In Victoria 2 the State Budget is calculated on a daily basis. If the income of the state is lower than the expenses, the lacking funds will be taken from the state treasury if there is room for it. Conversely, if the income is higher than the expenses, the treasury will increase. The national treasury should not be confused with the national bank; a place where the POPs can place their excess money to be lended out to states.
If there is no room in the treasury to take from, the nation will go into debt. (assuming that it is allowed).
Note that the projected expenses and the actual expenses might not actually be the same. This is usually the case, if there are not enough goods in the world to satisfy the demand, and your nation does not have a high enough total score to buy the goods available.
There are 3 main ways to gain an income for the state treasury: Taxes, Precious Metal RGOs and Tariffs. Additionally Events and Decision can add money to the treasury.
There are three tax sliders, one each for the poor, middle, and rich classes. Taxes simply take money from POPs, which may reduce their ability to meet their needs. Taxes therefore only indirectly effect POP attitudes such as militancy: if taxes are too high, POPs may not be able to meet their life needs. When POP needs are met, militancy will decrease and when luxury needs are met consciousness will increase. It may even cause artisans to be endless poor. Note however that other factors are involved in meeting POP needs including employment and market availability of goods.
Tax efficiency is the rate at which your collectors are actually able to impose your tax legislation on the people. The standard efficiency is 20%; this can be altered by certain events and technologies.
The effective tax rate = tax rate (slider) x tax efficiency. For example, Belgium sets the poor strata tax slider to 50% and it has a tax efficiency of 20%. The effective tax rate will be 0.5 X 0.2 = 0.1 = 10%.
Unlike other goods, precious metals are minted directly into currency. The amount of money gained from one precious metal unit is defined by GOLD_TO_CASH_RATE, a value in defines.lua which is standard 1.5 (AHD) or 0.5 (HoD).
Tariffs are taxes on imported goods, which means that the country is putting a tax on every good its POPs and Factories buy from the world market. Thus, tariff income is based on the size of a nation's population and how much of their needs cannot be purchased locally.
High tariffs may reduce the purchasing power of POPs, since the goods that they need are more expensive. High tariffs, perhaps counter-intuitively, do not act as a form of protectionism due to the game mechanic that POPs always buy local first. Negative tariffs act as a subsidy: the government will pay to reduce the cost of imported goods. This typically benefits Artisans disproportionally as it will allow them a way to remain relevant and profitable. Having tariffs that are too high may cause artisans to be endless poor.
Tariffs are not applied to goods bought from the domestic market. This includes (fellow) puppets and other members of the same sphere of influence. See Trade for full details.
Loans and interest payments
Main article: Loans
Whenever a nation spends more than it has in its treasury, a loan is taken out.
The National bank is where a country's POPs will put any excess money they have into (e.g. after they have purchased all of their luxury needs and still have money left), acting as a form of savings bonds for the POPs. The national bank is used as the first source of lending dollars to a nation in need of money, and it is also used to loan money to other nations. When and if the national bank is depleted, loans will then be taken from other nations' national banks. When there is no more money to borrow from other nations, the funding for national expenses will be automatically reduced (represented by red numbers).
There are 5 types of expenses which can be adjusted in the budget screen, as well as industrial subdisides and diplomatic payments.
This represents three basic components of gameplay: the army, the navy, and construction. Once the stockpile runs out, troops suffer, and building and units cannot be built. As of the Heart of Darkness expansion, it has been broken up into three separate sliders:
- Spending on Land units: The funding level directly correlates with the maximum organization brigades have: thus funding at 50% will limit unit organization to 50% of their maximum possible organization.
- Spending on Naval units: The funding level directly correlates with the maximum organization ships have: thus funding at 50% will limit unit organization to 50% of their maximum possible organization. It is impossible to fund navies at less than 30% of their full spending.
- Spending on constructions: This is money spent to buy the goods necessary for the construction of railroads, forts, naval bases, troops, ships and government built factories.
Money being spent on clipper and steamer convoys to maintain overseas holdings is also shown, listed as Overseas Maintenance.
This slider determines how much your government spends on paying clergy salaries. Increasing this slider will make other POPs more likely to convert to clergymen, and make your clergymen less likely to convert to other POPS. In addition, it directly affects the nation's education efficiency: a nation spending 100% on Education will gain literacy twice as quickly as a nation spending only 50%, assuming they have the same distribution of clergymen.
This pays the salaries of bureaucrats POPs. Increasing this slider will make other POPs more likely to convert to bureaucrats, and make bureaucrats less likely to convert to other POPs. Bureaucrats are required to increase state and national administrative efficiency. This slider also increases crime fighting efficiency (the likelihood that crime "buildings" in provinces will appear or disappear) up to 39.7% at maximum.
State administrative efficiency represents government efficiency at the state level. Each state has its own level of administrative efficiency, which is based on the number of accepted culture bureaucrats per capita in the state, certain technologies that improve administrative efficiency, and the number of social reforms that have been passed. Each social reform increases the number of bureaucrats required for 100% efficiency by 0.2% of the state population.
National administrative efficiency represents the overall government efficiency of the entire nation. This affects the efficiency of enforcing tariffs and fighting crime. It also affects the amount of goods required to build and maintain factories, military units, and province infrastructure. At 0% efficiency, the amount of goods needed is doubled. The most important thing is that high national administrative efficiency boosts POP promotion, and is therefore a must if you need to fill your factories. Like state efficiency, national efficiency is based on the number of accepted culture bureaucrats per capita in the entire nation, technologies that improve administrative efficiency, and the number of social reforms that have been passed.
This determines how much your government spends supporting its various social reforms. Short funding social reforms increases the militancy of POPs.
This is the amount of money that a nation pays its soldier and officer POPs. At 100% funding, soldier POPs will promote to 5% of the population, while officers will promote to 0.2% of the population. This indirectly affects leadership points since officer POPs generate leadership.
This allows the government to guarantee that a factory will not run a loss: any negative difference between income and expense is made up by the government. Subsidies are only applied when a factory is running at a loss. Note that Subsidies are not controlled in the budget screen, but instead per factory from the production screen; this figure shows the total amount spent on them.
In Addition to those, a nation can have diplomatic expenses if they have lost a war and have been forced to pay reparations.
Main article: Loans
If a nation cannot pay the interest on loans taken out, it will go into Default. Prolonged default will cause bankruptcy. This will anger all POPs who had their savings in the national bank, and it will also allow any nation that loaned money to the bankrupt nation a Casus belli. Nations in bankruptcy also lose a large amount of prestige and gain a loan_interest modifier of 0.5.
There is a possible discrepancy between projected balance (on the budget) screen and the actual income (on the budget ribbon) in game. This often happens when the player has ordered a number of buildings and/or units for which not all necessary resources are readily available (for example because there is a shortage of the goods, or the player is too low in the buying order to acquire them). The budget screen will always assume all purchases are made, irrespective of whether or not the goods can actually be bought. The budget ribbon at the top of the UI will only shows the balance after all purchases have been made. This can lead to the situation where a country can be in deficit on the budget screen, but shows a surplus on the budget ribbon. In these cases the budget ribbon gives the accurate income.