Week 5 Ls 1-3

1. Economics

Grade: 12
Week: 5
Lessons 1-3

2. How many components of government budget are there? What are they?

3.

Budget Receipts
Budget Expenditure
Revenue receipts
Capital receipts
Revenue expenditure
Capital expenditure

4. Types Of Budget

o Balanced Budget:
if estimated government receipts are equal to the estimated government expenditure.
o Surplus Budget:
if estimated government receipts are more than the estimated government expenditure.
o Deficit Budget:
if estimated government receipts are less than the estimated government expenditure.

5. Measures of Government Deficit

• Budgetary deficit is defined as the excess of total estimated expenditure
over total estimated revenue.
• When the government spends more than it collects, then it incurs a
budgetary deficit.
Budgetary deficit can be of three types:
1) Revenue Deficit
2) Fiscal Deficit
3) Primary Deficit

6. Revenue Deficit

Revenue Deficit is concerned with the revenue expenditures and receipts of the
government.
• It refers to excess of revenue expenditure over revenue receipts during the given
fiscal year.
Revenue Deficit = Revenue Expenditure – Revenue Receipts
It signifies that government’s own revenue is insufficient to meet the
expenditures on normal functioning of government departments and provisions
for various services.

7. Fiscal Deficit

Fiscal deficit presents a more comprehensive view of budgetary
imbalances.
Fiscal Deficit refers to the excess of total expenditure over total
receipts (excluding borrowings) during the given fiscal year.
Fiscal Deficit = Total Expenditure – Total Receipts, excluding
borrowings

8.

Primary Deficit
Primary deficit refers to difference between fiscal deficit of
the current year and interest payments on the previous
borrowings.
Primary Deficit = Fiscal Deficit – Interest Payments
(money the government pays this year on loans it took in the past)

9.

Fiscal policy
Monetary policy
Read and dicsuss the differences beetween fiscal and monetary policy

10. Fiscal policy

Fiscal policy is how the government uses taxes
and spending to manage the economy.
If the government wants to boost the economy, it
can lower taxes, so people have more money to
spend.
When people spend more, businesses sell more,
and the economy grows.

11. Fiscal policy

The government can spend more money
directly on projects like building roads or
schools.
This spending also boosts economic activity.
If the economy is growing too fast and causing
inflation, the government might raise taxes or
reduce spending to slow things down.

12. Monetary policy

Monetary policy involves how the central bank
manages the money supply and interest rates.
If the central bank wants to encourage borrowing
and spending, it can lower interest rates. Lower
rates mean it's cheaper to borrow money, so
people are more likely to take out loans for homes,
cars, or businesses.
This increased borrowing and spending can
stimulate economic growth.

13. Monetary policy

If the economy is booming excessively
and prices are rising too quickly, the
central bank might raise interest rates.
Higher rates make borrowing more
expensive, which can help slow down
spending and keep inflation in check.

14. Fiscal & Monetary policy

Fiscal & Monetary policy

15. Reasons for Government Spending

1. Public Services and Infrastructure
2. Social Welfare Programs
3. Defense and Security
4. Economic Stimulus and Development

16. 4. Economic Stimulus and Development

Governments often use public expenditures (spending on infrastructure, education,
healthcare) to stimulate growth.
This creates jobs, increases incomes, and raises overall economic activity.
But where does the money come from?
To fund these expenditures, the government needs revenue.
The main and most stable source of revenue is taxes.

17. Taxes and Spending

“In this world, nothing is certain
but death and taxes”
Benjamin Franklin

18. What are Taxes?

Taxes are payments people are required to pay to
local, state and national governments.
Two types are:
Direct taxes: taxes on income and wealth.
Indirect taxes: taxes on expenditure (spending)

19. Reasons for taxation

• Taxes raise revenue to fund public expenditure to finance
public sector spending
• Taxes are used to manage the macroeconomy to reduce the
rate of the price of inflation in the economy (Price control)
• Taxes can reduce inequalities in income
• Taxes can discourage spending on imported goods
• Taxes can be used to protect the environment.

20. What is a good tax?

A good tax should meet some criteria:
1. Equity (Fairness)
• People in similar situations should pay similar taxes.
• Richer people usually pay more than poorer people.
2. Non-distortionary
• Taxes should not discourage people from working, saving, or investing in a smart way.
3. Certainty
• Everyone should clearly know when they must pay and how much they must pay.
4. Convenience
• Paying taxes should be easy, quick, and not stressful.
5. Simplicity
• The rules should be simple to understand, not full of confusing details.
6. Efficiency (Administrative efficiency)
• Collecting taxes should not cost too much time or money for the government.

21. Classification of Taxation

• Types of taxes affect people
differently, depending on their
income.
• Three forms of taxes are:
Progressive Tax
Regressive Tax
Proportional Tax

22. Progressive Tax

• Progressive tax system is the proportion of income taken
in tax rises as income increases.
• This means that people or firms with higher income pay
a higher proportion of their income in tax than lower
incomes.
Annual income
%tax rate
Tax paid
200 000 tenge
10%
20 000
1 000 000 tenge
20%
200 000
4 000 000 tenge
30%
1 200 000

23. Regressive Tax

• Tax proportion income falls as income
rises. Example: Sales Tax
• It is considered unfair to people or firms
with low incomes because a higher
fraction of their income is taken as tax
Annual income
% tax rate
Tax paid
200 000 tenge
30%
60 000
1 000 000 tenge
20%
200 000
4 000 000 tenge
30%
1 200 000

24. Proportional Tax

• A tax that takes the same percentage of income
whatever the level of income.
• Argument for: Everyone is equal-pay same % of
income.
• Argument against: The poor need their income
more than the wealthy (rich).

25. Two Main types of Taxes

1. Direct Taxes are taken directly from individuals or firms
and their income or wealth.
The burden falls directly on the person responsible for
paying it.
2. Indirect taxes are taken indirectly from the incomes
when they are spent on good and services.
Sales tax, Tariffs, and excise duties added to the price of
goods and services.

26.

Income tax is a tax payable
from an individual’s earnings
usually on a pay-as-you-earn
basis. E.g. Salaries/wages
Taxes on wealth can include
taxes on the value of
residential and commercial
land and property. It also
includes inheritance taxes.
E.g. Property (House)
Capital gains tax. Profits
made from the sale of famous
paintings, jewelry or another
valuable asset may be taxed.
E.g. Gold, Diamonds
Direct
taxes
Payroll taxes are the ones
that employers are required to
withhold from the wages of
salaries of their employees.
E.g. Social Security, medicare
Corporation tax is levied on the
profits of limited companies or
corporations and may also be
called a profit tax if applied to
incorporated businesses. E.g.
Business profits

27. Indirect taxes

Indirect taxes are added to the price of goods
and services and are therefore collected from
transactions made by people and organizations.

28.

Sales taxes is a consumption
tax imposed by the
government on the sale of
finished good and services.
User charges are taxed or
charges linked to the use of
specific goods or activities. For
example, toll charges to use
major bridges or roads.
Indirect
taxes
Import tariffs are custom
duties on the value of imported
goods entering a country.
Value added tax (VAT) is
charged as a percentage of the
value of transactions including,
for example, payments for
electricity.
Excise duties are applied to
specific goods, such as
alcohol, cigarettes, petrol.
They re normally fixed charges
based on the amount sold.

29. Formative assessment