The National BudgetThe National BudgetThe National BudgetThe National Budget

For up-to-date-statistics visitSusan Hayes “The Positive Economist”

Overview• Government involvement in the economy• National Budget• Balanced Budget• Budget Surplus• Budget Deficit• Current Income and Current Expenditure• Capital Income and Capital Expenditure• National Debt• Debt Servicing

Why does the government provide

services?

• Ensure security: eg. Gardai, Army• Essential services/Public Utilities:

eg. Education• Too expensive for individuals to set up:

eg. ESB • Provide employment: Public & Civil

Service

State Owned Business• Is a business which

is set up, financed and controlled by the government.

• State owned business

• State-sponsored body

Semi-state bodies

• Energy – An Bord Gais, Bord na Mona• Training/Employment – Fas• Fisheries – An Bord Iascaigh Mhara• Forestry - Coilte• Food – An Bord Bia

……………………..Tourism – Failte IrelandBusiness – IDA, Enterprise IrelandCommunications – An Post, RTETransport – Ianaroid Eireann, Dublin Bus, LuasMarketing – An Bord Trachtala

Distinguish Between National & Local

Government

• National • Government

ministers & departments run the country

• Local• County councillors

run towns & counties

Government Departments

• Finance• Education and

Skills• Health• Jobs, Enterprise

and Innovation

Financed by tax

Local Government Services

• County Councils• Dumps• Planning permission• Repair roads• Libraries

• Financed by charging for these services.

The National Budget• Is a plan of future government

income and expenditure for the country.

Prepared by

• The Minister for Finance• In December

Decisions made

• How much does the gov need to spend?

• How much can be raised by tax?• How much does the gov need to

borrow?

Balance Budget

• Planned Income = Planned Expenditure

Surplus Budget

• Planned Income > Planned Expenditure

What can be done with a surplus budget?

• Pay off loans (National Debt)• Reduce tax• Increase spending on health,

education

Deficit Budget

• Planned Income < Planned Expenditure

How can a deficit be reduced

• Increase tax• Reduce spending on health, education

etc.• Borrow money – increase the national

debt

Source: Irish Independent 7/11/10

Irish government must cut spending by 6 billion euro in 2010 budget = approx 4,000 per household

National Budget• Current Budget• Money received

and spent on a day-to-day basis.

• It is used up within one year.

• Current Income• Current

Expenditure

• Capital Budget• Money received and

spent on a once-off basis.

• It is used for things that last a long time.

• Capital Expenditure• Capital expenditure

Current Income• Income Tax• PAYE: Pay As You Earn• PRSI: Pay Related Social Insurance• VAT: Value Added Tax• CGT: Capital Gains Tax (Profit on sale of an asset)

• CAT: Capital Aquisitians Tax (Gift or inheritance)

• Corporation Tax: Tax on companies profits

..........• Customs/Import Duty: Tax on imports• Excise Duty: Tax on certain goods such

as alcohol, petrol, cigarettes• National Lottery: • Service Charges: Dump, library…. • Profits of Semi-State-Bodies: eg. ESB,

BNM

Current Expenditure

• Civil & Public Service Salaries: Teachers……

• Social Welfare: Unemployment Benefit….

• Pensions:• Servicing the National Debt: Paying

interest on loans

Capital Income

• Loans (National Debt):Money borrowed eg. from EU or the World Bank.

• Privatisation: Selling off semi-state-bodies eg. Airlingus.

• EU Grants: Money given to use by the EU to improve the country.

Michael O’Leary offers to buy government’s share of

Aer Lingus

EU Commission did not allow takeover as Ryanair would

then be a monopoly

Capital Expenditure

• Public Utilities: Building schools, hospitals, roads, libraries……

• Agriculture: Grants to farmers.• Nationalisation: The government may

buy a privately owned company in order to save jobs or help the economy.

e.g. Anglo Irish Bank

Revenue Buoyancy• Is when the actual taxation

revenue collected during the year is greater than that which had been planned for.

• This is not the case now however!

National Debt• Is the total amount of money that

has been borrowed by the government over the years.

• Interest has to be paid and is very high.

Debt servicing• Servicing the national debt means

paying interest on the countries loans.

Economising• Means cutting down on spending

in order to save money.

Exam Question 2008 Q (b)National Budget

Income €m €m

PAYE 2850

VAT 1930

Corporation Tax 260

Excise Duties 215 5255

Expenditure

Debt Servicing 290 Subtract

Health Services 1960

Social Welfare 1360

Education 1490

Agriculture 285 5385

Deficit (130)

2007 Q 3 National Budget

Current A/C

Current Income 2621

- Current Exp -1910 +711

Capital A/C add

Capital Income 5961

- Capital Exp -5812 +149

Surplus +860

2005 Q 6 (c)National BudgetIncome €m €m

PAYE 2,550

VAT 1,470

Corporation Tax

260

Customs Duties

235 4,515

Expenditure

Debt Servicing

190

Health Services

1,720

Social Welfare 1,230

Education & Science

1,340 4,480

Surplus 35

Exam Question 2001 Q 4 (a)

Income €m €m

Recap/Review• Why does the Government get involved

in the economy?• What is a Balanced Budget?• How can the Government deal with a Budget Surplus?

Budget Deficit?• Budget Deficit• Distinguish between Current Income and Current

Expenditure? Examples?• Distinguish between Capital Income and Capital

Expenditure? Examples?• What is the National Debt?• What is meant by Debt Servicing?