Karnataka 2nd PUC Economics Notes Chapter 11 Government Budget and the Economy
→ Budget: Budget is a financial statement. It is a statement which shows the estimated future incomes and expenditures of Government. The estimated and anticipated revenue and expenditure of the Government for a financial year is called as budget.
→ Deficit budget: When the anticipated income or revenue is less than its expenditure, it is known as deficit budget (Total Revenue is less than Total Expenditure). As in most of the state Government budgets, we find that its expenditure is more than its income.
→ Fiscal Policy: According to Arther Smithies, “Fiscal policy is a policy under which the Government uses its expenditure and revenue programmes to produce desirable effects and to avoid undesirable effects on the national income, output and employment.
→ Progressive tax: When the tax is imposed according to the income of people, it is called Progressive tax. A progressive tax is a tax system in which the rate of tax increases as the income increases. Higher the income higher will be the tax and vice versa.
Objectives of Government Budget:
The major objectives of Government Budget are as follows:
- To re-allocate the resources for better socio-economic progress’.
- To redistribute the income and wealth and thereby to reduce inequalities through various social security’ schemes, public works, economic subsidies etc.
- To prevent economic fluctuations for maintaining economic stability.
- To manage public enterprises efficiently and to have control over monopoly firms and to attain social welfare.
Differences between surplus budget and deficit budget.
| Surplus Budget | Deficit Budget |
| If the anticipated revenue of the Government exceeds ita anticipated expenditure in a year, it is known an surplus budget. | If the anticipated expenditure of the Government exceeds its anticipated revenue in a year, it is known as deficit budget. |
| Government of developed countries usually plan for a surplus budget. | Government of developed countries usually plan for a deficit budget. |
| It indicates the financial soundness of the economy | It indicates that the economy is not that healthy. |
| This implies that the government is giving preference to creating wealth from resources intead of spending for the welfare of the people. | This indicates a deliberate excessive expenditure by the government to set the economy on the path of progress and growth, keeping in mind the welfare of the people. |
The differences between direct and indirect tax.
| Direct Tax | Indirect Tax |
| The Direct tax is the tqx which is imposed by the Government on individuals and companies and which cannot be shifted to others. | The Indirect tax is that tax which can be shifted to other persons by a person on whom it is imposed. |
| Here the incidence and impact of taxation falls on same person. | Here the incidence and impact of tax will be on two different parties. |
| Example-Income tax, Wealth tax, corporate tax etc. | Example central excise duties (tax), customs duties, service tax, value added tax etc. |
Objectives of fiscal policy.
The major objectives of fiscal policy are as follows:
- To mobilize the resources for development projects.
- To achieve equality in distribution of income and wealth.
- To encourage saving and investment.
- To reduce regional disparities, poverty and unemployment.
- For optimum utilisation of resources to attain full employment.
Balanced budget / Unbalanced Budget:
Balanced Budget: Here when the revenues from tax are equal with expenditure of the Government, it is balanced budget. (Total Revenue = Total Expenditure).
Unbalanced Budget: Here the Total anticipated Revenue is not equal to Total anticipated Expenditure. It could be a Surplus or a Deficit Budget.