assignment 2 on public finance

1 GOVERNMENT BUDGET
2 WHY DO YOU THINK THAT, IT IS NECESSARY FOR GOVERNMENT TO BUDGET?

INTRODUCTION.
A budget may be defined as a financial statement made by the government, which spells out estimated government revenue and proposed and expenditure, of a Government in a given period; usually a year (Oguji, 2004). A budget is also, a detailed statement of government’s expected revenues and expenditures for the ensuing financial year. The budget is also considered as a financial plan that serves as the basis for expenditure, decision-making and subsequent control of expenditure.
If revenue is exactly the same or if revenue equals expenditure, we have a balanced budget. This is an ideal situation, which is hard to attain. In most cases, either revenue is greater than expenditure or expendituere is greater than revenue. If revenue is greater than expenditure, we have a surplus budget, the excess is saved if expenditure is greater than revenue we have deficit budget (Oguji, 2004) . This means that government is spending more than she has as revenue. The extra expenditure is said to be deficit-financed. We can speak of a balanced budget change in spending if the extra spending is accompanied by equal increase in tax revenue. If expenditure is greater than revenue the balance must be borrowed from somewhere. If expenditure is less than revenue the balance can be used to pay off past loans.
Some sources of revenue are: taxes, interest, income from government involvement in industry and commerce, sources from borrowing or debt financing.
The budget is partitioned into two accounts, namely: Revenue and Expenditure. The revenue aspect is further sub-divided into recurrent revenue and capital and capital revenue. Similarly, the expenditure side is broken into recurrent expenditure and capital expenditure. Described further below`
a. PUBLIC EXPENDITURE: the overall what is known as public expenditure is broadly broken into two categories:
i. Recurrent or Current Expenditure: this refers to those expenditures that are done on a regular basis. They are usually running costs needed to service different organs of government. Examples include: electricity bill, wages and salaries, water bill, rent and general maintenance costs. ii. Capital Expenditure: this refers to expenditures on permanent and durable goods such as expenditures on bridges, building, roads, machinery, vehicle, railway line and provision of rural electrification, etc. such expenditures are not done often and on.
b. PUBLIC REVENUE: Similar to public expenditure, public revenue is structured into 2 broad groups:
i. recurrent revenue: this refers to those monies that accrue to the government from time to time e.g fees, fines, rent, interest, taxes, sales/export proceeds etc. ii. Capital revenue (Receipts): refers to those monies that accrue to the government once in a while e.g. grants and loans.
TYPES OF BUDGET.
In the types of budget, we have:
i. Balanced Budget: Refers to a case where the estimated expenditures and expected revenue of the government are equal. ii. Deficit Budget: Refers to a case where the estimated expenditure is greater than the expected revenue. This creates some problems as it could result to excessive government spending and the attendant inflation. iii. Budget Surplus: Refers to a case where the estimated expenditure is less than the expected revenue. Budget surplus compels the government to be more prudent in its expenditure as expenditures are kept to budgetary provisions.

2) WHY IT IS NECESSARY FOR GOVERNMENT TO BUDGET.
It is necessary for government to budget because:

A major purpose government budget is to present a report of the actual of revenue and expenditure of the previous year and the estimates of the proposals for the coming year. It also gives proposals as to the ways and means for meeting a deficit or distributing a surplus, if there is any. It provides necessary information regarding government debt.

The budget is meant to correlate, compare and coordinate the financial administration of the various government departments. It is through the budget that the legislature exercises an effective control over the executive. In the absence of budget, every ministry and department will collect and spend money in an arbitrary manner. As the functions of various departments are interconnected and overlap with each other, there is likely to be diarchy and wastage of funds. When the budget allocates separate funds to each department according to that department’s proposals, there is proper allocation of public money.

The budget not only contains estimates of income and expenditure of the government but also a statement of economic policies for the coming year. In fact, the budget proposals are in line with the government’s socio-economic policies. For instance, the taxation proposals of reduction in tax rates on personal income increases disposable income with the result that both consumption and saving are encouraged. The demand increases disposable income with the result that both consumption and saving are encouraged. The demand for consumer goods increases, thereby encouraging their production. Similarly, reduction in corporate tax rates encourages production. By providing more expenditure on social security, public works, basic human needs etc., the government aims at removing poverty and providing more employment (Jhingan, 2009). By taxing the rich progressively through estate duty tax, wealth tax and expenditure tax, the government tries to reduce income inequalities.

Thus, the budget is the most important fiscal document relating to the socio-economic problems and programmes which outlines the proposed measure of the government for their solution and implementation. It reflects the entire economic and fiscal programme and policies of the government for the coming year. And Also, the government budget,

Is used to allocate resources from one sector of the economy to the other. is used by citizens and the international community to appraise the performance of the government.
It is used as a tool to curb inflation and deflation.
The government uses it as a medium to communicate governments economic plans, objectives and policies to the citizens.

REFERENCES

Jhingan M.L. (2009). Public Finance. Principles of Economics. Delhi: Vrinda Publications.

Oguji C.O.N (2004). Public Finance. The Comprehensive Basic Economics. Onitsha: Joanee Educational Publishers.

Gordon S.D. & Dawson (1989). Introductory Economics, 6th edt. New York: Health and Company limited.

References: Jhingan M.L. (2009). Public Finance. Principles of Economics. Delhi: Vrinda Publications. Oguji C.O.N (2004). Public Finance. The Comprehensive Basic Economics. Onitsha: Joanee Educational Publishers. Gordon S.D. & Dawson (1989). Introductory Economics, 6th edt. New York: Health and Company limited.