Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets. (150 words) [2021]
Capital budget and revenue budget are two main types of budgets used to plan and manage the financial resources of the government. The main differences between the two types of budgets are:
| Capital Budget | Revenue Budget |
|---|---|
| Deals with long-term investments | Deals with recurring expenses |
| Funds are used to purchase fixed assets (e.g. land, buildings, machinery) | Funds are used to cover operating costs (e.g. salaries, utilities, supplies) |
| Funds may come from borrowing or selling assets | Funds come from revenue sources (e.g. taxes, fees) |
| Aim is to increase the government’s wealth or productivity | Aim is to maintain current operations |
Components of capital budget:
- Capital receipts: Funds received from the sale of fixed assets or from borrowing (e.g. loans, bonds)
- Capital expenditure: Funds used to purchase fixed assets (e.g. land, buildings, machinery)
- Net capital expenditure: Difference between capital receipts and capital expenditure
Components of revenue budget:
- Revenue receipts: Funds received from revenue sources (e.g. taxes, fees)
- Revenue expenditure: Funds used to cover operating costs (e.g. salaries, utilities, supplies)
- Net revenue expenditure: Difference between revenue receipts and revenue expenditure
