Consider the following statements about the government budget:
(A) Revenue deficit is the excess of the government’s revenue expenditure over its revenue receipts.
(B) Payment of salaries to government employees is a capital expenditure.
(C) Interest paid by the government on its debt is a revenue expenditure.
Which of the statements given above are correct?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) and (C) only
(A) Revenue deficit is the excess of the government’s revenue expenditure over its revenue receipts. — Correct. Revenue deficit = revenue expenditure − revenue receipts.
(B) Payment of salaries to government employees is a capital expenditure. — Incorrect. Salaries create no asset and do not reduce any liability, so they are a revenue expenditure. Capital expenditure creates assets, such as buildings, machinery and roads.
(C) Interest paid by the government on its debt is a revenue expenditure. — Correct. Interest payments are a day-to-day running cost that creates no asset, so they are revenue expenditure.