For example, construction of hospital building is capital expenditure. Delhi - 110058. Through a budget, the government endeavours to equally allocate resources and wealth. Solution Allocation of resources is one of the important objectives of government budget. The problem of economic divide is combated by the revenue and expenditure policy of the government. 2) Private sector of economy usually ignores social welfare. If so, how? It is incurred for acquisition of capital assets. Hence borrowing in government budget is a fiscal deficit. This can be expressed symbolically like, Balanced Budget = (Assumed collected revenues = Assumed expenditure). Policies like Deficit budget during deflation and Surplus budget during inflation thrive on bringing stability within the economy. Syllabus. Elaborate economic growth as objective of government budget. Progressive – the average rate of tax rises as the person’s income rises (e.g. through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies. 2. The income budget only covers how much the business is earning from various routes, but does not cover how much is spent to operate the business or how much is spent on product development, for example. Budget is a financial statement showing the expected receipt and expenditure of Govt. Such expenditure is met out of capital receipts of the government including borrowing from public and foreign governments. In order to attain all these aforesaid objectives, the Government of India has been formulating its fiscal policy incorporating the revenue, expenditure and public debt components in a comprehensive manner. tax on fuel) Proportionate – the average rate of tax is constant; Taxes are the first step in the redistribution of income. Write the difference between revenue receipts and capital receipts? (A)Redistribution of income and wealth: It is one of the most important objective of the government budget. To reduce the degree of inequality in the distribution of income and wealth. Redistribution means taking income from those with higher incomes and providing income to those with lower incomes. 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. Fiscal instruments like subsidies, taxations, etc. Government can influence allocation of resources through:(i) Tax concessions or subsidies:To encourage investment, government can give tax concession, subsidies etc. A 2011 study by the Congressional Budget Office (CBO) found that the top earning 1% of households increased their income by about 275% after federal taxes and income transfers over a period between 1979 and 2007, compared to a gain of just under 40% for the 60% in the middle of America’s income distribution. This is one of the most fundamental objectives behind framing a government budget. 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. 1 1. 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. Answer: Free play of market forces (or the forces of supply and demand) are bound to generate trade cycles, also called business cycles. Objectives and Limitations of Trial Balance, Accounting Standards - Objectives, Benefits, Limitations, Importance and Limitation of Coordination, Vedantu The objectives of income redistribution are to increase economic stability and opportunity for the less wealthy members of society and thus usually include the funding of public services. What are the Different types of Government Budget? The role of the state is the control of markets, redistribution of income and provision of welfare services for all citizens (Gildenhuys, 1988:8). Budget focuses on the advancement of defence capabilities. Pro Lite, NEET 2) Private sector of economy usually ignores social welfare. Successfully handles the economic infatuation of the country by balancing inflation and deflation. Reducing inequalities in income and wealth: Economic inequality is an inherent part of every … government can use tax policy and public expenditure as a tool. Zero budget starts from the zero base, and it is made based on needs and cost of government. Budget keenly focuses on lowering the price fluctuations in the market. Examples: Union excise duties and custom duties, https://www.zigya.com/share/RUNFTjEyMTExMTE2. The propensity to consume is the proportion of your income spent on purchases. Through its budget government uses fiscal instruments of taxation and subsidies with a view of improving the distribution of income and wealth in the economy. Government imposed high tax rates on higher income group and low tax rate on lower income group. Capital recipients are government liabilities (borrowings, disinvestments like shares of public enterprises). [CBSE 2010] OR Explain ‘redistribution of income’ objective of government budget. Question 28. The income tax burden is equitably distributed on different people and institutions. Based on budget, the government makes precautionary measures. Redistribution of income- To close the income gap between rich and poor, several budgetary schemes are launched from the government's end. An expenditure which either creates an asset (e.g., School building) or reduces a liability (e.g., repayment of loan) is called capital expenditure. It is a projection or estimation of financial trends and its outcome, prepared solely depending on the previous years’ data. Explain the ‘Redistribution of Income’ Objective of Government Budget. A decline in the government liabilities and creates assets for the government. Budgetary policies are useful medium to reduce inequalities of income for the fair distribution of income. 1. • describe the aims of government policies, such as full employment, price stability, economic growth, redistribution of income… Main objectives of budget are: (i) Reallocation of resources. The poorer have a higher propensity to consume so the redistribution of income will increase consumption and thus aggregate demand. Explain the ‘allocation of resources’ objective of Government budget. Objectives of a Government Budget: It should be kept in mind that rapid and balanced economic growth with equality and social justice has been the general objective of all our policies and plans. Addressing Regional Disparity- One of the chief aims of the Government budget is to alleviate social disproportion. Pro Lite, Vedantu The government can provide subsidies and other amenities to people whose income levels are low. pankajkumar66 pankajkumar66 hey mate ! Redistribution of income is one of the important objectives of government budget. The government imposes heavy taxation on a high income groups redistribute it among the people of weaker section in the society. Many of the fiscal policies are embodied in the budget and such policies tend to direct the economic activities in the country. An annual budget provides financial aid to such businesses to grow. 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). Higher tax rates on a certain group of nationals and organisations can have a severe impact on the overall economy. Explain the role of government budget in influencing allocation of resources. Depending on the feasibility of these estimates, budgets are of three types -- balanced budget, surplus budget and deficit budget. This can be expressed symbolically like, Balanced Budget = (Assumed collected revenues = Assumed expenditure). Through its taxation policy, government levies high rate of tax on rich people reducing their disposable income and lowers the rate on lower income group. It is imposed on the income of a person based on the principle of ability to pay. In both cases, the redistribution of income might achieve not only greater equality but also faster growth and, for developing economies, faster poverty reduction. The distribution of income and wealth is highly unequal in countries like India. Public finance encompasses fiscal policy and this fiscally policy refers to the government plan of action concerning the raising of revenue through taxation and other means and deciding the pattern of expenditure to be applied. 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. Add your answer and earn points. A surplus budget occurs when the estimated revenues exceed the expected expenditure. The government's role in the distribution of income and wealth is through redistribution of wealth and income. 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). In the words of Keynes, government expenditure becomes a balancing factor in order to maintain national income at a given level. Time Tables 18. However, capital expenditure is long-term investments that the government makes by creating assets like building roads, hospitals etc. They encourage small industries like “Khadi” to flourish by allowing subsidised loans and reduced taxes on raw material, needed for production. Fiscal instruments like subsidies, taxations, etc. Such expenditure is incurred on long period development programmes, real capital assets and financial assets. When it comes to budgeting, identifying areas of weakness helps the government to allocate resources in a useful and sustainable manner. To close the income gap between rich and poor, several budgetary schemes are launched from the government's end. It is essential for any government to plan a budget as it allocates various resources across the nation to ensure economic progress and stability. By taxing the income of the rich proportionally more than the poor and using social spending to boost the incomes of the poorest more than 10-fold, fiscal policy narrows the income gap between the rich and poor. Through its taxation policy, the government taxes the higher income groups in the economy. Government Budget thus plays a crucial role in determining the rapid growth of a nation. Explain the ‘economic stability’ objective of a government budget. 3. Explain. It means that the Government is taking more money under its control which leads to fall in prices. (Delhi 2011; All India 2010) Ans. Hence, the impact and incidence of taxes are on different persons. Answer: 1) Government aims to allocate resources to maintain a balance between maxisation of welfare as well as profits. In this case, imposed taxes surpass the expenses. Policies like Deficit budget during deflation and Surplus budget during inflation thrive on bringing stability within the economy. are effectively used to achieve this goal. The private sector always tend to divert resources towards areas of high profit, while, ignoring areas of social welfare. 1. OR. It is recurring in nature and incurred regularly. Fiscal deficit: The fiscal deficit is defined as the excess of government revenue over government expenditure. They achieve so by installing manufacturing facilities in the economically weaker section of the society. The budget includes effective plans and programs for conveyance of goods and services to achieve its target. Redistribution of income- To close the income gap between rich and poor, several budgetary schemes are launched from the government's end. View Answer "Policies of surplus budget during inflation" is a part of which objective of government budget? - Economics. Explains actual receipts and expenditure of the closing year and reasons for deficit or surplus in that year. The private sector always tend to divert resources towards areas of high profit, while, ignoring areas of social welfare. Increasing Productivity – more output per unit of labour per hour. A budget is in deficit if the expenditure of the government is higher than that revenue generated in a fiscal year. Budgetary policies are hence introduced to infuse enough recourse in different public sectors. Budgetary policies are useful medium to reduce inequalities of income for the fair distribution of income. It is incurred for normal running of government departments and maintenance. The second step is for governments to pass on the collected taxes to the poor. Allocation of resources is one of the important objectives of government budget. ADVERTISEMENTS: To reduce inequalities and to do distributive justice, the government should invest in those productive channels which incur benefit to low income groups and are helpful in raising their productivity and technology. There are other objectives which are increasingly becoming important for governments: 5. Deficit Budget- A budget is in deficit if the expenditure of the government is higher than that revenue generated in a fiscal year. Redistribution means taking income from those with higher incomes and providing income to those with lower incomes. I hope you will provide answer in points minimum 3 ) 1 See answer Shivanihani8554 is waiting for your help. For example, if you earned $2000 and spend $1800 on all your purchases then your propensity to consume is at 90%. Outcome budget evaluates the progress of each ministry and department and prepares a report on how the specific ministry has implemented the budget layout. (b) investment in shares, loans by central government to state government, foreign governments and government companies, cash in hand, and (c) acquisition of valuables. If it creates an asset or reduces a liability, it is categorised as capital expenditure. in order to raise their disposable income. The overall economic growth of a nation relies on savings and investments.