Government Revenue and Expenditure Overview

Government Revenue and Expenditure

• Government revenue (income) is collected from various sources, primarily taxation.
• Revenue is collected by the Office of the Revenue Commissioners (Revenue) in Ireland.
• Key sources of taxation revenue include Income Tax (PAYE, PRSI, USC), Value Added Tax (VAT), Deposit Interest Retention Tax (DIRT), Corporation Tax, Capital Gains Tax, Capital Acquisition Tax, Customs Duties, Excise Duties, Stamp Duty, Motor Tax, Local Property Tax (LPT), and Vehicle Registration Tax (VRT).
• Employees pay income tax based on their earnings.
• Other sources of government revenue include privatization, dividends, and funds from the European Union (EU) or the International Monetary Fund (IMF).
• Current income is regular, daily income, while capital income is long-term or one-off income.
• EU grants and borrowing from the European Central Bank (ECB) are additional revenue sources.

Government Expenditure

• Government expenditure is the use of income to provide services to the public.
• Spending is allocated to different government departments via the budget.
• Expenditures can be categorized into current and capital expenditures.
• Current expenditure is day-to-day spending, like salaries (e.g., teachers' salaries, social welfare payments).
• Capital expenditure involves large investments for the long term (e.g., constructing a hospital, buying computers).
• The government must plan its budget similarly to an individual or business, considering limited resources and prioritizing spending.
• Financial costs and opportunity costs (the cost of forgoing other alternatives) must be factored into expenditure decisions.

National Budget

• A national budget is a plan for government revenue and expenditure for a fiscal year (e.g. the tax year in Ireland runs from 1 January to 31 December).
• The budget includes expected revenue (money the government expects to collect) and expected expenditure, similar to a household budget.
• The Minister for Finance and the Minister for Public Expenditure and Reform prepare the national budget.
• The budget includes a list of all revenue sources and allocates funding to different government departments to support their operations.
• Budget types include balanced (revenue=expenditure), surplus (revenue>expenditure), and deficit (revenue<expenditure).

Budget Surplus/Deficit

• A budget surplus happens when revenue exceeds expenditure, and the government has extra funds.
• Possible responses to a surplus include paying off national debt, decreasing taxes, and increase spending.
• A budget deficit occurs when expenditure exceeds revenue, meaning the government's spending is greater than its income.
• Possible responses to a deficit include borrowing more money (e.g., from the EU), increasing taxes, and decreasing spending.

Taxation Perspectives

• Taxation is essential for raising government revenue.
• Positive impacts include funding public services (e.g., education, healthcare) and promoting economic growth.
• Negative impacts include potentially disproportionately affecting lower-income earners, causing tax evasion, and adding an extra cost to businesses.
• Both positive and negative impacts should be carefully considered.

Calculating the National Budget

• The national budget involves calculating expected revenue and expenditure for the year.
• The example given included revenue sources like corporation tax, excise duties, PAYE, USC, and VAT, and expenditure categories like health services, social protection, education, debt servicing, and marine and agriculture.

Key Terms

• Government revenue: income to the government
• Government expenditure: the government's spending
• National budget: the government's plan for revenue and expenditure
• Preparing the budget: the process of compiling estimates for the budget
• Budget surplus: revenue is greater than expenditure
• Budget deficit: expenditure is greater than revenue
• Balanced budget: revenue equals expenditure
• Taxation: the process of collecting revenue from individuals and corporations.