Theory question 102
Public FinanceThe tables below show the expected revenues and projected expenditures from the budget of a hypothetical country in 1998. Use the information in the tables to answer the questions that follow.
EXPECTED REVENUE
Item | Amount ($ millions)
Rents, royalties and profits | 75.00
Company income tax | 150.00
Customs and excise duties | 300.20
Personal income tax | 80.00
Fees and specific charges | 60.80
Value added tax | 100.00
PROJECTED EXPENDITURE
Item | Amount ($ millions)
General administration | 220.10
Maintenance of foreign missions | 50.00
Transfer payments | 65.00
Building of schools and hospitals | 200.00
Road construction | 180.90
(a) Calculate the total revenue from (i) direct taxes; (ii) indirect taxes; (iii) non-tax sources.
(b) Determine the total (i) capital expenditure; (ii) recurrent expenditure.
(c) Determine whether the budget is a surplus or deficit.
Show the model answer
(a)(i) Direct taxes = company income tax 150.00 + personal income tax 80.00 = $230.00 m
(ii) Indirect taxes = customs and excise 300.20 + VAT 100.00 = $400.20 m
(iii) Non-tax = rents, royalties and profits 75.00 + fees and specific charges 60.80 = $135.80 m
Total revenue = $766.00 m
(b)(i) Capital expenditure = schools and hospitals 200.00 + roads 180.90 = $380.90 m
(ii) Recurrent expenditure = general administration 220.10 + foreign missions 50.00 + transfer payments 65.00 = $335.10 m
Total expenditure = $716.00 m
(c) Revenue (766.00) is greater than expenditure (716.00), so the budget is a surplus of $50.00 m.
Capital spending creates lasting assets; recurrent spending is regular running cost.