Characteristics and Functions of the Government Budget
• international institutions, governments and investors – the policies of other countries, especially trading partners, private investors and entrepreneurs, and also different institutions involved in aid and partnership programmes are directly affected by the change in tax laws, and economic policy.
Each government department can do little until specific and tangible guidelines are provided them by the budget – each operational programme needs to be financed and planning for this cannot take place until the budget has been released, debated and adopted in Parliament. Once this has happened these departments can then compile a programme which will then attempt to realise the goals of the government within the context of their mandate (health, education, etc.).
3 Promote Redistribution of Wealth
Tis is the most emotional and controversial function of certain budgets – much less so when the budget redistributes wealth automatically, as through a progressive tax system – this means that the more money one earns, the more tax one pays, and the lower one’s income the less tax one pay. Tis means that lower income citizens enjoy the same benefits with paying very little tax. In order for wealth to be distributed, it must first of all exist. Te argument will then be that once the source has been tapped, the wealth might diminish and all might end up being poor. Socialist experiments have proved this to be true (see more on p.83).
It is important to realise that with any progressive tax system as explained in the last module, where the tax rate increases with income, redistribution of wealth takes place automatically. Te person not paying tax at all will enjoy the same services as someone paying a high percentage of their income in taxes, and so redistribution takes place.
However, when this function becomes a political policy through an altruistic ideal, and redistribution takes place in a wholesale fashion and on a large scale, it oſten becomes an emotional and controversial issue. Te argument exists that with direct subsidisation on a large scale, people learn to become dependent on aid, in the form of subsidies. Entrepreneurship and individual endeavours are not encouraged, and in fact the aid itself becomes a tool for increased impoverishment. Te new policy from America and Europe strongly reflects this argument towards developing countries as those in Africa – “Trade; no Aid!” has been a slogan for some time in Europe.
It is possible to have separate accounts for revenue and expenditure of different redistribution programmes; when all revenue is paid into one account, the taxpayers who fund the bulk of the redistribution programme are unable to see where the funds are being channelled; this can result in resentment and frustration.
Inevitably redistribution might mean that the taxpayer who funds such a programme ends up paying in full for services such as education and health, while those who benefit from such programmes, pay little or no tax. In addition to this is the fact that many of those who benefit directly and fully, also abuse the system by relying too heavily on it – the example of thousands of ghost pensioners is only one instance of potential corruption and abuse.
Any redistribution of wealth should go directly towards making more wealth, such as industrial and skills development, educational and entrepreneurial programmes and workshops, and not just to propping up discontented voters. In this way more wealth is created. “Without economic growth, a policy of the intentional redistribution of wealth will be short-lived, because, in the case of economic stagnation, this only leads to greater impoverishment until the point is reached where there is no wealth to redistribute” (Gildenhuys 1993:400).
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