Finance is the system or science of public revenue and expenditure or the provision of money at the period when it is needed.
The financial system is the network through which firms, households and units of government obtain the funds they require and put surplus to work.
It is also the system of monetary relations leading to formation, distribution and use of funds in the process of their turnover between economic units. It falls into public finance and finance of economic entities.
The term public finance stands both for the financial flows and the financial institutions of the public sector. It has four major functions:
– the provision of essential services;
– the encouragement or control of particular sectors of the economy;
– the implementation of social policy in respect of social services;
– the encouragement of the growth of the economy whole.
Public finance is the provision of money to be spent by national and local authorities on their projects. Central government raises money from individuals and companies by direct and indirect taxation and from National Insurance Contributions. Then it spends this money on supporting health and defense spheres and social security payments. Local government receives substantial grants from Central government and raises revenue mainly through local property taxes. From these resources it provides such services as: education, police and fire prevention.
The external finance of nationalized industries and other public corporations also has to be financed by the government.
One of the most important tasks is to manage public money effectively. That’s why all governments have budgets which are the plans for raising and spending funds. They comprise the amounts of revenue as well as sources of this income and it also lists the expenditures for various public purposes.
In other words budget is a forecast of government expenditures and revenues for a specific period of time.
In a market-oriented economy the budget performs next functions:
– framework for making effective decisions;
– the allocation and distribution of resources;
– maintenance of a stable environment;
– generating accountability for the action of government at various levels (to give scrutiny all required information);
– ensure that expenditures and revenues are properly authorized;
– key instrument for government execution of economic policy;
– effect redistribution of income;
– promote or retard economic growth;
– instrument for achieving agreement between politically-competing interests;
The budgetary process is the means by which executive and legislative branches formulate a coherent set of taxing and spending proposals. But the mechanics and relative roles of the two parts of government differs considerably among countries.
Also governments vary in how ready they are to provide relevant information and to what degree they try to obscure the features of the budget.
The U.S. has a relatively open budget which is presented as a whole. In opposite the United Kingdom presents the budget in different documents, at different times.
The US budget is presented as a coherent whole for consideration and revision by Congress, during which it is often substantially revised. The UK budget consists of a number of separate documents which are not related each other.
A sketchy report of government intentions is given in an Autumn Statement and contains expenditure plans. Details of these plans are given in an annual White Paper in February or March.
The documents concerned with the revenue side are presented in a separate volume entitled the Financial Statement and Budget Report which usually presented after the expenditure estimates.
This gives the general outline of the economic policy, details of proposed tax changes and estimates of likely revenues and required contingency reserve to cover unforeseen events.
The social security expenditure is presented in yet another document. You can read about it in the continuation of this article. Thank you very much!