Government Revenue and Budget

Understand where government money comes from and how budgets work.

~18 min Economics

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A government budget plans revenue and spending for a year.

In this lesson you will:

Name sources of government revenue.
Distinguish capital and recurrent expenditure.
Explain surplus, deficit and balanced budgets.

Sources of Revenue

Taxes — company income tax, value added tax, personal income tax.
Oil and gas royalties and sales.
Import and export duties.
Fines, fees and licences.
Borrowing and grants.

Types of Spending

Recurrent expenditure covers salaries, maintenance and day-to-day running. Capital expenditure builds roads, schools, hospitals and power plants.

Budget Outcomes

A surplus occurs when revenue exceeds spending. A deficit occurs when spending exceeds revenue. A balanced budget has revenue equal to spending.

A simple budget

Revenue: ₦100 billion. Spending: ₦120 billion.

Deficit: ₦20 billion, financed by borrowing or drawing on reserves.

Tip Borrowing for capital projects can raise future output; borrowing to pay salaries repeatedly creates a debt problem.

Practice

Name four sources of government revenue.
Explain the difference between recurrent and capital expenditure.
A government earns ₦80 billion and spends ₦95 billion. What is the budget balance?

Recap

Governments raise revenue through taxes, oil and fees, then spend on recurrent and capital items. The balance can be a surplus, deficit or balanced.

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Course contents

National Income and Development

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