The previous article elucidated on the various approaches to policymaking. There we learned that there are different ways and reasons in crafting public policies. Earlier articles also discussed the purpose of public policies, its several types, and the process of its creation. There we are enlightened that public policies’ covers a vast range of populations and locations.
In this regard, this article intends to shed light on how public policies are funded. Given its coverage and goals, public policies would require a decent amount of resources to be realized. Governments commonly have access to the following sources to fund these public policies: (1) Tax Revenues and (2) Non-Tax Revenues. These resources are then strategically allocated to various projects and programs as indicated in the Appropriations Act legislated annually by the policymakers.
Tax revenues are government incomes from taxation. Taxes are the compulsory financial charges imposed by the government on taxpayers (individuals and institutions) to fund government spending. Basically, taxes are the governments’ primary source of revenue.
Taxes are present in almost any economic activity across the country. For the purpose of illustration, here are some of the common types of taxes we may encounter in our daily life:
- Income Tax – These are taxes imposed and collected by the government on income generated by individuals and businesses.
- Sales Tax – These are taxes collected by the government from the sales of goods and services.
- Value-added Tax – These taxes are paid by the consumer or end-user of a good or service. Some products are taxed in each stage of production, therefore value-added tax are the governments’ means to spread the tax burden across consumers and producers
- Excise Tax – These taxes are specifically imposed on the consuming alcohol, cigarettes, fuel, among others. It is aimed to reduce the consumption of harmful products while serving as a reliable source of revenue for the government. Often, the revenues from excise taxes are used to cover the damages and costs inflicted by using harmful products.
- Property Tax – These taxes are imposed on real estate or vehicles. It is also utilized as a public record which may enable the government to collect taxes efficiently.
- Tariffs – These are taxes imposed on imported goods. Aside from being a source of government revenue, this tax is also aimed at protecting and promoting the trade of local products within the country by making the imported goods more expensive and thus less attractive to the consumers to buy.
- Estate (and/or Inheritance) Taxes – These are taxes collected by the government from the transfer of wealth from the dead to the living.
Aside from taxes, the government also collects revenues from other sources. Everything outside taxes may be considered as non-tax revenues. To better grasp the concept, the following are common examples of non-tax revenues collected by the government:
- Foreign Aid – These are the transfer of resources from one country to another country with the expectation that the receiving country will benefit from it.
- Loans – This is the borrowing of money by the government from other countries, international organizations, or lending entities.
- Fees – These revenues are collected by the government from issuance of licenses and permits – such as driver’s license, professional licenses, building permits, and passports among others. This may also include the fee for use of public facilities and services.
- Fines – These revenues are collected from the penalties. Common example of this is the fine collected from offenders and/or violators of certain regulations.
- Reparations – These are payments given by a party or country to compensate for the losses and damages they have inflicted to another country.
- Donations – These are voluntary contributions by an individual or institutions to the government.
The Appropriations Act is a legislation that defines the annual expenditure of the government. Basically, it determines where the government (tax and non-tax) revenues will be spent for the year.
In the Philippines, this legislation will originate from the Office of the President. Its creation is discussed by all government agencies, with active involvement of departments that are concerned in development, budget, and finance.
Hypothetically, the budget ceilings for the succeeding years are first identified. Upon identification, general guidelines for each agency in preparing their budget are communicated. These agencies then issue their guidelines for their regional offices so that they may be able to propose their budget in accordance to region-specific needs and requirements.
Active participation by concerned policymakers and agencies are highly encouraged to ensure that projects are sufficiently funded. Upon approval and legislation, the funds will then be allocated accordingly to their respective agencies – ready for use to fund their projects and programs (and implement other public policies as needed).
The article intended to show the various sources of revenues that the governments have to fund public policies. Moreover, it was presented in this article how the revenues collected are then allocated to government projects and programs across the country.
Here, we learned that the government has tax and non-tax revenues at their disposal. Tax revenues are financial charges imposed by the government to taxpayers – may it be an individual or an institution. Observably, it is apparent that taxes are present throughout the course of our lifetimes – indeed we pay taxes from cradle to the grave.
The rest are non-tax revenues and thus may come in various forms. Also, we are introduced to the Appropriations Act which is a legislation crafted annually that defines how these revenues will be allocated across the vast programs and projects of the government.
With this in mind, let me close this article with some thoughts to ponder upon. First, are these sources sufficient to ensure that all public policies in place are running smoothly and according to its goal?
Also, is the process of legislating the Appropriations Act capable enough to ensure that all projects and programs are appropriately funded?
Lastly, let’s recollect upon the various public policies you care about. Are they sufficiently funded? Why do you think so?
Share your thoughts in the comments section below. I’d be happy to know about what you think on how public policies are funded.
Point #1 – Tax revenues are compulsory financial charges imposed by the government to taxpayers (individual or institution) to fund government spending. Common types of tax you’ll encounter are as follows:
- Income Tax – from income of individuals and businesses
- Sales Tax – from purchasing goods and services
- Value-added Tax – to spread the tax burden between producers and consumers
- Excise Tax – to discourage use of harmful products
- Property Tax – from real estate and personal assets
- Tariffs – from imported goods
- Estate (and/or Inheritance) Taxes – from transfer of wealth from dead to the living
Point #2 – Non-tax revenues are collected by the government from other sources aside from tax. Examples include:
- Foreign Aid – country transferring resources to another country
- Loans – country borrowing money from other state and non-state organizations
- Fees – from issuance of licenses and permits and use of public facilities and services
- Fines – from penalties paid by offenders and violators
- Reparations – compensation of countries who inflicted damages to another country
- Donations – from voluntary contributions by an individual or institutions
Point #3 – The government legislates an Appropriations Act annually to define their expenditure for the year. Basically, this act indicates how the revenues will be allocated across the vast projects and programs of the government.