explain the 'redistribution of income' objective of government budget

Explain the ‘Redistribution of Income’ Objective of Government Budget. To keep inflation under control Inflation creates uncertainty and results in the fall in the value of money in terms of goods and services. Announces financial and economic policies for the upcoming year. Explain the 'redistribution of income ' objective of the government budget ( give answer in points ! Explain the ‘redistribution of income’ objective of a government budget. (i) Revenue Expenditure. Within developed countries income inequality has become a widely popular issue that has dominated the debate stage for the past few years. 2) Private sector of economy usually ignores social welfare. Important Solutions 3417. For example, Government discourages the production of harmful consumption goods (like liquor, cigarettes etc.) An expenditure that neither creates assets nor reduces a liability is categorised as revenue expenditure. Symbolically, Deficit budget = estimated expenditure > estimated revenues. I can do this with confidence. However, capital expenditure is long-term investments that the government makes by creating assets like building roads, hospitals etc. 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. most income taxes, because of tax-brackets) Regressive – the average rate of tax decreases as the person’s income rises (e.g. The government through its budgetary policy attempts to promote fair and right distribution of income in an economy. The propensity to consume is the proportion of your income spent on purchases. 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). Tax burden cannot be shifted to another person. For example, if you earned $2000 and spend $1800 on all your purchases then your propensity to consume is at 90%. These increase their … It is essential for any government to plan a budget as it allocates various resources across the nation to ensure economic progress and stability. A government budget can help to reduce inequalities in income through redistribution of income and wealth in the economy. 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. An annual budget provides financial aid to such businesses to grow. Identify the characteristics of a robust as well as weak budget using the above mentioned objectives, Government’s budget is assumed to be balanced where anticipated expenditure is equal to the expected recipients in a financial year. It is incurred for acquisition of capital assets. assist in the redistribution of revenues based on social priorities. 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. Policies like Deficit budget during deflation and Surplus budget during inflation thrive on bringing stability within the economy. Contents. Budget focuses on the advancement of defence capabilities. 1. 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). Fiscal instruments like subsidies, taxations, etc. Download the PDF Question Papers Free for off line practice and view the Solutions online. to the producers. This objective organically strengthens the economic structure of a nation. Explain the ‘redistribution of income’ objective of Government budget. The money so collected can be spent on the poor in the form of free education, free medical facilities, cheaper housing etc. It is essential because it helps to set a goal for future financial planning. The purpose of such expenditure is not to build up any capital asset but to ensure normal functioning of government machinery. 6. The main objective of taxation is raising revenue. It helps to uplift underprivileged sections of society by introducing new policies. There is neither a budget deficit nor a budget surplus; in other words, “the accounts balance. 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. Vedantu academic counsellor will be calling you shortly for your Online Counselling session. assasinsunity7 assasinsunity7 Answer: 1) Government aims to allocate resources to maintain a balance between maxisation of welfare as well as profits. It helps to ensure that a high rate of tax is levied on the rich class, thereby reducing their disposable income. The private sector always tend to divert resources towards areas of high profit, while, ignoring areas of social welfare. are effectively used to achieve this goal. Fiscal instruments like subsidies, taxations, etc. This is done through taxation and expenditure policy. What is the difference between direct tax and indirect tax? is also capital expenditure because it reduces liability. Explain the role of government budget in influencing allocation of resources. 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 … Budgetary policies are useful medium to reduce inequalities of income for the fair distribution of income. Repeaters, Vedantu Ltd. Download books and chapters from book store. Apart from the three main types of budget, there are Zero budgeting, Outcome Budget and Gender budgeting. It is imposed on an individual but is paid by another person either partly or wholly. Budgetary policies are hence introduced to infuse enough recourse in different public sectors. The problem of economic divide is combated by the revenue and expenditure policy of the government. The overall economic growth of a nation relies on savings and investments. This is done through taxation and expenditure policy. Can a strong budget help reduce income inequality? The budget aids in influencing the distribution of income through subsidies and taxes. Explain the redistribution of income objective of government budget. Capital recipients are government liabilities (borrowings, disinvestments like shares of public enterprises). The private sector always tend to divert resources towards areas of high profit, while, ignoring areas of social welfare. INTRODUCTION 1.1 A Long-run vision As South Africa moves toward the next century, we seek: • a competitive fast-growing economy which creates sufficient jobs for all workseekers; • a redistribution of income and opportunities in favour of the poor; • a society in which sound health, education and other services are available to all; and • an environment in which homes are … The distribution of income and wealth is highly unequal in countries like India. Budget is a crucial activity as it shapes economic development and progress of a nation. 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. Apart from that, a few other important points of the government budget are listed below. It does not result in creation of assets. Thus, with the help of taxation and expenditure policy in the budget, the government aims at redistribution of income such that a fair and just distribution of income is achieved in the society. It is incurred for normal running of government departments and maintenance. MEDIUM. OR. Ans. There may be budget surplus without government spending when taxes are raised. Explain the 'redistribution of income ' objective of the government budget ? Policies like Deficit budget during deflation and Surplus budget during inflation thrive on bringing stability within the economy. Gender budget aims at gender equality, specifically by introducing new schemes and policies to empower women. This will spur economic growth. Budget is a financial statement showing the expected receipt and expenditure of Govt. View Answer. Financial stability- Budget keenly focuses on lowering the price fluctuations in the market. Primarily the budget is divided into 3 types. 1. Through its taxation policy, government levies high rate of tax on rich people reducing their disposable income and … Government levies high rate of tax on rich people reducing their disposable income and lowers the rate on lower income group. If it creates an asset or reduces a liability, it is categorised as capital expenditure. Solution Allocation of resources is one of the important objectives of government budget. It brings discipline to fiscal planning through controlled expenditure, allocating several revenues. A balanced budget, particularly a government budget, is a budget with revenues equal to expenditures. However, capital expenditure is long-term investments that the government makes by creating assets like building roads, hospitals etc. Elaborate economic growth as objective of government budget. Add your answer and earn points. Minimize inequalities in income and wealth –In an economic system, income and wealth inequality is an integral part. 'Economic Divide' is huge and alarming. Ans. Symbolically, Deficit budget = estimated expenditure > estimated revenues. (iii) Stabilization Function: Tax burden can be shifted to another person. Redistribution of income- To close the income gap between rich and poor, several budgetary schemes are launched from the government's end. Explain. Best answer A government budget can help to reduce inequalities in income through redistribution of income and wealth in the economy. They encourage small industries like “Khadi” to flourish by allowing subsidised loans and reduced taxes on raw material, needed for production. Budgetary policies are hence introduced to infuse enough recourse in different public sectors. Fiscal instruments like subsidies, taxations, etc. 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. Revenue budget- It comprises revenue receipts and revenue expenditure of a government. through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies. Explain the role the government can play through the budget in influencing allocation of resources. Since a budget is introduced to diminish any financial discrepancy within a country, its effects on society are far-reaching. my school teacher always chants I hope you will provide answer in points minimum 3 ) - Economics - Government Budget and the Economy 2. These include spending programs, taxation upgradation, and proposals of new projects or government schemes. Budget keenly focuses on lowering the price fluctuations in the market. It means that the Government is taking more money under its control which leads to fall in prices. Before taxes and social spending the income of the richest 10% in South Africa is more than 1000 times bigger than the poorest 10%. Pro Lite, Vedantu Government budget primarily addresses monetary needs and problems of a country and how to resolve it. Explain how taxes and government expenditure can be used to influence. To reduce inequalities of income and wealth, government can influence distribution of income through levying taxes and granting subsidies. On the other hand, a lower rate of tax is charged on the lower income group to ensure they have sufficient income … 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. As such it taxes the rich and spends for the schemes which benefit more the poor. In many cases, the most important of these by far is taxation. How can government help, through government budget, in this regard? That is done using transfer payments which are transfers of incomes from one person to another with no production taking place. tax on fuel) Proportionate – the average rate of tax is constant; Taxes are the first step in the redistribution of income. This can be expressed symbolically like, Balanced Budget = (Assumed collected revenues = Assumed expenditure). Apart from the three main types of budget, there are Zero budgeting, Outcome Budget and Gender budgeting. balanced budget: A (usually government) budget in which income and expenditure are equal over a set period of time. Examples: Union excise duties and custom duties, https://www.zigya.com/share/RUNFTjEyMTExMTE2. Increasing Productivity – more output per unit of labour per hour. 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. The budget of a government shows its comprehensive exercise on taxation and subsidies. Thereby the tax burden falls more on the rich than on the poor. Explain the 'redistribution of income' objective of Government budget. Capital budget- Just like the former one, Capital revenue is classified into capital receipts and expenditure. redistribution of income' objective of Government budget. Public finance is the study of the role of the government in the economy. What are the differences between balance of trade and balance of payments? Sorry!, This page is not available for now to bookmark. The government's role in the distribution of income and wealth is through redistribution of wealth and income. Broadly, any expenditure that does not lead to any creation of assets or reduction in liability is treated as revenue expenditure. Do you know – Higher tax rates on a certain group of nationals and organisations can have a severe impact on the overall economy. How can government help through government budget, in this regard? [CBSE, AI2011] Or Explain stabilising activities function of budget. Enhanced taxes reduce the disposable income with the people and encourage reduction in consumption expenditure. Aids in achieving financial and economic goals of a country. Even distribution of wealth and social welfare remains the main objective of budgetary policy. Deficit Budget- A budget is in deficit if the expenditure of the government is higher than that revenue generated in a fiscal year. One of the chief aims of the Government budget is to alleviate social disproportion. Delhi - 110058. govt can reduce the … 'Taxation and subsidies' is the key policy instrument used by the government in this context. Fiscal deficit: The fiscal deficit is defined as the excess of government revenue over government expenditure. government can use tax policy and public expenditure as a tool. 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. 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. Textbook Solutions 11268. They achieve so by installing manufacturing facilities in the economically weaker section of the society. my school teacher always chants . Concept Notes & Videos 439. © It brings economic stability in a country by cutting down wasteful expenses. The 5 macroeconomic objectives of an economy are: 1. Also by producing goods and supply directly. It estimates capital receipts and revenues. Economic stability can be achieved by correcting the situations of deficient and excess demand in the economy. An annual budget provides financial aid to such businesses to grow. For this, suitable fiscal policy of the government can be devised to bridge the gap between the incomes of the different sections of the society. (iii) Stabilization Function: Reallocation of resources- Through a budget, the government endeavours to equally allocate resources and wealth. It would then choose the policy instruments it thinks are best suited to reaching to this aim, perhaps a change in the income tax system or a rise in the national minimum wage. Time Tables 18. A surplus budget occurs when the estimated revenues exceed the expected expenditure. Government budget and its components assist in the redistribution of revenues based on social priorities. This budget keeps records of each ministry of country and their functions, activities during a financial year. Advertisement Remove all ads. 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. Financing Public Enterprises- Several public sector industries are established for the social welfare of the public. in order to raise their disposable income. (Delhi 2011; All India 2010) Ans. 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. Redistribution Redistribution means taking income from those with higher incomes and providing income to those with lower incomes. The government imposes heavy taxation on a high income groups redistribute it among the people of weaker section in the society. The government can provide subsidies and other amenities to people whose income levels are low. Traditionally, all grants given to state governments are treated as revenue expenditure even though some of the grants may be for creation of assets. 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. Inflationary gap or excess demand is corrected by reducing government expenditure and increasing the revenue. Main objectives of budget are: (i) Reallocation of resources. These are financed out of revenue receipts. It refers to the excess of total estimated budget expenditure (Revenue Expenditure + Capital Expenditure) over total budget recipients, excluding borrowing. COMPARISON BETWEEN REVENUE EXPENDITURE AND CAPITAL EXPENDITURE. Explain the ‘Redistribution of Income’ Objective of Government Budget. The objective of equitable distribution of income might come in conflict with the objectives of economic efficiency and economic growth. Explains actual receipts and expenditure of the closing year and reasons for deficit or surplus in that year. 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