Benefits of Revenue Expenditure

Benefits of Revenue Expenditure

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In the context of the government, there are many benefits of revenue expenditure but for understanding them, it is pertinent to first understand the term and its meaning. Perhaps the best definition of revenue expenditure is that it is the part of government expenditure that does not result in asset creation. It is the expenditure that is undertaken for the smooth running of the government machinery and typically, it includes expenditures related to wages, pensions, salaries, interest, subsidies, etc. Grants that are made to state governments and other parties are also types of revenue expenditures yet they may be used to create fixed assets.

Although this type of expenditure may seem meaningless as it does not produce any revenue, the government needs to keep its business moving smoothly. Thus,budget revenue expenditureis done by most governments to get a clear idea of their revenue receipts and expenditure. A revenue budget includes a government’s revenue receipts consisting of tax revenues and other revenues and the total expenditure that can be supported through these revenues. Tax revenues include all types of taxes and other duties that are levied by the government. Thus, a revenue expenditure budget helps the government to understand its finances.

In the context of the term, it is often enquired whether abank loan is a revenue expenditure or not. To put it simply, a bank loan repayment is not revenue expenditure as it is a type of capital expenditure because it minimizes liability. It is important to learn that capital expenditure includes all those expenditures which either result in asset creation for the government or help in reducing its liabilities. Hence, this type of expenditure is met out of government capital receipt and also includes capital transfers.

Though it does not encourage profit-boosting capacity, still there are many benefits of revenue expenditure and that is why most governments keep a close tab on it. It helps in maintaining the operational activities in the best possible manner and managing the available assets optimally. Therefore, productivity can be improved with proper strategy and in the long run, the operational cost can be reduced with better performance. Thus, revenue expenditure directly helps in planning and formulating policies that can be beneficial for a country. It can also be useful in the creation of long-term plans and proposals.