Unit 20 - Government Revenue and Expenditure PDF

20 GOVERNMENT REVENUE AND EXPENDITURE BEFORE WE BEGIN … INFORMATION I MAY ALREADY KNOW THAT WILL SUPPORT THIS UNIT: household budgets, organisation budgets, for-profit and not-for-profit, taxation, choices, scarcity, opportunity costs, accounts. AT T...

20 GOVERNMENT REVENUE AND EXPENDITURE BEFORE WE BEGIN … INFORMATION I MAY ALREADY KNOW THAT WILL SUPPORT THIS UNIT: household budgets, organisation budgets, for-profit and not-for-profit, taxation, choices, scarcity, opportunity costs, accounts. AT THE END OF THIS UNIT, I WILL BE ABLE TO:  Understand income/revenue for the government  Understand spending/expenditure for the government  List the government departments and understand their role  Apply information to decide what to do with deficits and surpluses in a government budget  Become familiar with economic terms BEFORE WE BEGIN … Budget Day is one of the most important days in the government calendar. On Budget Day, the Minister for Finance presents the budget statement to Dáil Éireann. The budget statement outlines the general economic and fiscal outlook, and the changes the government proposes to make to taxes and spending. The Office of the Revenue Commissioners, known as Revenue, is the Irish Government agency responsible for collecting taxes. Taxes are the fees that we pay to the government so that they can run the county. Tax needs to be fair. 1. GOVERNMENT REVENUE REVENUE (INCOME) FOR THE GOVERNMENT The government receives revenue or income from many sources. Taxation is one of the main sources and is collected by the Office of the Revenue Commissioner. 1. SOURCES OF TAXATION REVENUE Income tax (PAYE, PRSI and USC) Employees pay tax on income. The more you earn, the more Value-Added Tax (VAT) tax you pay. Tax on goods and services. Deposit interest retention tax (DIRT) Tax on the interest of savings. Corporation tax Tax on companies’ profits. Capital gains tax Tax on the profit from a sale of an asset. Capital acquisition tax Tax on gifts and inheritance. Customs duties Tax on goods coming into the country. Excise duties Tax on cigarettes, alcohol and diesel/petrol. Stamp duty Tax on legal documents. Motor tax Tax on cars – based on carbon dioxide Local Property Tax (LPT) emissions. Tax on the market value of all residential Vehicle Registration Tax (VRT) properties. Tax on a new car or motorcycle. 1. GOVERNMENT REVENUE 2. OTHER SOURCES OF REVENUE Privatisation The sale of state-sponsored bodies, e.g. Aer Lingus. Dividends Income from state-sponsored bodies, e.g. Bord na Móna. European Union Money from the European Union (EU), e.g. grants from the International Monetary Fund (IMF). CURRENT AND CAPITAL INCOME Current income is the regular day-to-day or Capital income is the long-term or once-off regular income. income. Income tax EU grants Value-Added Tax (VAT) Borrowings from European Central Bank (ECB)  2. GOVERNMENT EXPENDITURE The government spends their income (revenue) on providing services for the public. Spending is allocated to government departments in the budget. In 2020, a global pandemic meant that extra funding had to be given to 2. GOVERNMENT EXPENDITURE EXAMPLES OF GOVERNMENT DEPARTMENTS AND EXPENDITURE Department Expenditure (spending) Education and Skills Schools, universities, teachers’ salaries Health Hospitals, running of hospitals, doctors, nurses’ Defence salaries, etc. Army, Air Corps, etc. Justice and Equality Gardaí, courts, prisons, etc. Agriculture Food, forestry and fishing Transport, Tourism and Trade Transport, sports and tourism Business, Enterprise and Innovation Businesses, start-ups, trade, investment Employment Affairs and Social Jobseeker’s Benefit, pensions, maternity benefits Protection Housing, Planning and Local Social housing, planning, regulations Government Current expenditure is the regular or day-today Capital expenditure is the long-term or once-off spending. expenditure. Social welfare payments Building a new children’s hospital Teachers’ salaries Computers for schools 2. GOVERNMENT EXPENDITURE The government needs to plan its budget in the same way as an individual (household) or business. This means they need to be aware of the following: 1. The government needs to make the best use of available resources. 2. Resources are limited (finite) and the government must prioritise. 3. The government must make choices. 4. There are financial costs (money) and also opportunity costs (costs of foregoing alternatives). 3. NATIONAL BUDGET CREATING THE NATIONAL BUDGET – THE GOVERNMENT’S ACCOUNTS A budget is made up of expected revenue and expenditure, just like an individual or a household budget. The national budget is the government’s budget, with expected revenue and expenditure for the fiscal year. The tax year in Ireland runs from 1 January to 31 December. The Minister for Finance and Minister for Public Expenditure and Reform are responsible for preparing the national budget. They create a list of all the revenue they are hoping to receive and divide it between the various services they need to provide. Each minister puts forward estimates of money needed for their department and then each department is given a budget. 3. NATIONAL BUDGET TYPES OF GOVERNMENT BUDGETS 1. Balanced Example budget: this Billions € is where Expected Total Revenue 74 planned Expected Total Expenditure 74 revenue is Balanced - Income is equal to equal to expenditure 2. planned Budget Example expenditure. surplus: this Billions € is where Expected Total Revenue 74 planned Expected Total Expenditure 70 revenue is Surplus 4 greater than Income is greater than expenditure 3. planned Budget Example expenditure. deficit: this Billions € is where Expected Total Revenue 74 planned Expected Total Expenditure 76 revenue is Deficit -2 equal to Income is less than planned expenditure 3. NATIONAL BUDGET BUDGET SURPLUS BUDGET DEFICIT If there is a surplus, government revenue is If there is a deficit, government expenditure greater than government expenditure. What is greater than government revenue. What might the government do? might the government do? 1. Increase borrowing: The government 1. Pay off national debt: The government might borrow more money. From who? might pay off debts that they owe, e.g. For example, the EU. to the EU. 2. Increase taxes: The government could 2. Decrease taxation: The government increase taxes. What taxes might they could decrease taxes. What taxes might increase? For example, VAT/ income tax. they decrease? For example, VAT/income tax. 3. Decrease spending: The government could decrease spending, e.g. social 3. Increase spending: The government welfare payments/pensions. could look at an increase in social welfare payments/pensions. 4. Privatisation: The government might look at selling off semi-state bodies, e.g. 4. Encourage business start-ups: The Aer Lingus. government might look at promoting entrepreneurship, e.g. Local Enterprise 3. NATIONAL BUDGET CALCULATING THE NATIONAL BUDGET Create a government budget for 2022 in millions. National Budget = Revenue (Income) – Expenditure (Spending) Examination Tip Examination Tip Always include Always state if the currency (€) and budget is a surplus, amount (millions/ balanced or deficit. billions). 4. TAXATION PERSPECTIVES The purpose of taxation is to raise revenue (income) for the government. The government needs the money to run our country and it’s important that we all pay our fair share. Taxation has both positive and negative impacts as well as rewards and drawbacks. We can view taxation from many perspectives (points of view). Financial This means looking at money/revenue/income for the government. Example: The government raises money to run the country, i.e. paying nurses’ salaries. Social This means ensuring a better society, providing for the less well off, supporting the young, old and people with special needs. Availing of tax may positively impact society.. Legal We have to pay our tax. If we are liable for tax, it must be paid by law. Retailer collects VAT. Employers pay PRSI %. Ethical This means doing the right or moral thing. We need to be informed, pay our tax and ensure how we go about this is best for everyone in our country. This means having facilities like fire service, social welfare payments, etc. and ensuring that all our decisions have a moral and ethical element. 4. TAXATION PURPOSE OF TAXATION Financial Social Legal Ethical 1. Income for the 1. Tax on CO2 1. If you own a 1. Tax evasion is government to run emissions from residential property, where you the country, e.g. vehicles to help you must pay Local deliberately spending on sustainability and Property Tax. underpay your tax, essential services encourage 2. If you earn income e.g. self-employed like health, consumers to buy over a certain not declaring all education, etc. green cars. amount, you pay their income. 2. Encourages income tax. 2. Tax avoidance is 2. Tax on cigarettes economic growth 3. If you are the owner using loopholes in and alcohol to by decreasing VAT of a vehicle you tax law to avoid encourage a and income tax. must pay motor paying tax. It is healthier nation. tax. legal but is it 3. Creates and Likewise, with sugar 4. If you are company ethical? promotes there is a and you make a entrepreneurship. sweetened drinks profit you must pay tax. 4. Encourages corporation tax. spending by 3. Plastic bag levy discouraging discourages the use savings, e.g. of plastic bags, Capital expenditure: increases DIRT. which are harmful to Libraries. the environment. 4. TAXATION IMPACT OF TAXATION Positive Impacts Negative Impacts Providing much-needed services. Some taxes affect the less well off more than the well off. Creating Irish jobs and promoting Tax evasion, i.e. some people don’t declare all entrepreneurship. their income. Protecting our environment. Tax can be an extra cost to organisations and businesses. PURPOSE OF TAXATION USA Tax is low Citizens have to pay for a greater range of services themselves, e.g. healthcare. Canada Tax is high Citizens receive lots of services for free, e.g. education. KEY TERMS/SUMMARY Government revenue: Government National budget = expenditure: Preparing the budget: Current income Current expenditure Budget surplus: Capital income Capital expenditure Budget deficit: Balanced budget: T Taxation: KEY TERMS/SUMMARY Government revenue: Government National budget = The income received by expenditure: Revenue – Expenditure the government from The government spends Preparing the budget: many sources to help run their income (revenue) on All ministers send in their the county and provide providing services for the estimates. The Minister services, e.g. taxation. public. for Finance works out planned revenue and distributes to the various departments. Current income is the Current expenditure is Budget surplus: This is regular day-to-day the day-to-day spending, where planned revenue is revenue. e.g. nurses’ salaries. greater than planned Capital expenditure is expenditure. The Capital income is the on long-term items, e.g. government can reduce long-term or once-off new roads. taxation. revenue that will last for the long term. Budget deficit: This is Balanced budget: This Taxation: There are four where planned revenue is is where planned revenue different perspectives – greater than is equal to planned expenditure. A planned expenditure. 1. Financial government can borrow 2. Social or increase taxes. 3. Ethical 4. Legal SUMMARY MAP