(a) Allocation of resources – One of the objectives of a government budget is to secure reallocation of resources in line with economic and social priorities of the country. For this purpose, the budget of the government may have a liberal expenditure policy in favour of public goods such as national defence, roads, government administration etc. to promote social welfare. The government can use its taxation policy to mobilise resources for investment. The government can also give subsidies to encourage production in some sectors and small scale industries. The government may discourage the production of undesirable goods through heavy taxation.
(b) Reducing income inequalities – One of the objectives of a government budget is to ensure redistribution of income i.e., to reduce inequalities in income by provisions in budget. To reduce inequalities in income and wealth, a government may adopt the liberal expenditure policy in favour of people whose income levels are low. The government can provide subsidies and other amenities to poor people. Expenditure incurred by the government on unemployment allowance, old agd pension, social security, adult education, health facilities, etc., benefit more the poor. Such a policy increases the disposable income and reduces the inequalities. The government may increase its investment in public works like costruction of roads, railway lines, canals, bridges etc. This will help in increasing the income of the poor and reducing the inequalities. The government can use its taxation policy to reduce inequalities in income and wealth. The government may impose income tax at higher rates on the rich people and at lower rates on poor people. The government may impose more and more taxes on comforts and luxuries commonly used by the rich.
