PUBLIC FINANCE

Presented by :- Mrs Gauri Pal SMBA 24

PUBLIC FINANCE

It is the definitive branch of economics which assesses the Government revenue and Government expenditure of the Public Authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones.

CLASSIFICATION OF PUBLIC FINANCE

Public finance can be categorized into the following sections Public Revenue Income for the government Public Expenditure Spending for the society Public Debt Borrowings from internal and external sources

NON TAX REVENUE

Profit at BSE Fines Escheats Hidden Resources Gifts Public Debts Capital Gains

TAX IMP SOURCE OF REVENUE

Ideal tax structure should posses the following properties 1. Distribution of the tax burden should be progressive ( richer to pay more than the poorer) 2. Should help to attain growth and stability 3. Should improve the efficiency of the martket 4. Should be easy to implement administratively

DIRECT TAXES

INDIRECT TAXES

Personal Income Tax Corporate Tax Capital Gains and Wealth Tax Interest tax Expenditure tax

Customs Duties Union Excise duties Service Tax Value Added Tax

CANONS OF TAXATION

Canons of taxation were laid down by Adam Smith these are simple principles or ground rules on which tax policies are based The canons or principles of taxation are 1. Economic (cost effective, meaning it should cost less to collect the taxes than the tax revenue) 2. Equity (fair taxation in terms of horizontal and vertical equity) 3. Certainty (people should know how and when to pay)

4. Convenience (simplicity or ease)

DIRECT TAX
( TAX PAID BY A PERSON ON WHOM IT IS LEGALLY IMPOSED)
ADVANTAGES

DISADVANTAGES

Mental pinch to the taxpayers as they have to curtail their income to pay to the government. Feel inconvenience as the government impose tax progressively. Parallel economy Expensive for govt. To collect tax individually

Equitable as is imposed on the person based on property or income There is a certainty of time , amount for the tax Elastic Govt. changes rate based on your income Enhances consciousness , since the pinch is felt by the mango man hence they can demand for the welfare of the nation

INDIRECT TAX
( TAX IMPOSED ON ONE PERSON BUT PARTLY OR WHOLLY PAID BY ANOTHER)

ADVANTAGES

DISADVANTAGES

convenient as the taxpayer does not have to pay a lump sum amount for tax mass participation. Each and every person getting goods or services has to pay tax less chance of tax evasion as the taxpayers pay the tax collected from consumers government can check on the consumption of harmful goods by imposing higher taxes

uncertain. As demand fluctuates, tax will also fluctuate regretful as the tax burden to the rich and poor is same bad effect on consumption, production and employment. Higher taxes will reduce all of them Most of the taxes are included in the price of goods or service

PUBLIC EXPENDITURE
It is incurred to provide public goods and services. Public expenditure can be defined as, "The expenditure incurred by public authorities like central, state and local governments to satisfy the collective social wants of the people is known as public expenditure." Tends to rise over time and its growth rate is generally higher than that of the GDP.

CLASSIFICATION
( SYSTEMATIC ARRANGEMENT OF DIFFERENT ITEMS ON WHICH THE GOVERNMENT INCURS EXPEND )

DEVELOPMENT

NON DEVELOPMENT

All expenditures that promote economic growth and development are termed as development expenditure

Unproductive expenditures are termed as non development expenditures.

CAUSES & GROWTH OF PUBLIC EXPENDITURE

Rising Revenue and Non Plan Expenditures Rising Subsidies Interest Burden Defense Expenditure Growth in National Income Growth of population Urbanization Government Administration

CONTROLS FOR PUBLIC EXPENDITURE

Improving quality of expenditure Fiscal reforms for states More expenditures on infrastructure / socials Increasing user charges Cutting subsidies Retirement of old debt Reduction in non developmental expenditure Cut in interest rates

PUBLIC FINANCE / DEBT

When the expenditure of the government exceeds revenue, a deficit arises in the budget which is bridged by borrowing from public or deficit financing

WHY IS DEBT NECESSARY?

Smoothening out the tax rate Macro economic stabilization Financing war or epidemic rehabs or other emergency expenditures Financing expenditure on human capital formation For undertaking financial investments

TYPES OF DEBTS
INTERNAL DEBT

EXTERNAL DEBT

Internal debt owed by a government (money a government borrows from its citizens) is part of the country's national debt it is a form of fiat creation of money in which the government obtains cash not by printing it, but by borrowing it

External debt (or foreign debt) is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households

MEASURES TO MANAGE PUBLIC DEBT

Reduction in primary deficit Reduction in growth of current expenditure Statutory ceiling on debt Raising efficiency of borrowing program Local government bonds Foreign institutional investors and public debt Consolidated sinking funds Limits on government guarantees

THANK YOU