Budget Chap Flashcards
List the objectives of government budget
Reallocation of resources
Reducing inequalities income and wealth
Economic stability
Management of public stability
Economic growth
Reducing regional disparities
Employment generation
List the components of budget :
2 types of receipts are: capital Receipts and Revenue Receipts
Under revenue receipts we have: tax revenue and non tax revenue.
capital Revenue: Borrowings,recovery of loans,other receipts.
Revenue budget
And capital budget
Explain revenue receipts:
Revenue receipts neither create liability nor reduce the asset.
It includes tax revenue and non tax revenue:
Tax Revenue includes direct and indirect tax.
Direct tax :
The incidence and impact of the tax is on the same person.
Levied on the property and the income of the person and firms.
The burden of the tax Cannot be shifted.
Progressive in nature (depends on the income of the payer)
Example: income tax, corporate tax,wealth tax,etc.
Indirect tax:
Incidence on the producer and the impact is on the consumer. (O diff persons)
Avoidable on the part of the payer.
Levied on production and sales of the commodities.
The burden of tax can be shifted through price rise.
Proportional in nature.
Sales tax,excise duties,custom duties,etc.
Non tax revenue:other than tax
Fees- the charges imposed by the government to cover the cost of the recurring services provided by it.
license and permit-payment charged by the government to grant permission for something.
Fines and penalties- payments which are made for breaking a law.
Gifts and grants- voluntary contributions received from the rest of the world.
Interest- govt receives interest on loans given to state governments.
Income from public enterprises or profits and dividends: govt receives profits through public sector undertakings like LIC BHEL.
It earns dividends from the investments in other companies.
Escheats- govt acquires the property or bank balances if the person dies and the person has no heir or no will.
Forfeitures: these r in the form of penalties which are imposed by the courts for non compliance of orders or non fulfilment of contracts etc.
special assessment : if the value of the property has increased due to a government developmental activity then the owner to obliged to make a payment to the govt.
Define reallocation of resources.
Reallocation of resources is related to 2 important goals :
Social welfare and economic or profit maximisation
1. Tax concessions and subsidies :
Government discourages the production of harmful consumption goods through heavy taxes and encourages the use of Khadi products by providing subsidies.
To encourage investment, government gives tax concession and subsidies to the producers.
- Directly producing goods and services:
Govt undertakes non profitable economic activities like water supply, sanitation, law and order etc in public interest and to raise social welfare.
Difference b/w revenue and capital receipts
Pic on my phone
What is a revenue expenditure?
Neither creates asset nor reduces any govt liability
Recurring and regular in nature incurred year after year
Financed out of revenue receipts ( related to day to day expenses)
Examples: salaries, penalties , interest payments ,subsidies, grants.
REMEMBER : UNION GRANTS WILL BE REVENUE EXPENDITURE
What is capital expenditure
Creation of asset and reduces liability
Non recurring, irregular in nature
Financed out of borrowings from the public and foreign govt bodies.
Examples: expenditure on purchasing land and buildings , assets, shares, repayment of loans ,construction of roads , flyovers, purchase of equipments.
If there is budget deficit what does the govt do in order to meet the needs.
Deficit budget is when budget expenditure is more than budget receipts.
Govt borrows money from RBI and this is known as deficit financing to meet their needs.
Govt can raise money from the stock exchange.
Govt borrows money from imf or world bank
Disinvestment
Govt also sells their assets to meet their financial needs.
Reduce unnecessary expenditure.
List types of budget.
Balanced budget : government estimated receipts are equal to govt estimated expenditure.
Surplus budget : when estimated receipts are greater than govt expenditure.
To prevent inflation
Govt tries to withdraw money from the economy to reduce the cash flow in the economy, to reduce aggregate demand in the market.
Deficit budget : when estimated govt expenditure is more than govt receipts.
Deflation
What is Revenue deficit ?
= revenue exp - rev receipts
What is fiscal deficit ?
Total expenditure - receipts excluding borrowings
What is Primary deficit ?
Fiscal - interest payment
Reducing inequalities in income and wealth
Govt introduces schemes for poverty and unemployment.
Govt follows progressive taxation.
Govt imposes taxes on the rich and raises the standard of living of the poor.
In this way it reduces inequalities in income and wealth.
Economic stability
It means the absence of large fluctuations in the economy.
During inflation when the agg demand is more than agg supply, then the govt reduces its expenditure to reduce the agg demand.
During deflation, when agg demand is less than agg supply, govt increases its expenditure to increase its agg demand to make agg demand =agg supply.
In both these ways acc to the situation govt makes agg demand =agg supply.
Management of public enterprises
There are many public enterprises with the aim to provide social welfare to the public. With the help of the budget, govt tries to support these enterprises by giving them financial support.
