Public Finance

Topics: Tax, Economics, Finance Pages: 6 (1361 words) Published: January 30, 2012

Def: Public Finance is the field of economics that studies government activities and the alternative means of financing government expenditures. Our focus in this course is on the microeconomic functions of government, the way government affects the allocation of resources and the distribution of income.

The Appropriation Act gives the Government of Belize the authority to collect revenue and incur expenditure within the framework of the approved budget.

The Government's budget is its statement of expected
revenue and expenditure for the fiscal year, which begins
April 1 of one year and ends on March 31 of the following
year. It is the Government's primary instrument of fiscal
policy, that is, it is the main tool for effecting changes in the pattern of expenditure and investment throughout the
economy. The government’s budget, therefore, should be
prepared within the context of its objectives for growth and development.

♦ Recurrent and Capital Budget
There are two major components of the budget: the
Recurrent Budget and the Capital Budget. The Capital
Expenditure Budget is further divided into Capital II
(locally funded) Expenditure and Capital III (externally
funded) Expenditure.

The Recurrent Budget
The Recurrent Budget is composed of revenue and
expenditure that occur annually and are fundamental in the
daily operation of the Government. Recurrent revenues are
of two types, Tax and Non-Tax.
√ Tax Revenues: The major categories of tax revenue are
income taxes including company taxes; taxes on goods
and services including sales tax; excise duties; and taxes on international trade and transactions known as customs
√ Non-Tax Revenues: These revenues make up a smaller
proportion (about 11%) of recurrent revenue. They are
drawn from a few sources such as licenses; rents and
royalties; contribution to pension funds; and transfers
from the Central Bank and non-financial public
enterprises such as the Port Authority and the Belize
Airport Authority.
Recurrent expenditure are those which arise from the daily
activities of the Government and can be classified as either Functional or Economic in nature.

The Functional Classification reflects services provided and functions performed by the Government in spending public
funds. These include defense, health, housing, transport and communication, social security, agriculture and fishing,
education, and general public service.

The Economic Classification relates to the broad categories
of expenditure across all the functions. It refers to wages and salaries, pension, goods and services, interest payments,
subsidies and transfers. The economic classification shows
not what the Government spends money for but what it
spends money on.
The Current Balance is the difference between recurrent
revenue and recurrent expenditure. When recurrent revenue
exceeds recurrent expenditure, there is a surplus on the
current account. On the other hand, when recurrent
expenditure exceeds recurrent revenue, there is a deficit on the current account.

♦ The Capital Budget
The Capital Budget reflects the Government’s revenue and
expenditure that are tied to investments in costly, durable
goods, which last for more than one year. Such investments
include buildings, roads, bridges, schools, and equipment.
The revenue earned by the Government on the sale of assets
is called Capital Revenue. It includes income from the sale of shares in public organizations and economic citizenship.
Activity in the capital budget either creates or disposes of an asset. There are two categories of capital expenditure.

√ Capital II Expenditure is locally funded and includes
counter-part funding for projects financed by foreign
institutions. The Government utilizes any surplus on the
current account for Capital II projects. Deficits are...
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