Classwork Series and Exercise (Economics-SS3): Government / Public Revenue

Government/ Public revenue

Government revenue is money received by government. It is an important tool of the fiscal policy of the government and is the opposite factor of government spending.

Government (or public) revenue may be defined as the total income accrues to all levels of administration (local, state and federal) or government from various sources. It includes all the capital revenue (receipts) and recurrent revenue.

Revenue on its own is the money received after the deduction of all the cost and expenses incurred in production. Government revenue is then the income generated by the government from the various sources of investments in all over the sectors of the economy.

Types of public revenue

1. Recurrent Revenue: This is the type of revenue whereby the source of income is on a regular or yearly basis e.g. interest on loans, fees and license, taxation etc.
2. Capital Revenue (or receipt): Capital revenue is also called irregular or extraordinary sources of revenue, they are revenues used for meeting the expenditures on heavy and capital project e.g. loans, grants

Sources of Government Revenue

Government can make her revenue from the following sources

1. Earnings for government investment: Government can earn revenue from the government owned business enterprises or joint ventures
2. Taxes: This is the major source of the government source of revenue; tax includes both direct and indirect taxes, they generate income by taxing individuals and co-operate bodies. Taxes levied on the incomes and wealth accumulation of individuals and corporations and on the goods and services produced, exported and imported from the country
3. Non taxable sources such as government owned corporations incomes, central bank revenue and capital receipts in the form of external loans and debts from international financial institutions.
4. Fees, fines and royalties: Government can generate revenue through court fees, mining companies charges etc.
5. Rents and rates: Government can also make revenue from the property rented out; properties like housing, properties water etc.

Government Expenditure

Government expenditure can be defined as the total expenses spent by the public authorities at all the sectors of the economy (federal state and local) in the country. It includes both recurrent and capital expenditure.

Classification of government expenditure

Capital expenditure: These are expenses on projects that are permanent. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life extending beyond the taxable year.

Recurrent expenditure: These are the expenditure on goods and services which does not result in the creation or acquisition of fixed assets (new or second-hand). It consists mainly of expenditure on wages, salaries and supplements, purchases of goods and services and consumption of fixed capital (depreciation). They are expenses which are repeated on yearly or regular basis.

Objectives/aims of government expenditure

For the aims and objectives of the government to be achieved, there are some certain things they will have to spend money on, these things are:Social services: The government allocates some fraction of money to the social sector of the economy.

The social sector of the economy are:

Health care deliver

Recreational facilities

Infrastructural facilities like construction of roads, electricity, communication services etc.

Economic sector of the economy are:

Industry

Trade

Forestry

Agriculture etc.

General Administration: Government spends money in maintaining

The arms of government ( the executive, judiciary and legislature)

The civil services

Political appointees

The embassies outside the country

The armed forces and the police.

Transfer services: Government spends money on

Payment of pensions

Servicing of public debt

The factors contributing to the increase in government expenditure

The following are the reasons why government expenditure is increasing

1. Unemployment problem in the country.
2. Payment for social security causes more
3. Expenditure on war
4. Increase in national debt will cause government to spend more
5. The cost of administration
6. Inflation
7. financing of democratic institution
8. Defense or security
9. Increase in the population of the country
10. The poverty level of the people will also determine government’s expenditure

The effects of public expenditure

Public expenditure will have great effect in the following ways

• Effects on production: When government spends on the production of goods and establishment of industries and increase in wages and salaries will provide increased income to individuals which enables them to have a higher purchasing power, this will lead to increase in demand
• Effect on price level: Increase in government expenditure without a corresponding increase in the output will lead to a lot of money in circulation which will later lead to increase in prices and causes inflation.
• Even distribution of allocation of resources: Government expenditure helps in allocation of resources which are in abundance in certain areas to other areas where they are short in supply.
• Effects on employment: When government spends on the establishment of industries and setting up of employment agency, it will lead to the provision of employment in the country.
• Effect on the distribution of wealth: Government expenditure help to redistribute income or wealth of the people for instance, the provision of free education, free medical care, low cost housing etc. will help the poor masses thereby alleviating poverty in the country
• The goals of planning are effectively realized only through government expenditure. The government allocates funds for the growth of various sectors like agriculture, industry, transport, communications, education, energy, health, exports, imports, with a view to achieve impressive growth. Government expenditure has been very helpful in maintaining balanced economic growth. Government takes keen interest to allocate more resources for development of backward regions. Such efforts reduce regional inequality and promote balanced economic growth.

Test and exercise

1. Government revenue means (a) the expenses of the government (b) the budget of a government (c) income of the government (d) All of the above.
2. The type of public revenue that is regular or yearly basis is known as (a) capital revenue (b) recurrent revenue (c) negotiable revenue (d) national revenue.
3. All of the following are sources of government revenue except (a) taxes (b) rents and rates (c) the dependence (d) loans.
4. The government spends her money on all of the following except (a) social services (b) transfer services (c) Economic services (d) unseen services.
5. The Government expenditure can be increase because of the following factors except (a) rise in national debt (b) Population growth (c) equality in resource allocation (d) expenditure on wars.http://passnownow.com/classwork-support