GOVERNMENT BUDGETING AND THE NEED OF GOVERNMENT BUDGET


 

WHAT IS A BUDGET?

A budget is made to get an estimate of income and expenditure. It is different from an account which is a recording of a financial transaction. The budget is an extremely vital part of the economy of any nation since it helps in planning and controlling its financial affairs. The need for a government budget arises from the fact that income and expenditure do not happen at the same time. A revenue receipt and expenditure flow do not coincide in time. 


GOVERNMENT BUDGET


A government budget is made to approach and address the needs and issues of a country. It is an annual financial statement where an itemized estimate of revenue expected and expenditure anticipated are listed for the current fiscal year which runs from April 1 of one year to March 31 of the next year. 

Elements of government budget :

 

1. Public Expenditure: A national budget authorizes public expenditures under two categories: Government purchase of goods and services to serve the public with services like health care, education, defence, etc.

Payment of social security and other such transfers to individuals and offering subsidies payment to industries and commercial companies.


2. Revenues: The government finds ways and means to earn revenue to meet their expenditure. 

 

3. Actual Receipts and Expenditure List: When the financial year closes on March 31st, a detailed list of actual revenue and expenditure is provided along with reasons for deficits (or surplus) that have occurred during that financial year.

 

4. Economics Government Budget: The financial policy for the coming fiscal year is disclosed, which includes taxation proposals, spending programs, revenue prospects, and the introduction of new schemes or projects.

 

 

IMPORTANCE OF GOVERNMENT BUDGET


Every country aims to improve the standard of living of its people and eradicate issues like poverty, illiteracy, unemployment, income inequality, etc. Budget measures help the government in meeting these goals. A budget gives an overview of the fiscal policy of the government. The public can see how much and on what items the government spent in the last fiscal year. The budget also shows itemized receipt, which reveals the sources of the revenue for these expenditures that were generated.




COMPONENTS OF A BUDGET


There are mainly two components of a government budget:

1. Revenue Budget: Revenue receipts and revenue expenditure make up the revenue budget.

 

2. Revenue Receipts: The money which the government earns through taxes (excise tax, income tax, etc.) and other non-tax sources (such as dividend income, profits, interest receipts, etc.) come under this category of the budget component. The revenue receipts do not impact the assets and liabilities of the government directly.


3. Revenue Expenditure: Expenses that do not impact the assets and liabilities of the government directly are called revenue expenditure. A few examples of this type of expenditure are pensions, salaries, administrative expenses, and interest payments.

 

4. Capital Budget: This comprises capital receipts and expenditures. It is divided into two subparts:

 

5. Capital Receipts: Any receipt which indicates a decrease in the government’s assets and increases in its liabilities is termed a capital receipt. Examples include:

Money that is received through repayments of loans by states.

Money is earned through disinvestments like the selling of shares of public enterprises.


6. Capital Expenditure: This expenditure is done to reduce liabilities and create more assets. A few examples are:

Expenditure or long-term investments in creating assets such as hospitals, roads, etc.

Money lent by the government to states in the form of loans


 

NEED FOR GOVERNMENT BUDGET


A government budget is the means of providing control over the expenditure and revenue of the government. Budgets help in maintaining stability and control over the government’s finances and are also a means of providing accountability through financial reporting. The following points can help you understand the importance of the Government Budget:

 

1. Resource Reallocation: With the social and economic condition of the country in mind, the government can distribute resources properly.

2. Tax concessions or subsidies:To encourage investment, the government can give tax concessions, subsidies etc. to the producers. For example, Government discourages the production of harmful consumption goods (like liquor, cigarettes etc.) through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies.

3. Directly producing goods and services: If the private sector does not take an interest, the government can directly undertake the production

4. Reduce the Difference in Income and Wealth: The economic equality of different classes in the country can be better maintained by the government. They can impose taxes on the elite class and spend that money on the welfare of poor people. Economic inequality is an inherent part of every economic system. The government aims to reduce such inequalities of income and wealth, through its budgetary policy. The government aims to influence the distribution of income. It will reduce the income of the rich and raise the standard of living of the poor, thus reducing inequalities in the distribution of income

5. Economic Stability: The government budget is used to prevent business fluctuations of inflation or deflation to achieve the objective of economic stability. The government aims to control the different phases of business fluctuations through its budgetary policy. Policies of the surplus budget during inflation and deficit budget during deflation help to maintain the stability of prices in the economy.

6. Management of Public Enterprises:

There are large numbers of public sector industries (especially natural monopolies), which are established and managed for the social welfare of the public. The budget is prepared with the objective of making various provisions for managing such enterprises and providing that financial help.

7. Economic Growth:

The growth rate of a country depends on the rate of saving and investment. For this purpose, the budgetary policy aims to mobilise sufficient resources for investment in the public sector. Therefore, the government makes various provisions in the budget to raise the overall rate of savings and investments in the economy.

8. Reducing regional disparities: The government budget aims to reduce regional disparities through its taxation and expenditure policy for encouraging the setting up of production units in economically backward regions.


CONCLUSION:

 

Forecast of governmental expenditures and revenues for the ensuing fiscal year. In modern industrial economies, the budget is the key instrument for the execution of government economic policies. Because government budgets may promote or retard economic growth in certain areas of the economy and because views about priorities in government spending differ widely, government budgets are the focus of competing for political interests.


REFERENCE:

https://www.britannica.com/summary/government-budget

https://www.vedantu.com/commerce/government-budget-and-the-economy

 


Comments

Post a Comment

Popular posts from this blog

CONFLICT OF INTEREST IN MEDIA

When we talk about conflicts of interest in journalism, it can be real, potential or perceived. Some rules are usually simple. They are framed according to the principle that audiences are supposed to know if a reporter, presenter or editor can be influenced by any commercial relationship with another individual.  If the protocols of the disclosure are not met, it leads to non-employment.  The recent sacking of Canadian journalists highlights the difficulties media employees face in navigating the tricky terrain of conflicts of interest. Earlier this month, the Canadian Broadcasting Corporation (CBC) dismissed the host of its premiere television political show Power & Politics, Evan Solomon, for allegedly using his journalist’s position to broker sales for an art dealer friend. Solomon’s sacking followed a Toronto Star newspaper report on the journalist’s contract with an art dealer, Bruce Bailey. Solomon has admitted he received commissions, said to total around CAD$300,0...
Read more

PREVENTION OF MONEY LAUNDERING ACT, 2002

Image
PREFACE Prevention of Money Laundering Act, 2002 was enacted to fight against the criminal offence of legalizing the income/profits from an illegal source. The Prevention of Money Laundering Act, 2002 enables the Government or the public authority to confiscate the property earned from the illegally gained proceeds. INTRODUCTION  Any person who directly or indirectly: Attempts to indulge. Assists the person who is involved in any process. Is a party to the activity connected with the proceeds of crime. As the supply of illegal arms, drug trafficking, and prostitution, which can generate huge amounts of money and project or claim it as untainted property; shall be guilty of the offence of Money Laundering. The Act was formulated for the following objectives: 1. Prevent money- laundering 2. Combat/prevent channelising of money into illegal activities and economic crimes. 3. Provide for the confiscation of property derived from, or involved/used in, money laundering. 4. Provide for ma...
Read more

FACTORS AFFECTING INDIVIDUAL BEHAVIOR IN AN ORGANISATION

Individual behaviour refers to how an employee interacts or behaves at work. It's a collection of responses to both internal and external stimuli. Individual behaviour describes how a person reacts to various situations and expresses various emotions such as happiness, rudeness, love, rage, and so on. It refers to a certain activity taken by a person. Individual behaviour is studied to learn about human behaviour in the workplace. Individual behaviour has a significant impact on an organization's performance. Positive behaviour results in increased productivity. Negative behaviour, on the other hand, will cause harm to the company and result in significant losses. FACTORS AFFECTING INDIVIDUAL BEHAVIOR IN AN ORGANISATION:  Because human behaviour is believed to be the most complicated, each individual is unique. In an efficient organization, there are a variety of issues that might affect employee behaviour directly or indirectly. In some cases, the organization's manager mu...
Read more