Government Budget and the Economy Test - 2

Budgetary policy is an annual exercise relating to the revenue and expenditure policy of the government. The government frames its budgetary policy with a view to achieveing a set of objectives like balanced regional growth, redistribution of income and wealth etc.

Revenue and capital budget are the two main components of budget. Under revenue budget, we have revenue receipts and revenue expenditure of the government.

Public expenditure is classified as capital and revenue expenditure. Revenue expenditure does not create assests or cause reduction in liabilities whereas capital expenditure leads to creation of assets or reduction in liabilities.

Government budget is an annual statement of the estimates of the governemnt receipts and government expenditure during the period of the financial year.

Plan expenditure refers to that expenditure which relates to specific plans and programmes of development  whereas non plan expenditure refers to the expenditure which is not related to any specified plans and prgrammes.
Eg of planned expenditure - construction of flyover, hospital etc.
Eg. of non planned expenditure - Expenditure on defence, salaries, pensions etc.

Income tax is a direct tax as it has to be paid by the person or firm on whom it is imposed . The burden of the tax cannot be shifted.

Public expenditure can be developmental as well as non developmental expenditure.

Revenue expenditure refers to estimated expenditure of the government in a fiscal year which does not create any assets or cause a reduction in the liabilities. The other component is capital expenditure

Direct tax is a tax which is imposed on individuals, eg. income tax. and the person on whose income it is imposed has to pay the tax. He cannot shift the burden to any other person. Corporate tax is imposed on firm. They have to pay the tax imposed on them and cannot shift the burden to anyone else, whereas indirect taxes imposed on manufacturers can be shifted to the final buyers of the commodity.

Fiscal deficit reflects the total borrowings of the government during the financial year. Accumulated borrowings over the year reflect accumulated burden of national debt which is to be borne by the future generations.