ACJC Government Budget Notes

ACJC 2024 H2/H1 Economics Government Finance & Expenditure 1 ANGLO-CHINESE JUNIOR COLLEGE JC2 Economics 2024 H1 H2 GOVERNMENT BUDGET Government Revenue & Expenditure Section Content Page 1 Government Revenue 1.1 Sources of Government Revenue 1.2 Types of Taxes 1.3 Structure of Tax Rates 1.4 Impact of Taxes on the Economy 5 6 6 8 2 Government Expenditure 2.1 Types of Government Expenditure 2.2 Impact of Government Expenditure on the Economy 10 11 3 Using the Budget 3.1 Goals of Using the Budget / Fiscal Policy 3.2 Financing a Budget Deficit and Public Debt 3.3 Singapore: Fiscal Sustainability 12 14 15 4 Annex Reference Texts: • Singapore Budget 2024 (https://www.mof.gov.sg/singaporebudget) • Inland Revenue Authority of Singapore (https://www.iras.gov.sg/irashome/default.aspx)

ACJC 2024 H2/H1 Economics Government Finance & Expenditure 2 UNIT SUMMARY In microeconomics, we have learnt about the active role of the government in correcting market failure, such as in the provision of public and merit goods, regulating competition, and redistributing incomes in order to maximise welfare in the economy. We have learnt that government expenditure (G) forms part of the aggregate demand of the economy: increasing G will increase aggregate demand and expand the economy. On the other hand, taxation (T) is a withdrawal out of the circular flow of income, leading to a decrease in aggregate demand and a contractionary effect on the economy. In this topic on the government budget, you will learn about the types of government expenditure and taxes which a government adopts to achieve the country’s microeconomic and macroeconomic goals. A government’s budget is the financial plan of a government for a given period, usually for a fiscal year, which shows how the government generates its revenue to finance its various types of expenditure. The budget balance, whether in surplus or deficit, and its composition, in terms of the revenue sources and expenditure patterns, reflect the areas and aims of intervention that the government is focusing on for the year. This knowledge will enable you to understand and appreciate the objectives and workings of the fiscal policy in macroeconomic management. LEARNING OUTCOMES Enduring Understanding: The types and levels of government expenditure and taxes and the overall budget balance will have consequences on the macroeconomic performance of an economy. Knowledge Objectives: Students will be able to understand: • The types of expenditure and taxation in the annual budget • The types of budget balance • The relationship between the budget balance and the change in the level of aggregate demand Skills Objectives: Students will be able to explain the role of the budget balance (deficit, surplus or balanced) an