STATE BUDGET
Theory, Structure & Functions
Chapter 15 | A.V. Vahobov & T.S. Malikov
Moliya (Finance) • Tashkent
Presentation Agenda
Topics covered in this lecture
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01
Definition & Nature of State Budget
02
Functions: Distribution & Control
03
Budget Revenues — Sources & Types
04
Budget Expenditures — Categories
05
Budget Deficit & Financing
06
State Debt: Internal & External
What Is the State Budget?
Core definition from financial theory
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"The state budget is a legally enacted plan for the formation and use of a centralized monetary fund — the primary financial plan of the country."
Emerged with society's development
The budget appeared as a tool when political-economic structures demanded resource distribution across society.
Part of the monetary system
It carries all the features of the financial system while having unique traits that distinguish it from other parts.
State ownership
A defining feature is that the budget directly belongs to the state — giving it a mandatory, centralized character.
Two Core Concepts of the Budget
Economic category vs. Financial plan
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1. Economic (Financial) Category
Economic relations
arising from the distribution of GDP at the national level.��Transit (intermediary)
character — funds pass through to different directions.��Closely tied
to prices, wages, credit, and other economic categories.
2. Country's Main Financial Plan
Official annual plan
for state revenues and expenditures, approved by law.��Represents the form
of expressing the economic category — not a separate category itself.��Legally binding
document — mandatory execution for all budget participants.
Key Features of the State Budget
Unity, centralization & democratic character
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01 Unity
All territorial budgets are subordinated to the single state budget, forming one unified system.
02 High Centralization
Despite many administrative-territorial budgets, all subordinate ones flow upward to the central budget.
03 Mandatory Character
Budget relations are imperative — contributions are compulsory, not voluntary.
04 Democratic Control
All government organs have budget rights; democratism is ensured in formation and use of budget resources.
05 Non-Earmarked Funds
Budget revenues are pooled together — not pre-assigned to specific expenses in advance.
06 Central Role in Finance
The budget occupies the central position in the national financial system, connecting all its parts.
Functions of the State Budget
Distribution and Control — two core roles
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DISTRIBUTION FUNCTION
CONTROL FUNCTION
Distribution Function — Deep Dive
Three distinctive characteristics
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1st
Multi-Stage Redistribution
A portion of national income can be redistributed through the budget multiple times (re-redistribution). Once taxes enter the budget, they are split across numerous channels — funding various programs.
2nd
Wide Scope of Operations
The breadth of operations and diversity of targeted funds formed is a key feature. The budget redistributes a large share of GDP into many different purpose-oriented funds.
3rd
Net Income as Primary Object
The main redistribution object is net income (profit, VAT, etc.), but shares of national wealth and other elements of national income can also be redistributed through the budget.
State Budget Revenues
Definition, nature and transit character
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Budget revenues are one part of the process of distributing and redistributing national GDP. They have a transit (intermediary) character.
Nature
Monetary funds transferred to the state from legal and natural persons, or portions of savings pooled together.
Form
Various taxes, fees, levies, and contributions that legally represent state revenues once received.
Measure
Their absolute volume and share reflect the portion of GDP generated in the country allocated to the state.
Key Principles for Revenue Formation:
Classification of Budget Revenues
Three main groups by source
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TAX REVENUES
NON-TAX REVENUES
NON-REPAYABLE TRANSFERS
Tax Revenue Classification
Direct, indirect and resource taxes
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1
Direct (Immediate) Taxes
Corporate income tax; Unified tax for trading/catering; Unified tax from microfirms & small enterprises; Personal income tax; Fixed taxes on individual entrepreneurs.
2
Indirect (Mediated) Taxes
Value-added tax (VAT); Excise duties; Customs duties; Unified gambling levy; Transport — fuel tax from physical persons.
3
Resource & Property Taxes
Property tax on legal & natural persons; Land tax; Subsoil use tax; Water resources use tax.
4
Infrastructure Tax
Taxes collected for development and improvement of social infrastructure, contributing to public goods and services.
5
Additional Profit Tax
Surcharge on extra profits earned above normal returns — particularly applicable to resource extraction sectors.
Revenue Collection Methods
Tax (mandatory) vs. Non-tax (voluntary)
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TAX METHOD (Mandatory)
NON-TAX METHOD (Voluntary)
State Budget Expenditures
Nature, role and economic content
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Budget expenditures are a specific form of distribution relations — characterized by a monetary form, tied to monetary fund operations, and organized by the state.
Redistributive Role
Expenditures redistribute central monetary fund resources across sectors and territories of the national economy.
State-Organized
Unlike private spending, these are organized by the state and tied to the centralized monetary fund management.
Dual Economic Nature
They simultaneously represent state costs AND funds received by entities — creating new redistribution relationships.
Categories of Budget Expenditures:
Social & Public Support
Education, healthcare, culture, social insurance, pensions, subsidies
National Economy
Industry, agriculture, transport, infrastructure, research & development
Defense
Armed forces, security, law enforcement agencies
Governance
Legislative, executive, judicial branches; public administration
Capital vs. Current Expenditures
Economic content classification
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CAPITAL EXPENDITURES
CURRENT EXPENDITURES
Expenditures by Social Direction
Four main functional groups
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🎓 Social & Public Support
Education and public schools • Healthcare services • Culture, sport, science
Social insurance & pensions • Subsidized public services • Social assistance for families
🏭 National Economy
Industry & manufacturing • Agriculture & rural development • Transport & communications
Construction & infrastructure • Scientific research • Centralized investments
🛡️ Defense
Armed forces financing • Defense industry conversion • Security services
Law enforcement agencies • Civil defense programs • Emergency preparedness
⚖️ Government & Admin
President & Parliament offices • Ministries & government bodies • Courts & prosecution
Local government bodies • Electoral commissions • Debt servicing
Budget Financing Mechanisms
Forms of providing funds to entities
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📋 Smetali (Estimate) Financing
Entities without own revenue — fully covered by the budget based on approved expenditure estimates. Used for most public-sector organizations.
💰 Dotatsiya (Dotation)
Financial aid to lower-level budgets to balance them. Provided without conditions or repayment — covers the gap between revenues and expenditures.
🎯 Subventsiya (Subvention)
Targeted financial assistance for specific purposes. Must be returned if not used for the designated goal within the allotted time.
🤝 Subsidiya (Subsidy)
Partial budget support — co-financing arrangement. Entity covers part from its own resources, the rest from the budget. Common in agriculture and housing.
🏦 Budget Loans
Returnable, often interest-bearing budget resources provided to organizations or lower-level budgets. Must be repaid with or without interest.
⚖️ Price Compensation
Budget covers the difference between market and regulated prices. Common for essential goods, agricultural products and social services.
Budget Deficit
Causes, limits and strategic approach
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DEFICIT = Budget Expenditures EXCEED Budget Revenues
Causes of Budget Deficit:
Strategic Approach:
Safe Limit
Deficit should not exceed 2-3% of GDP; if exceeded, rapid correction is required.
Priority Spending
Redirect investments to highest-return areas; cut low-priority programs.
Economic Growth
Stimulate real sector development to increase revenue base organically.
Reduce Aid
Drastically cut subsidies to foreign states and voluntary transfers.
Financing the Budget Deficit
Internal and external sources
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INTERNAL SOURCES
EXTERNAL SOURCES
⚠️ Central Bank credits & state bonds bought by Central Bank cannot be deficit financing sources
State Debt
Nature, types and structure
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State debt arises when the government borrows from individuals, legal entities, and international organizations to cover the budget deficit.
INTERNAL DEBT
EXTERNAL DEBT
Debt by Maturity Period:
Short-term | Up to 1 year
Covered by next-year budget allocations
Medium-term | 1 to 5 years
Rolled over or refinanced in periodic installments
Long-term | Over 5 years
Major capital projects, infrastructure bonds
Budget's Role in the Economy
Connections to prices, credit, wages & more
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Budget & Prices
Budget uses price mechanism to attract resources. It subsidizes sectors with below-market prices (agriculture, public transport) by covering the price differential from budget funds.
Budget & Credit
Budget and credit resources are interchangeable in practice. Temporary budget balances fuel bank deposits; bank loans fund budget gaps. They form an interconnected system.
Budget & Wages
The state budget is decisive for wages in the social sector. Education, healthcare, and culture workers' wages are formed and guaranteed through budget allocations.
Structural Policy
Budget investments can accelerate certain sectors and slow others — shaping the national economy's sectoral structure over time by directing capital flows.
Budget Financing Principles
General and specific principles
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General Principles:
Specific Principles:
Forms of Budget Financing in Practice:
Smetali
Full cost coverage via approved estimates — for state institutions without own revenue.
Dotatsiya
Unconditional transfers to lower budgets to balance revenues and expenses.
Subventsiya
Targeted conditional aid — must be returned if misused.
Budget loan
Returnable budget funds provided with or without interest.
Budget loan
Returnable budget funds provided with or without interest.
Republic vs. Local Budget Expenditures
Territorial allocation in Uzbekistan
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In Uzbekistan, State Budget expenditures are divided between the Republic Budget and local (territorial) budgets based on governance level and responsibility.
Exclusively from Republic Budget:
Local Budget Expenditures:
Key Takeaways
State Budget — Summary of Core Concepts
1
Definition
The state budget = country's primary financial plan + economic category expressing GDP distribution relations.
2
Two Functions
Distribution (redistribution of national income) and Control (monitoring economic proportions) — both are mandatory.
3
Revenues
Taxes (direct & indirect), non-tax revenues, and non-repayable transfers. Formed on mandatory principles.
4
Expenditures
Capital & current; by sector: social, economic, defense, governance. Financed via dotation, subsidy, loans.
5
Deficit
When expenditures > revenues. Should not exceed 2-3% of GDP. Financed by internal/external borrowing.
6
State Debt
Arises from deficit financing. Internal (national currency) & External (foreign currency). Short/medium/long-term.