public revenue and expenditure.ppt

Public Expenditures and Revenue

1. Public Revenue and expenditure
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2. Revenue Receipts and Capital Receipts
RevenueReceipts
•Amountreceivedfromsaleofgoods
•Feesreceivedfromtheservicesprovidedbythebusiness
•Interestanddividendreceivedoninvestment
•Routineincomes
CapitalReceipts
•amountreceivedfromfixedassetsorinvestment.
•Amountreceivedbycompanyfromissueofshares.
•Amountreceivedasloan
•Amountreceivedascompensationfromaccidentofassets
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3. Public Revenue
PublicfinanceisaconceptthatincludesPublicexpenditure,
publicdebtandpublicrevenueandincome.
Publicrevenueisexactlyincomegeneratedfromsourcesof
governmentinordertomeetrequirementsofexpensesof
public.
Publicrevenuegenerallyreferstogovernmentrevenue.Some
importantsourcesorconceptsthatareincludedinpublicrevenue
consistoftaxes,fees,saleofpublicgoodsandservices,fines,
donations,etc.
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4. Sources of Public Revenue
Two sources
1.Taxrevenue
2.Non-taxrevenue
Taxrevenue:twotypes
i.Directtaxes–incometax,expendituretaxetc.
ii.Indirecttaxes-salestax,customsdutiesand
exercisedutiesetc.
Non-taxrevenue
Fees,rates,fines,forfeituresandescheat,giftsand
grantsetc.
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5. Sources of Public Revenue
Themainsourcesofpublicrevenueare:TaxandNon-tax
revenue
A)TaxRevenue:ThechiefsourceofpublicrevenueisTax.To
definetax,itissaidthattaxisamandatoryimpositionof
dutyonpublicauthoritybygovernmentorganizationsto
meetrequirementsofgeneralpublicasawhole.
Broadclassificationoftaxesis:DirectandIndirectTaxes
Directtaxes;Directtaxesareleviedonwealthandincomeof
individualsororganizations.Thesetaxesarepersonalincome
tax,corporatetax,andgiftorwealthtax.Theimpactofdirect
taxesisonthesameperson.
IndirectTaxes:Thesetaxesareleviedonmanufactured
goodsandconsumablegoodsExciseDuty,CustomsDuty,
ServiceTax,GoodsandServiceTax
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6. Sources of Public Revenue
b)Nontaxrevenues;NonTaxRevenuecomprisesallrevenues
apartfromtaxesaccumulatedtotheGovernment.Nontax
revenuesarefundsthataregeneratedfrominternalsources.
ImportantsourcesofNontaxrevenuesinclude
a)SpecialAssessment:
Acompulsorycontributionleviedinproportionthespecific
improvementtopropertyundertakeninthepublicinterest.
Thistaxisimposedtoacertaincategoryofmembersofa
communitywhoaregenerallybenefitedfromgovernmental
activitiesorpublicfunctionslikeconstructionsofroad,
railways,parks,etc.
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7. Sources of Public Revenue
Therefore,governmentimposesspecialchargesonsuch
properties
b)SurplusofPublicEnterprises
Thegovernmenthasarrangedpublicsectorenterprisesthat
areconcernedincommercialactivities.Thesurpluses
generatedoftheseenterprisesareasignificantsourceofnon-
taxrevenue.Theseincomesareintheformofprofitsthatare
knownascommercialrevenues.
c)Fees:
Afeeisasignificantsourceofmanagerialnontaxrevenue
chargedbyGovernmentauthoritiesfordepictionservicesto
themembersofthepublic.
Thereisnocompulsiontopayfees.Allthoseutilizeservices
maypayfees.
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8. Sources of Public Revenue
Feesmaybechargedforgettinglicenses,passportsor
registrations,filingofcourtcases,etc.
d)FineandPenalties
Thesearegeneralsourcesofadministrativenontaxrevenues
Thesemaybeappliedonpublicfornoncompliancewithcertain
rulesandregulations.
Thesearenotconsideredasthemajorsourceofrevenueforthe
government.
e)GrantsandGifts
Grantsarefinancialsupport
Theseareprovidedtopublicauthoritytoperformcertainsocial
activities
Thesearegeneratedbyhigherpublicauthoritytolowerones
e.g.WorldbankgivesgrantstoStatebank.
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9. Sources of Public Revenue
Thereisnorepaymentcompulsion
Giftsanddonationsarevoluntarilymadebyindividuals,
organizationsorforeigngovernmentstotheCentral
Government.Thesegiftsaremadebynaturalfeelingincaseof
disastersornaturalcalamities.
Giftsarenotconsideredasasourceofincome.
Rates:ratesareleviedbylocalbodiesi.e.municipalitiesetc.
theyaregenerallyleviedonimmovablepropertyofresidentsbut
notnecessarilyforanyspecialimprovements.Itvarieslocality
tolocality.
Forfeitures:
Escheat:When a person dies heirless or without a successor or
leaves no will behind, his property or assets go to the State.
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10. Sources of Public Revenue
Budget 2016-17
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11. CAPITAL EXPENDITURE
•Expenditure which are made to yields benefits over a long
period and which are related to any fixed asset are called
capital expenditure.
For example
•Purchase of fixed assets
•Exp. On expansion and modification of fixed assets.
•On acquiring the right to carry business e.g. purchase of
patent , goodwill
•Acquiring of capital e.g. exp. On issue of shares, prospectus.
•On establishment
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12. REVENUE EXPENDITURE
•Incurred for the operation of business
•Benefits of these for the current year
•For smooth running of business
Example
•Incurred for the operation of business-wages, salary legal
expenses, administrative expenses etc.
•On ordinary repairs of fixed assets to maintain the capacity
•For production of goods or for resale of goods-cost of raw
material, production exp.
•Interest on loan
•Depreciation on assets
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13. Difference between capital and revenue exp.
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SL
No.
Capital Expenditure Revenue Expenditure
1Capitalexpendituregeneratesfuture
economicbenefits.
Revenueexpendituregenerates
benefitforcurrentyearonly.
2Capitalexpenditureisaone-time
investmentofmoney.
Revenueexpenditureoccurs
frequently.
3Capitalexpenditureisshownin
balancesheetinassetsideandinthe
incomestatement.
Revenueexpenditureisshown
onlyinincomestatement.
4Capitalexpenditureisalong-term
expenditure.
Revenueexpenditureisashort-
termexpenditure.
5Example:Equipment,Furniture,
Building
Example:Wagespaidtofactory
workers.

14. Public Expenditure
Publicexpenditurereferstotheexpenseswhichthe
Governmentincursforitsownmaintenanceasalso
forthesocietyandtheeconomyasawhole.
Publicexpenditurecanbedefinedas,"The
expenditureincurredbypublicauthoritieslikecentral
andlocalgovernmentstosatisfythecollectivesocial
wantsofthepeopleisknownaspublicexpenditure."
Indevelopingcountries,publicexpenditurepolicy
notonlyaccelerateseconomicgrowth&promotes
employmentopportunitiesbutalsoplaysausefulrole
inreducingpovertyandinequalitiesinincome
distribution.
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15. ClassificationofPublicexpenditurereferstothesystematic
arrangementofdifferentitemsonwhichthegovernmentincurs
expenditure.
1.FunctionalClassification;Someeconomistsclassifypublic
expenditureonthebasisoffunctionsforwhichtheyareincurred.
Thegovernmentperformsvariousfunctionslikedefense,social
welfare,agriculture,infrastructureandindustrialdevelopment.
2.RevenueandCapitalExpenditure;
Revenueexpenditurearecurrentorconsumptionexpenditures
incurredonciviladministration,defenseforces,publichealthand
education,maintenanceofgovernmentmachineryetc.
Ontheotherhand,capitalexpendituresareincurredonbuilding
durableassets,likehighways,multipurposedams,irrigation
projects,buyingmachineryandequipment.Theyarenonrecurring
typeofexpendituresintheformofcapitalinvestments.
Classification of Public Expenditure
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16. 3.TransferandNon-TransferExpenditure
A.C.Pigou,theBritisheconomisthasclassifiedpublicexpenditureas
TransferExpenditure:-
Transferexpenditurerelatestotheexpenditureagainstwhichthereisno
correspondingreturn.Suchexpenditureincludespublicexpenditureon:-
NationalOldAge,PensionSchemes,Interestpayments,Subsidies,
Unemploymentallowances,Welfarebenefitstoweakersections,etc.
Non-TransferExpenditure:-
Thenon-transferexpenditurerelatestoexpenditurewhichresultsin
creationofincomeoroutput.
Thenon-transferexpenditureincludesdevelopmentaswellasnon-
developmentexpenditurethatresultsincreationofoutputdirectlyor
indirectly.
Economicinfrastructuresuchaspower,transport,irrigation,etc.
Socialinfrastructuresuchaseducation,healthandfamilywelfare.
Internallawandorderanddefense,Publicadministration,etc.
Classification of Public Expenditure
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17. 4.ProductiveandUnproductiveExpenditure
ThisclassificationwasmadebyClassicaleconomistson
thebasisofcreationofproductivecapacity.
ProductiveExpenditure:-
Expenditureoninfrastructuredevelopment,public
enterprisesordevelopmentofagricultureincrease
productivecapacityintheeconomyandbringincometothe
government.Thustheyareclassifiedasproductive
expenditure.
UnproductiveExpenditure:-
Expendituresinthenatureofconsumptionsuchasdefense,
interestpayments,expenditureonlawandorder,public
administration,donotcreateanyproductiveassetwhich
canbringincomeorreturnstothegovernment.Such
expensesareclassifiedasunproductiveexpenditures.
Classification of Public Expenditure
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18. 5. Development and Non-Development Expenditure
Moderneconomistshavemodifiedthisclassificationinto
distinctionbetweendevelopmentandnon-development
expenditures.
DevelopmentExpenditure:-
Allexpendituresthatpromoteeconomicgrowthand
developmentaretermedasdevelopmentexpenditure.
Thesearethesameasproductiveexpenditure.
Non-DevelopmentExpenditure:-
Unproductiveexpendituresaretermedasnon
developmentexpenditures.
Classification of Public Expenditure
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19. 6. Grants and Purchase Price
ThisclassificationhasbeensuggestedbyeconomistHugh
Dalton.
Grants:-
Grantsarethosepaymentsmadebyapublicauthorityfor
whichtheremaynotbeanyquid-pro-quo,i.e.,therewillbe
noreceiptofgoodsorservices.Forexample,oldage
pension,unemploymentbenefits,subsidies,social
insurance,etc.Grantsaretransferexpenditures.
Purchaseprices:-
Purchasepricesareexpendituresforwhichthegovernment
receivesgoodsandservicesinreturn.Forexample,salaries
andwagestogovernmentemployeesandpurchaseof
consumptionandcapitalgoods.
Classification of Public Expenditure
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20. ClassificationAccordingtoBenefits
Publicexpenditurecanbeclassifiedonthebasisofbenefits
theyconferondifferentgroupsofpeople.
Commonbenefitstoall:Expendituresthatconfer
commonbenefitsonallthepeople.Forexample,
expenditureoneducation,publichealth,transport,defense,
lawandorder,generaladministration.
Specialbenefitstoall:Expendituresthatconferspecial
benefitsonall.Forexample,administrationofjustice,
socialsecuritymeasures,communitywelfare.
Specialbenefitstosome:Expendituresthatconferdirect
specialbenefitsoncertainpeopleandalsoaddtogeneral
welfare.Forexample,oldagepension,subsidiestoweaker
section,unemploymentbenefits.
Classification of Public Expenditure
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21. HughDalton'sClassificationofPublicExpenditure
HughDaltonhasclassifiedpublicexpenditureasfollows:-
Expendituresonpoliticalexecutives:i.e.maintenanceofceremonial
headsofstate,likethepresident.
Administrativeexpenditure:tomaintainthegeneraladministrationof
thecountry,likegovernmentdepartmentsandoffices.
Securityexpenditure:tomaintainarmedforcesandthepoliceforces.
Expenditureonadministrationofjustice:includemaintenanceof
courts,judges,publicprosecutors.
Developmentalexpenditures:topromotegrowthanddevelopmentof
theeconomy,likeexpenditureoninfrastructure,irrigation,etc.
Socialexpenditures:onpublichealth,communitywelfare,social
security,etc.
Pubicdebtcharges:includepaymentofinterestandrepaymentof
principleamount.
Classification of Public Expenditure
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22. Rise in Government Expenditure
Causes of increase in public expenditure
1.Increaseinareaandpopulation
2.Growthofstatefunctions
3.Higherprice-levelandrisingcostofpublicservices
4.Increaseinnationalwealth
5.Abilitytotaxi.e.lowincomeeconomyvshighincome
economy.
6.Warandpreventionofwar
7.Provisionofpublicutilityservicesi.e.moreandmorepublic
utilityservicese.g.water,electricity,transportservices.
8.Efficientproductmixi.e.whenGNPrisesitindicates
transformationfromagriculturaltoindustrialeconomythen
goodsforthesocietyincreasesandpublicexpenditureincreases.
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23. 9.Expansion in social services e.g. education, public health
measures and medical aid.
10.Technological changes i.e. technological inventions call for
larger or new production in the public sector.
11.Expansion of public sector i.e. socialistic tendencies have in
the modern times resulted in the expansion of public sector.
12.Defectivefinancialandciviladministrationi.e.duplication
andunnecessarymultiplicationofgovt.agenciesarecommon.
Ifsonotasmallbuthighallocationandwastageofresources.
13.Political and social factors
14.Welfare activities and growth of transfer expenditure e.g. free
education, free medical aid etc. increasing after thirties.
15.Requirement of full employment i.e. employment for all.
16.Economic development i.e. Economic and social overheads
Rise in Government Expenditure
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24. Effect of public expenditure
1. Effects on Production
Theeffectofpublicexpenditureonproductioncanbe
examinedwithreferencetoitseffectsonability&willingness
towork,save&investandondiversionofresources.
Effectonallocationofresourcesamongdifferentindustries&
trade:
2.EffectsonDistribution
Equitabledistributionofincomeandwealth.Thebenefittothepoor
fromthestateisfargreaterthantotheriche.g.poorrelief,old-aged
allowanceetc.
3.EffectsonConsumption
4.EffectsonEconomicGrowthi.e.willandcapacitytowork,
saveandinvest,higherefficiencyandproductivity.
5.EffectsonEconomicStability
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25. Principles of Public Expenditure:
The main principles or canons of public expenditure are as
follows;
1.ThePrincipleofMaximumSocialAdvantage:
Allexpenditureshouldsatisfymaximumsocialadvantage.
Theaimisgeneralwelfareorcommunityasawholenot
particulargroupofsociety.
2.ThePrincipleofEconomy:
Extravaganceandwasteshouldbeavoided;duplicationof
expenditureandoverlappingauthorities.
3.ThePrincipleofSanction:sanctionedbycompetentauthority
beforeexpenditureincurred.
4.ThePrincipleofbalancedBudgets:
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26. Pattern of the Bangladesh
government expenditure
1.Revenue expenditure
2.Development expenditure
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27. Uses of Public Revenue
Budget 2016-17
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