Explain the objectives of the Government Budget.
The objective of the government is mainly rapid and balance economic growth along with equality and Social Justice. The general objectives of the government budget are explained below:
a. Redistribution of income and wealth:
● The budget of a government is a reflection of its taxation and subsidy policy.
● The government uses these fiscal tools to bring about a fair distribution of income in society.
● It can influence the distribution of income in society by imposing a different rate of taxes on the people.
● The richer section of the society will have to pay a higher rate of taxes and the comparatively poor section of the society will have to pay a lower rate of taxes.
● It is called a progressive tax rate system.
● The government collects money from the rich and spends it on the Welfare of the poor.
● It helps to reduce the excess amount of money held with the richer section of the people and to improve their standard of living of the poor people.
● The government also introduces special anti-poverty and Employment schemes to bring more people above the poverty line.
● The public distribution system has been very successful in providing food grains to the poor at a very subsidized price.
b. Reallocation of resources:
● The government allocates its resources to meet its social and economic objectives.
● The government produces goods for the public to maximize social welfare.
● The private firm does not produce public goods such as roads and bridges.
● This is because the private sector usually focuses on increasing profit and not increasing the Welfare of society.
● The government of the country allocates the resources to provide a balance between social welfare and profit maximization.
● The government implies heavy taxes on the products which are injurious to health such as cigarettes and provide subsidy on socially useful goods such as electricity.
c. Economic stability:
● The free flow of demand and supply in the market generates a trade cycle called business cycles.
● These are the faces of recovery, boom, inflation, and deflation.
● Economic stability is important for the growth and development of the economy because it encourages investment.
● The government brings economic stability by controlling the fluctuation in prices, through taxes, subsidies, and expenditure. During inflation, the government reduces its expenditure. During deflation, the government reduces taxes and increases subsidies to encourage the spending habits in the people.
d. Management of public Enterprise:
● The government increases the rate of growth of the economy through the use of public Enterprises.
● The Enterprises are encouraged to invest in areas of national Monopoly such as water and railway.
● A national monopoly exists when the economies of scale are present over a large range of output.
● It helps to maximize the social welfare of the general public.
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