The term ‘Budget’ refers to the Financial Statement (or documents) placed by the government before the Legislature every year on a specific date.
A budget sets forth the anticipated expenditure of the government during the next financial year (called the Budget Year) and the receipts for the same period.
- Under existing laws in force, and
- As a result of taxation proposals, if any, contemplated by the government.
More often than that, the budget is the manifestation of the political philosophy of the party in power.
The primary objective of the budget is to reveal comprehensive information in order to present a complete picture of the financial position of the government and thereby enable the Legislature to measure the impact of such financial programmes on the country’s economy adequately.
The estimates included in the budget are basically estimates; the actual may not conform to the original estimates. The budget must, however, estimate the revenues and expenditures as accurately as possible. Accuracy is important as an equilibrium needs to be maintained in the estimates and those realized in actual.
The budget comprises data for three years mainly:
- Actual figures for the preceding year;
- Budget estimates for the present year;
- Revised estimates for the current year;
- Budget estimates for the following year.
e.g. the Union Budget for 2014-15 contains:
- Actual for 2012-13
- Budget estimates for 2013-14
- Revised estimates for 2013-14, and
- Budget estimates for 2014-15.
Taxes:
The taxes can be classified as:
- Direct and Indirect Taxes: Direct taxes are those levied immediately on the property and incomes of persons and which are paid directly by the consumers to the state. Thus, income and wealth taxes, estate duties, and toll taxes paid directly to the state form the group of direct taxes.
All other taxes would be grouped as indirect, i.e. those whose burden can be shifted (like sales tax and excise duties). These are imposed upon and collected from producers and sellers. But producers and sellers can shift the burden of these taxes on to the customers. However, when these taxes are passed on to the consumers they indirectly tax the income of the consumers.
- Proportional, Progressive and Regressive Taxation: A tax may be proportional, progressive or regressive according to the relationship between its rate structure and the income, and economic power of the tax-payer.
This classification is based on the percentage of the tax to the tax-payer’s income
- If the same tax is levied on all incomes, large or small, it is called Proportional Taxation (example can be sales tax)
- If the rate of tax goes on increasing with the increase in income, it is called Progressive) Taxation, In other words, lower incomes is taxed at a lower percentage and vice-versa. (example can be income tax)
- If the rate of tax decreases with increase in income, it is called Regressive Taxation. (example can be property taxes)
Receipts: When you go through the budget document, you come across terms like Revenue Receipts and Capital Receipts. But what do these terms actually mean?
- Revenue Receipts can be classified into two major components: Tax Revenue and Non- Tax Revenue.
- Tax Revenue is one of the most important resources of public revenue. It means the funds raised through taxation with the element of compulsion implicit in it. It is compulsory in the sense that once the taxes are imposed, the person liable to pay them has to do so. Refusal to do so is a crime for which the law prescribes severe punishment. Tax revenue is a steady source and is always certain to come because taxes are paid periodically. Some of the important taxes are:
Income tax, sales tax, excise duty, customs duty, estate duty, wealth tax and gift tax (remember KBC winners, yes they paid taxes too!) In addition to these tax revenues also include special assessment and fees.
- Non Tax Revenue is raised by the government in the form of prices paid for the use of specific services and goods offered by it. It is purely voluntary and only the concerned ones have to pay it for the goods and services used, in case he purchases it, otherwise not. This type of revenue is somewhat irregular and uncertain. Some examples are:
revenues from state monopolies like railways, electricity, telecom sector, irrigation;
revenues from social services like education, hospital receipts;
revenues from public properties like rent, lease;
voluntary gifts like donations to charitable trusts, hospitals etc
- Capital Receipts: These mainly include loans raised by the Govt. of India from the public, govt. borrowings from the RBI as well as other similar bodies (like treasury bonds), external loans (like union money transfer), recoveries of loans granted to states/UT’s, and savings invested in PPF etc.
Expenditures: It means the expenses incurred throughout the year and can be classified as:
- Revenue Expenditure and Capital Expenditure: All expenditure incurred in the normal day-to-day running of the government is termed Revenue Expenditure. This includes the expenditure incurred in e the provision of services, salaries, subsidies, interest payments made to the service debts etc.
Capital expenditures is incurred in the creation of assets like lands, plant and machinery and investments in securities. Also, loans, and advances granted to state governments and PSUs by the Centre are treated as Capital Expenditure.
Plan and Non-Plan Expenditure: any other expenditure incurred on current development and investment outlays that arise due to the plan proposals (5 year plans) is termed as Non-Plan expenditure.
Deficits: In a budget statement, there is a mention of four types of deficits:
- Revenue Deficit: It refers to the excess of revenue expenditure over revenue receipts. It actually reflects one crucial fact: what is the current government borrowing for? As an individual if you are borrowing to pay your house rent, then you are in a situation of revenue deficit i.e. while you are borrowing and spending, you are not creating any durable asset. This means that there will be a repayment obligation (in the near future) and at the same time there is no asset creation via investment.
- Budget Deficit: it refers to the excess of total expenditures and total receipts. The total receipts include current revenue and net internal and external capital receipts of the government.
- Fiscal Deficit: it refers to the difference between total expenditure i.e. revenue, capital, and loans of repayment on one hand and on the other hand revenue receipts plus all those capital receipts which are not in the form of borrowings but which in the end accrue to the government.
- Primary Deficit: it is equal to the fiscal deficit minus the interest payments. In other words, it points to how much the government is borrowing to pay for expenses other than interest payments. It highlights an important point: how much the government is adding to future burden (in terms of repayments) on the basis of past and present policy.
Bhartiya Sarkari Naukri 