Topic 4: Role of Government

Sophian bin Sout

Part 1: Economic Function

Economic Function
Providing legal and social FRAMEWORK
Sets legal status of business enterprise, ensure
rights to private ownership and allows the making
and enforcement on contracts.

Creating BUSINESS ENVIRONMENT

Healthy business environment has to be created in
the market to promote the competition

Economic Function
Redistribute & Reallocate INCOME & WEALTH
Government to reallocate the income and wealth in
a fair way trough a variety of policies and
programmes.

Increase the allocation of RESOURCES

Countrys economics resources should be utilised
efficiency to increase output.

Economic Function
Creating a stable ECONOMIC INVIRONTMENT
Stable economic environment is important to
encourage investment. Peaceful environment and
political stability are important to the
livelihood of the citizen.

Controlling the PRICE

Inflation affect the economics growth and also
reduce the purchasing power of the consumers.
Government control by monitoring the price
movement.

Economic Function
Increasing Government WELFARE ACTIVITIES
Responsible of providing public facilities for the
low income consumers. Government to subsidise the
medical costs so the publics has to pay only low
charges.

Part 2: National Budget

Surplus Budget
Which estimated
revenue of
government during
the year is
greater than
anticipated
expenditure

Government
expenditures
exceed government
tax revenue in a
given year.
(running a budget
deficit)

Deficit Budget

Government Expenditure and Revenue

Surplus
Budget
Balanced
Budget
Government Expenditure
Deficit
Budget

National Income

Part 3: Sources of Government Revenue

Tax
R
NonR Tax
evenue

evenue

Direct Taxes

Tax
R

evenue

Indirect Taxes

Personal Income Taxes

Direct Taxes

Company Income Taxes

Petroleum Income Taxes

- Collected mainly by the

Royal Customs and Excise
Department.
- Where part or all of the
burden tax can be
transferred to another
party

- Examples: export duty,

import duty, excise duty,
sales tax and service tax

Indirect Taxes

- Revenue from non-tax source

- Revenue from government service, fees for
issue of license and permit, sales on
government asset, rental of government
property, interest and returns on
government investment, fines, fees and
penalties, contributions from foreign
governments and international agencies
and cash royalty from petroleum and gas

NonR Tax
evenue

Part 4: Government Expenditure

Operating or Management Expenditure

Operating or management expenditure is a current
expenditure for the purpose of government
administration.
Include government spending in various government
departments to maintain services such as payment of
government salaries and purchase of office
equipment and motor vehicles for government use.

Government Development Expenditure

Development expenditure is the investment
expenditure by the government which involves
expansion in the physical capital of a country for
example government expenditure in development
project that are able to increase economic growth
such as construction of road, school and hospitals.

Part 5: National Debt

Internal Sources
1. Borrowing from citizen through the sale of
securities, bond and saving certificates to citizens.
2. Borrowing from financial institution such as
insurance companies by investing their resources
in the purchase of government securities
3. Loans from the central bank, where he central
bank purchase government securities, bond and
debentures from the government.
4. Loan from commercial banks, where the
commercial banks invest a part of their deposits in
government bond and securities to fulfil the
liquidity requirement.

External Sources
1. International money markets, such as some
foreign exchange banks in Paris, London and New
York, which have big deposits to lend any
government requesting loans.
2. Currency loans from foreign governments, such as
the USA, UK, Germany and Japan, for the supply
of needed goods. The loan are documented in
contracts.
3. Loan from international monetary financial
institutions, such as the International Monetary
Fund (IMF).

Break

Quiz

Quiz 1: List the advantages and disadvantages of National Debt,

Domestic Loan and Foreign Loan
Advantages
National Debt

Domestic Loan

Foreign Loan

Disadvantages

Part 6: Government Policy

Fiscal Policy
Objectives

Types

Monetary Policy
Objesctive

Types

Instrument of Monetary Policy

(Quantitative)
Need for
statutory
reserves

instrument

Funding

Min.
Liquidity
Req.

OMO

Discount
Operation

Interest
Rate

Instrument of Monetary Policy

(Qualitative)
Selective
Credit
Controls

Moral
Persuasion

Instruments

The

END