Functions of the Budget

The budget fulfils three main functions:

• To raise revenue to meet government expenditure

The government of a country provides certain services such as administration, defence, law and order, environmental services and economic services.  Also it must meet the public debt.  Sufficient revenue must be raised to pay for this.

• It is a means of redistributing wealth

In many countries, a situation has arisen where a small proportion of the population own a more than proportionate share of the nations wealth, while the majority of the population own only a small proportion of it.  One method of redressing such inequalities of wealth is through a progressive system of taxation on income and capital.  A progressive system is one whereby the wealthy people do not only pay more tax than the poor, but also pay a greater proportion of their income or wealth.

• To control the level of economic activity

 The government uses the budget to implement fiscal policy, i.e. the regulation of the economy through governments expenditure and taxes.