The government budgetary decisions will be mainly concerned with raising the money from TAXes, and then spending the money on public projects.
Why does the government need to make budgetary decisions?
The country’s government is responsible for raising money and spending money to run and improve the country. The government’s annual budget will be established in order to do so.
The main TAX revenues come from Direct TAXes (i.e. Individual Income TAX and Corporate TAX) and Indirect TAXes (i.e. Consumption TAX, as well as Import Tariffs and Quotas).
The government raises finance to pay for these public spending schemes through TAXation. The major expenditure programmes include national security, healthcare services, public education, and so on.
How are government budgetary decisions made?
Each year the finance minister of the country announces the TAX plans and the spending of the government for the coming year. The difference between these two totals is called either the budget deficit or the budget surplus.
Budget deficit. Government budget deficit is when the amount of government spending exceeds revenue from TAXation and other revenue sources.
Budget surplus. Government budget surplus is when revenue from TAXation and other revenue sources exceeds the amount of government spending.
The TAX rates can only be altered to a certain extent – either increased or decreased. If the government is not able to raise enough money from TAXes, then it may also borrow money from the general public or businesses in order to fund its spending.
This money can be borrowed by the country through the central bank. The central bank on behalf of the government will issue treasury bills and government bonds. These two debt instruments can be purchased by individual people, any business organization or even other cities.
A Treasury Bill is a short-term debt obligation backed by the country’s treasury department with a maturity of one year or less. Interest and risk are lower than a government bond.
A Government Bond is a long-term debt security issued by a government. Government bonds pay regular interest payments called coupon payments. Interest and risk are higher than a treasury bill.
In fact, the government may also borrow money from other countries. Unfortunately, this can be very expensive and in case of defaulting on debt, the country may even lose its independence.
