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The financial policy of a government is a policy that is disclosed in the annual budget.
Here the government makes a balance sheet of its earnings and revenues and how to spend them .
· The major source of revenue for a country could be taxes both direct taxes on commodities , excise duties , royalty from mines and oilfields and indirect taxes levied on individuals.
· If the indirect tax is minimized for a county it attracts High Net worth individuals (millionaires ) to settle down as they have to pay minimum taxes. Island nation Monaco is such an example.
Monetary policy of the government is part of the financial policy. It is for the control of the banking industry and is done by the central bank. When the value of the local currency is not stable in respect of the DOLLAR or the EURO the central bank tends to control spending to control inflation by raising the interest rate. So that the common people save more and spend less. The opposite would happen if the value of the local currency is too high. The government would bring down the interest rates so that the people spend more and bring down the value of the local currency so that EXPORTS are not hit adversely due to the high value of local currency. This the central bank does through the CRR a % of deposit that all banks have to keep with the central bank.
The government may try to implement its own policy through its financial and monetary policies.
If the government wants all its citizens to own a house it can instruct the CENTRAL BANK TO DECREASE THE LENDING RATE OF HOUSING LOANS as a monetary policy. As a general financial policy can announce INCOME TAX SOPS for those availing HOUSING FINANCE.
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