Government Income and Expenditure Review 5.1 Government Income and Expenditure

Government Spending: SOCIAL PROTECTION (BENEFITS) HEALTH EDUCATION DEFENSE LAW AND ORDER DEBT INTEREST

Government Income: Direct: Income tax National Insurance Corporation tax Inheritance tax Indirect: VAT Excise

In each year the government tends to spend more money then it collects in from taxes. This difference is known as the public sector borrowing requirement. The government issues bonds to pay for this. The PSBR is added each year to the National Debt.

Distribution and Re Distribution of incomes Review 5.2 Distribution and Re Distribution of incomes

DISTRIBUTION OF INCOME – How incomes are shared out among the people of the country. REDISTRIBUTION OF INCOME – A policy to reduce the inequalities of income so that incomes are distributed more evenly. INEQUALITIES OF INCOME – Incomes are distributed unevenly so some people have a much higher income than others. TARNSFER PAYMENTS – Benefits to citizens which are paid out of tax revenue.

TAXES AND REDISTRIBUTION OF INCOME Review 5.3 TAXES AND REDISTRIBUTION OF INCOME

A regressive tax takes a greater proportion on income from lower incomes, or takes a small percentage of higher income (indirect taxes) A proportional tax takes the same proportions of income from all income levels. A progressive tax takes a greater proportion on incomes from higher incomes, or takes a smaller percentage of a lower income (UK Income tax).

Aspiration Level The diagram on page 73 shows there is redistribution of income from rich to poor. This is achieved through taxation and benefits system. The effects of taxation- does the raising/lowering of taxes cause a discencentive/incentive to work On the one hand yes, if taxes are lowered we will work longer as we will keep more of any extra income. However we need to look at the concept of aspiration level.