ Fines and penalties for an infringement of a law, i.e., they are imposed on law breakers. This objective organically strengthens the economic structure of a nation. Itemwise estimates of expenditure discloses how much and on what items, the government is going to spend. For example, governmental budgetary ♦ License Fee: License fee is a payment to grant a permission by a government authority. If you want to learn more, check out our website today for more information about economics, finance and business study related topics. • Revenue receipts include items which are Repetitive and routine in nature. 3. 13. Ans. ♦ It also includes interest and dividends on investments made by the government. (c) Developmental and non-developmental Expenditure: 5. Addressing Regional Disparity- One of the chief aims of the Government budget is to alleviate social disproportion. 25. For example, presently (2012-2013) there is no tax up to annual income of Rs. (iv) Deficits Multiply Borrowings: Payment of interest increases revenue expenditure of the government, causing an increase in its revenue deficit. ♦ Escheat refers to the claim of the government on the property of a person who dies without having any legal heir or without leaving a will. Economic Growth and 6. It determines government expenditure and receipts. 24. Government budget and its components assist in the redistribution of revenues based on social priorities. Government Budget and The Economy Important Questions for class 12 economics Concept and Components of Government Budget. (iii) Industries which are potential natural monopolies are railways etc. 10. (i) Revenue deficit, (ii) Fiscal deficit and (iii) Primary deficit Do you know – Higher tax rates on a certain group of nationals and organisations can have a severe impact on the overall economy. Symbolically, The two main components of government budget are. This includes expenditure on education, health, agriculture, transport, roads, rural development etc. Budget focuses on the advancement of defence capabilities. 2. Capital recipients are government liabilities (borrowings, disinvestments like shares of public enterprises). (iii) Fiscal deficit indicates capacity of a country to borrow in relation to what it produces. NCERT Solutions for Class 6, 7, 8, 9, 10, 11 and 12, This is a descriptive chapter on government budget of Indian economy, wherein its objectives, importance, types, components, budget deficits and its types (Revenue, Fiscal, Primary Deficit) and their implications are studied. Revenue Receipts: Government receipts, which Capital budget- Just like the former one, Capital revenue is classified into capital receipts and expenditure. Investment and sources of finance are prepared with the objectives of the government. The federal government encompasses the country … This also includes loans given by the government to enterprises like Sahara for the purpose of development. Objectives of Government Budget. Government budget, forecast by a government of its expenditures and revenues for a specific period of time.In national finance, the period covered by a budget is usually a year, known as a financial or fiscal year, which may or may not correspond with the calendar year.The word budget is derived from the Old French bougette (“little bag”). Task for you: Can a strong budget help reduce income inequality? 100 crore, the value of The Government of India assets reduces to Rs. Budget keenly focuses on lowering the price fluctuations in the market. 6. are examples of plan expenditure. • Disinvestment: A government raises funds from disinvestment also. - Economics . 30,000 per year. Types of budget: It may be of two types: 7:35 mins. Similarly, itemwise details of government receipts indicate the sources from where the government intends to get money to finance the expenditure. A budget is in deficit if the expenditure of the government is higher than that revenue generated in a fiscal year. 1. It helps to uplift underprivileged sections of society by introducing new policies. Also by producing goods and supply directly. Budget is also known as the Annual Financial Statement of the nation. assist in the redistribution of revenues based on social priorities. Meaning and Concept. It means a tax in which impact and incidence of tax lie on two different persons, then it is termed as indirect tax. (i) Surplus budget (ii) Deficit budget Deficits And Implications Of These Deficits. For example, registration fee for an automobile. government is the expenditure on the essential general services of the government. To reduce the deficit or the gap between the expenditures and income, the government may cut back on certain expenditures and also increase revenue-generating activities. (iii) Through its budgetary policy the government of a country directs the allocation of resources in a manner such that there is a balance between the goals of profit maximisation and social welfare. Aids in achieving financial and economic goals of a country. 1. This may include professionals working in financial planning and analysis (FP&A), accounting, treasury, financial reporting, corporate development, etc. It is a capital receipt because it reduces financial assets of the government. Capital Receipts: Government receipts that either creates liabilities (of payment of loan) or reduce assets (on disinvestment) are called capital receipts. 4. Government can also levy hefty taxes upon production of harmful products like cigarettes and alcohol to discourage the production of those. (i) Meaning: (i) Causes Inflation: An important component of government borrowing includes borrowing from the Reserve Bank of India. importance of govt budget are : (i) Economic growth: To promote rapid economic growth so as to improve living standards of the people. 2. Government Budgeting: Union Budget Presentation In India, the Budget is presented to Parliament on such date as is fixed by the President. (ii) Increase in Foreign Dependence: Government also borrows from rest of the world. In this case, we find that (a) the amount of tax to be paid increases, and (b) the rate at which tax is to be paid falls. -> Non-tax revenue refers to government revenue from all sources other than taxes. (ii) Revenue deficit implies that the government has to cover this uncovered gap by drawing upon capital receipts either through borrowing or through sale of its assets. Government Budget - Introduction. Higher tax rates on a certain group of nationals and organisations can have a severe impact on the overall economy. If so, how? These receipts are again classified into two segments: tax revenue (income, excise, corporate, custom taxes) and non-tax revenue (income and profits earned by government other than taxes). ♦ External grants: Government receives financial help in the form of grants, gifts from foreign governments and international organisations (IMF, World Bank). Indirect Tax: When (a) liability to pay a tax (Impact of tax) is on one person; and (b) the burden of that tax (Incidence of tax), falls on the other person, it is termed as indirect tax. Government Budget It is a statement of expected/estimated receipts and expenditure of the government over the period of a … Just like the former one, Capital revenue is classified into capital receipts and expenditure. (i) Budget of a government shows its comprehensive exercise on the taxation and subsidies. However, capital expenditure is long-term investments that the government makes by creating assets like building roads, hospitals etc. (iii) Financial Burden for Future Generation: Borrowing implies accumulation of financial burdens for the future generations. profit of persons and companies without reference to any benefit. Income tax and corporate (profit) tax are most appropriate examples of direct tax. Sorry!, This page is not available for now to bookmark. In other words, surplus budget implies a situation where government income is in excess of government expenditure. 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