The budget and its objectives

Under Article 112 of the Constitution, the government presents an Annual Financial Statement, the budget: its expected receipts and expenditure for the financial year, 1 April to 31 March. It has two parts: the revenue account (current receipts and spending) and the capital account (assets and liabilities).

The budget has three objectives:

• Allocation: providing public goods, such as national defence, roads and parks. They are non-rivalrous (one person's use does not reduce another's) and non-excludable (no one can be kept out). So people can enjoy them without paying (free-riders), and a private firm cannot charge for them. The government must arrange them, though it need not produce them itself.
• Redistribution: using taxes and transfers (such as pensions) to change people's disposable incomes towards a distribution society thinks fair. A progressive income tax, where the rich pay a higher rate, serves this aim.
• Stabilisation: raising demand in a slump, and restraining it when inflation threatens.