Revenue Budget

A revenue budget is the collection of revenue receipts; it is a culmination of a nation’s revenue sources.  Payroll and corporation tax is the major source of revenue for governments. Economists also define the revenue budget as a company's sales revenue and expenditure prediction.

The budget indicates if a government or business possesses sufficient financial resources to conduct business operations and generate revenue. Sometimes, governments spend more than it earns—the difference is negative and referred to as the revenue deficit.

• Revenue budgets comprise revenue receipts; they are used to identify the sources of revenue generation.
• It also denotes a company's forecasted sales revenue and expenditure. Based on this data, analysts assess the firm’s ability to operate efficiently.
• Taxes, interests, and penalties are major revenue sources for a nation. The budget is categorized into two—capital budget and revenue budget.
• For example, the US federal receipts accounted for a revenue of $4.8 trillion in 2022.

A revenue budget is a culmination of a nation’s revenue sources. Alternatively, it could be an organization, institution, or entity. The organization analyzes how they earn; they mark its strengths, weaknesses, and the impact of market conditions. For budgeting, the analyst compiles revenue receipts.

Capital and revenue budgets are fundamental components of a nation's earnings; decisions are made based on these budgets.

Before venturing further, let us define the fundamentals of budgeting. First, budgeting projects anticipated revenue and expenditures for a future period based on prevailing internal and external factors. Then, a detailed statement of projected financial results is prepared, considering inputs from various levels.

It is a health check for organizations and governments—it is essential for avoiding a cash crunch or losses. Labor laws, inflation, market growth, and economic downturns bring changes in incomes and expenditures. Budgeting is done by top-level management in the top-down approach; other levels implement it. The bottom-up approach sends inputs from various levels to top management.

Financial analysts evaluate each source and create a budget for the upcoming year. The annual budget is a blueprint for allocating funds toward various departments and regions, especially those that require extra attention and funds.

For organizations, the revenue budget refers to the total revenue for a specific period—usually a year. Based on the annual budget, the management makes important decisions; the budget change depicts a firm’s growth or decline in the market.

The company is doing well if a sales revenue budget contains high figures. Ultimately, every business strategy boils down to an increase in sales. A government might have multiple sources of revenue, but for businesses, sales are the primary source of revenue.

Based on the revenue expenditure data, the government makes decisions about investment (where to spend money). Primarily, a government allocates funds towards new projects, infrastructure, welfare, facilities, and the services sector.

Sometimes, a government is forced to spend more than it collects. For example, countries with low revenue collections need more infrastructure, industrial development, and living conditions. In contrast, a high-revenue country is considered ideal—high consumption levels. As a result, proposed budgets are often rejected, but funds are disbursed only when approved.

The components of the revenue budget are as follows:

#1 - Tax Revenue

Tax revenue refers to the funds collected from citizens and public companies—income tax, sales tax, and excise duty. Every country has a regulatory body overseeing taxation to ensure regular revenue collection. The authority ensures timely tax payments and takes action against fraud.

#2 - Non-Tax Revenue

Non-tax revenue is accumulated through various services, utilities, fines, and penalties. Electricity, water supply, licensing fees, fines, penalties, bank interests, the communication sector, and transport are examples of non-tax revenue sources.

#3 - Revenue Expenditure

The finance department is responsible for formulating and presenting a budget. The budget presentation comprises revenue receipts and information about how they will be spent. In addition, major changes to the previous budget are explained clearly—building new roads, bridges, dams, and colleges. This discussion is crucial, as different sectors are prioritized.

Let us look at revenue budget examples to understand governmental spending better.

Example #1

A budget is submitted to the government annually in a fictitious country with a population of 90. Market consumption tax and sales tax are the main contributors. In addition, there are non-tax revenue sources. Even so, only 9% of the population pays income tax.

There is a need for a policy change. But, first, the government needs new guidelines to increase taxation and revenue collection. As it is, the government is spending heavily on infrastructure, industrial development, utilities, and public facilities. As a result, there is a significant deficit—the difference between government spending and revenue collection.

Thus, the government decreases the threshold for tax exemption. The increase in tax burden is justified.

Example #2

Sharjah's Ruler, Sheikh Dr. Sultan bin Muhammad Al Qasimi sanctioned the 2023 annual budget of $8.76 billion. The key focus is on capital projects, infrastructure, and economic development. It is 12% lower than the previous budget.

Oil and gas revenue accounted for 6% of collected revenue (for the current fiscal year). The sector showed a 96% growth compared to the previous period. At the same time, the customs revenue accounted for 4%—a marginal increase of 4% from the previous period. 

Sharjah’s income tax accounts for 10% of total revenue (2023). That is a 48% year-on-year increase. In addition, government budgets are public information; investors can use this information to invest in specific sectors.

Let us look at the revenue budget and capital budget differences:

• The revenue budget comprises funds from taxes, dividends, and profits. In contrast, the capital budget showcases an increase in liabilities and a decline in government assets.
• The former has no impact on government assets. In contrast, the latter impacts the allocation of funds—towards infrastructure, government assets, hospitals, universities, etc.
• Income tax, sales tax, fines, administrative costs, and excise duty are some examples of the former. Long-term investments, infrastructure development, and disinvestments are examples of the latter.

This article has been a guide to what is Revenue Budget & its meaning. We explain how it differs from the capital budget and explain it with its example and its components. You can learn more about it from the following articles -

• Budget Surplus
• Balanced Budget
• Federal Budget