The private sector always tend to divert resources towards areas of high profit, while, ignoring areas of social welfare. Government can charge higher rate of tax from higher income groups by imposing higher rate of income tax and higher rate on goods and services purchased by the rich. Government budget - Government budget - Components of the budget: In the United States the budget for each fiscal year contains detailed information on the outlays intended by the federal government and the receipts expected, including those from trust funds. Main & Advanced Repeaters, Vedantu Income Redistribution is an economic practice which is aimed at leveling the distribution of wealth or income in a society through a direct or indirect transfer of income from the rich to the poor. Gender budget aims at gender equality, specifically by introducing new schemes and policies to empower women. It helps to uplift underprivileged sections of society by introducing new policies. through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies. What are the differences between balance of trade and balance of payments? It brings economic stability in a country by cutting down wasteful expenses. Through its tax and expenditure policy government affects distribu­tion of personal income of households in a manner which is just and fair. An expenditure which either creates an asset (e.g., School building) or reduces a liability (e.g., repayment of loan) is called capital expenditure. An annual budget provides financial aid to such businesses to grow. Explain the ‘allocation of resources’ objective of Government budget. One of the objectives of a government is to maintain the economic stability. OR. It is essential for any government to plan a budget as it allocates various resources across the nation to ensure economic progress and stability. balanced budget: A (usually government) budget in which income and expenditure are equal over a set period of time. The budget also divides authorized expenditure into that which can be carried out without action by Congress and that … Write the difference between revenue receipts and capital receipts? Financing Public Enterprises- Several public sector industries are established for the social welfare of the public. • describe the aims of government policies, such as full employment, price stability, economic growth, redistribution of income… Through its tax and expenditure policy government affects distribu­tion of personal income of households in a manner which is just and fair. (iii) Stabilization Function: The income budget is simply just a fraction of the entire master budget. 2. The budget aids in influencing the distribution of income through subsidies and taxes. it imposes high tax on rich to absorb extra purchasing power from the economy and give it to the poor in the form of subsidies.This reduces the gap between the rich and the poor and inequality is decreased and redistribution of income and wealth is achieved with the help of government budget. It comprises revenue receipts and revenue expenditure of a government. Syllabus. However, if you earned $18000 and still only spent $1800 then your propensity to consume is at 10%. Full employment - The country wishes to be as efficient as possible, and thus to have the maximum number of workers part of the work force under employment. Surplus Budget- A surplus budget occurs when the estimated revenues exceed the expected expenditure. Capital recipients are government liabilities (borrowings, disinvestments like shares of public enterprises). In this case, imposed taxes surpass the expenses. Do you know who presented the first Union Budget of independent India? Policies like Deficit budget during deflation and Surplus budget during inflation thrive on bringing stability within the economy. Earlier in this module, we considered some of the key government policies that provide support for the poor: the welfare program TANF, the earned income tax credit, SNAP, and Medicaid. In such a situation, the government through the budgetary policy, aims to reallocate resources in accordance with the economic (profit maximisation) and social (public welfare) priorities of the country. Explain the ‘redistribution of income’ objective of Government budget. Explain. Government Budget and Economy class 12 Notes Economics. It is imposed on the income of a person based on the principle of ability to pay. OR Explain how the government budget can help in a fair distribution of income in the economy. Answer: Free play of market forces (or the forces of supply and demand) are bound to generate trade cycles, also called business cycles. This can be expressed symbolically like, Balanced Budget = (Assumed collected revenues = Assumed expenditure). Apart from that, a few other important points of the government budget are listed below. A decline in the government liabilities and creates assets for the government. 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). 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. VIEW SOLUTION. Bringing down economic inequality- The Government tries to bring economic equality of society. Redistribution of Income: Each and every economy strives to achieve a society, where inequality of income and wealth must be minimum.In order to attain this objective via government budget the government spends adequate money on social security schemes, economic subsidies and public works and do on. Elaborate economic growth as objective of government budget. There may be budget surplus without government spending when taxes are raised. There is neither a budget deficit nor a budget surplus; in other words, “the accounts balance. It is a projection or estimation of financial trends and its outcome, prepared solely depending on the previous years’ data. It is a short period expenditure and recurring in nature which is incurred every year (as against capital expenditure which is long period expenditure and non-recurring in nature). Before taxes and social spending the income of the richest 10% in South Africa is more than 1000 times bigger than the poorest 10%. Explain the ‘redistribution of income’ objective of a government budget. Advertisement Remove all ads. A surplus budget occurs when the estimated revenues exceed the expected expenditure. Objectives and Limitations of Trial Balance, Accounting Standards - Objectives, Benefits, Limitations, Importance and Limitation of Coordination, Vedantu most income taxes, because of tax-brackets) Regressive – the average rate of tax decreases as the person’s income rises (e.g. Progressive – the average rate of tax rises as the person’s income rises (e.g. In a mixed economy, the private producers aim towards profit maximisation, while, the government aims towards welfare maximisation. For example, if you earned $2000 and spend $1800 on all your purchases then your propensity to consume is at 90%. COMPARISON BETWEEN REVENUE EXPENDITURE AND CAPITAL EXPENDITURE. It is incurred for normal running of government departments and maintenance. Explain the ‘redistribution of income’ objective of a government budget. [CBSE2011, A/2011] OR Reduction in income inequalities raises welfare of the people. Explain the various objectives of a government budget. It is essential because it helps to set a goal for future financial planning. The second step is for governments to pass on the collected taxes to the poor. An expenditure that neither creates assets nor reduces a liability is categorised as revenue expenditure. For example, expenditure on medicines and salaries of doctors in a hospital for rendering services is revenue expenditure. Explain the ‘Redistribution of Income’ Objective of Government Budget. Redistribution Redistribution means taking income from those with higher incomes and providing income to those with lower incomes. It is recurring in nature and incurred regularly. Tax burden can be shifted to another person. Government levies high rate of tax on rich people reducing their disposable income and lowers the rate on lower income group. government can use tax policy and public expenditure as a tool. Allocates money for improving educational facilities. What is the basis of classifying government expenditure into revenue expenditure and. Earlier in this chapter, we considered some of the key government policies that provide support for the poor: the welfare program TANF, the earned income tax credit, SNAP, and Medicaid. 'Taxation and subsidies' is the key policy instrument used by the government in this context. Fiscal instruments like subsidies, taxations, etc. Based on budget, the government makes precautionary measures. Successfully handles the economic infatuation of the country by balancing inflation and deflation. View Answer "Policies of surplus budget during inflation" is a part of which objective of government budget? One basis for redistribution is the concept of distributive justice , whose premise is that money and resources ought to be distributed in such a way as to lead to a socially just , and possibly more … The Government tries to bring economic equality of society. In the beginning of every year, the Government of India prepares a document and presents it before Lok Sabha. Enhanced taxes reduce the disposable income with the people and encourage reduction in consumption expenditure. A few significant aspects of the Union Budget are. Even distribution of wealth and social welfare remains the main objective of budgetary policy. A budget is in deficit if the expenditure of the government is higher than that revenue generated in a fiscal year. A government uses fiscal instruments of taxation and subsidies with a view of improving the distribution of income and wealth in the economy. Redistribution of income is one of the important objectives of government budget. Government imposed high tax rates on higher income group and low tax rate on lower income group. (b) investment in shares, loans by central government to state government, foreign governments and government companies, cash in hand, and (c) acquisition of valuables. Ltd. Download books and chapters from book store. assist in the redistribution of revenues based on social priorities. Budget keenly focuses on lowering the price fluctuations in the market. The distribution of income and wealth is highly unequal in countries like India. Examples of revenue expenditure are salaries of government employees, interest payment on loans taken by the government, pensions, subsidies, grants, rural development, education and health services, etc. As such it taxes the rich and spends for the schemes which benefit more the poor. If so, how? Concept Notes & Videos 439. Also by producing goods and supply directly. Simply put, an expenditure which neither creates assets nor reduces liability is called Revenue Expenditure, i.e., Salaries of employees, interest payment on post debt, subsidies, pension, etc. Economic growth- The overall economic growth of a nation relies on savings and investments. Textbook Solutions 11268. Pro Lite, Vedantu The budget of a government shows its comprehensive exercise on taxation and subsidies. The overall economic growth of a nation relies on savings and investments. It’s important for the government to ensure that funds reach where it’s required the most. CBSE CBSE (Commerce) Class 12 Question Papers 1786. Explain the role of government budget in influencing allocation of resources. Through its taxation policy, the government taxes the higher income groups in the economy. Fiscal deficit: The fiscal deficit is defined as the excess of government revenue over government expenditure. 3. These increase their … Such expenditure is incurred on long period development programmes, real capital assets and financial assets. As such it taxes the rich and spends for the schemes which benefit more the poor. No decline in government liabilities and does not create assets for the government. Delhi - 110058. Hence, the impact and incidence of taxes are on different persons. Just like the former one, Capital revenue is classified into capital receipts and expenditure. Explain the 'redistribution of income' objective of Government budget. Contents. Redistribution means taking income from those with higher incomes and providing income to those with lower incomes. An annual budget provides financial aid to such businesses to grow. Hence borrowing in government budget is a fiscal deficit. Through its taxation policy, government levies high rate of tax on rich people reducing their disposable income and … The 5 macroeconomic objectives of an economy are: 1. This type of expenditure adds to the capital stock of the economy and raises its capacity to produce more in future. What is the “Fiscal Deficit” in the Government Budget? Government budget - Government budget - Growth of public expenditure: The proportion of national income devoted to public spending rose considerably during the 19th and 20th centuries. Elaborate the objectives of reallocation of resources in government budget 1 See answer ak5260182 is waiting for your help. Define Government budget. Deficit Budget- A budget is in deficit if the expenditure of the government is higher than that revenue generated in a fiscal year. A high level of taxation is necessary in a welfare State to fulfill its obligations. It contains anticipated revenues and proposed spending for the upcoming financial year (which starts from 1st April and extends till 31st March of following year). 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). Main objectives of budget are: (i) Reallocation of resources. This objective organically strengthens the economic structure of a nation. Symbolically, Deficit budget = estimated expenditure > estimated revenues. To keep inflation under control Inflation creates uncertainty and results in the fall in the value of money in terms of goods and services. The income tax burden is equitably distributed on different people and institutions. A government budget is an annual financial statement which outlines the estimated government expenditure and expected government receipts or revenues for the forthcoming fiscal year. Budgetary policies are hence introduced to infuse enough recourse in different public sectors. A government reduces the inequality in the distribution of income and wealth by imposing taxes on the rich and giving subsidies to the poor and spending more on the welfare of the poor. Prices are affected because the price of the product is inclusive of tax. (ii) Directly producing goods and services:If private sector does not take interest, government can directly undertake the production. Economic stability can be achieved by correcting the situations of deficient and excess demand in the economy. This budget keeps records of each ministry of country and their functions, activities during a financial year. This can be expressed symbolically like, Balanced Budget = (Assumed collected revenues = Assumed expenditure). In this case, imposed taxes surpass the expenses. (B) Repayment of loan to World Bank, foreign government, etc. The main objective of taxation is raising revenue. Public finance is the study of the role of the government in the economy. 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