Government Budget

Every year, the government prepares a budget in order to achieve specific national objectives such as the allocation of scarce resources, the distribution of income, the reduction of regional disparities, and so on. In a Mixed Economy, in which both the public and private sectors exist, the government can exert significant influence over the economy in a variety of ways, one of which is through the allocation of government funds.

Government Budget

• The annual financial statement of the government is known as the budget. It shows the government’s receipts and expenditures for a specific fiscal year in a detailed format. Article 112 of the Indian Constitution makes it a requirement for the government to present before the Parliament a statement of estimated receipts and expenditures for each financial year, which runs from the first day of April to the last day of March, for each financial year
• The budget is made up primarily of two accounts: revenue and expenditure. Accounts for revenue (revenue budget), which are concerned with current financial year transactions, as well as accounts for capital (capital budget), which are concerned with the government’s assets and liabilities

Objectives of Government Budget

Allocation of resources: 

• The budget is the vehicle through which the government allocates and mobilizes resources for the benefit of all. It also provides public goods and services, such as national defence, roads, and government administration, among other things

Income redistribution: 

• The government sector has an impact on the personal disposable income of households through the provision of transfers and the collection of taxes in order to ensure a fair and equitable distribution of income
• The goal of redistribution is intended to be achieved through progressive income taxation, in which higher the income,  higher the tax rate is applied to it
• Specifically, when it comes to indirect taxes, the necessities of life are either exempt or only taxed at a low rate, while comforts and semi-luxuries are moderately taxed. Luxuries, tobacco, and petroleum products, on the other hand, are heavily taxed

Economic stabilisation: 

• Economic stabilisation is essential for reversing the effects of income and employment fluctuations. The stabilisation function consists of any intervention by the government to increase or decrease aggregate demand in the economy, regardless of the reason for the intervention
• The overall level of employment and prices in the economy are dependent on the level of aggregate demand, which is in turn dependent on the amount of money spent by private and public sector organisations

Components of Budget

The budget is composed primarily of two components, which are the receipts and the expenditures. Similarly, receipts are further subdivided into revenue receipts and capital receipts, whereas expenditures are further subdivided into revenue expenditures and capital expenditures

Revenue Receipts: 

• These receipts do not entitle the bearer to make a claim against the government (that is, they neither create a liability nor decrease an asset for the government). They are divided into two categories: tax revenues and non-tax revenues
• In addition, tax revenues are divided into two categories: direct tax and indirect tax. Personal income tax, corporate income tax, and other direct taxes are examples of direct taxes. Among India’s indirect taxes are excise taxes (duties levied on goods manufactured within the country), customs duties (taxes levied on goods imported into and exported out of the country), and service tax. Other direct taxes, such as the wealth tax, gift tax, and estate duty (all of which have been repealed), have never generated a significant amount of revenue and have thus been referred to as ‘paper taxes
• Revenue received by the central government that is not taxed is primarily interest receipts on loans made by the government, dividends and profits on investments made by the government, fees and other receipts for services rendered by the government, as well as cash grants-in-aid from foreign countries and international organisations

• The estimates of revenue receipts take into account the effects of the tax proposals included in the Finance Bill when calculating the revenue estimates

Capital Receipts:

• Capital receipts are defined as all government receipts that result in the creation of liabilities or the reduction of financial assets Depending on their nature, these receipts can either create or not create debt
• Examples of these receipts include money received as a result of loans and money received as a result of grants (liability of future re-payment is created here). Money received from sales of government assets, such as shares in public sector undertakings (PSUs), is referred to as “public sector disinvestment,” and “sale of assets” is referred to as “public sector asset sale” (this reduces the asset pool held by the government)

Revenue Expenditure:

• It is expenditure incurred for purposes other than the creation of physical or financial assets for the benefit of the federal government and its citizens
• It includes expenses incurred for the normal operation of government departments and services, interest payments on debt incurred by the government, and grants awarded to state governments and other parties (even though some of the grants may be meant for creation of assets)
• A significant portion of the revenue expenditure is accounted for by subsidies, which are incurred as a result of under-pricing of goods, subsidised health care, exports, and other activities

Capital Expenditure:

• Expenditures by governments that result in the creation of physical or financial assets or the reduction of financial liabilities are referred to as capital expenditures
• Spending on land acquisition, construction, machinery and equipment acquisition, investment in stocks and bonds, and loans and advances made by the central government to state and union territory governments, public sector undertakings (PSUs) and other parties are included in this category

Conclusion 

The government spends money on fundamental services like education and health. Money is spent to increase productivity, reduce unemployment, poverty and income and wealth inequalities. This government expenditure benefits the citizens. Taxes and public debt are used to fund this expenditure. People provide the funds that pay government expenditures. The government plans expenditures and funding sources to achieve public welfare. Thus, the government decides on behalf of the people how public money is to be spent and how it is to be raised. This holds the government responsible.