Government Budget - Government Budget

A government budget is a government document presenting the government's proposed revenues and spending for a financial year that is often passed by the legislature, approved by the chief executive or president and presented by the Finance Minister to the nation. The budget is also known as the Annual Financial Statement of the country. This document estimates the anticipated government revenues and government expenditures for the ensuing (current) financial year. For example, only certain types of revenue may be imposed and collected. Property tax is frequently the basis for municipal and county revenues, while sales tax and/or income tax are the basis for state revenues, and income tax and corporate tax are the basis for nat ional revenues.

History

The practice of presenting budgets and fiscal policy to parliament was initiated by Sir Robert Walpole in his position as Chancellor of the Exchequer, in an attempt to restore the confidence of the public after the chaos unleashed by the collapse of the South Sea Bubble in 1720.

Thirteen years later, Walpole announced his fiscal plans to bring in an excise tax on the consumption of a variety of goods, such as wine and tobacco, and to lessen the taxation burden on the landed gentry. This provoked a wave of public outrage, including fierce denunciations from the Whig peer William Pulteney, who wrote a pamphlet entitled The budget opened, Or an answer to a pamphlet. Concerning the duties on wine and tobacco - the first time the word 'budget' was used in connection with the government's fiscal policies. The scheme was eventually rescinded.

The institution of the annual account of the budget evolved into practice during the first half of the 18th century and had become well established by the 1760s; George Grenville introduced the Stamp Act in his 1764 budget speech to the House of Commons of Great Britain.

Types

Government budgets are of three types:

• Balanced Budget: when government revenue and expenditure are equal.
• Surplus Budget: when anticipated revenues exceed expenditure.
• Deficit Budget: when anticipated expenditure is greater than revenues.

Elements

The two basic elements of any budget are the revenues and expenses. In the case of the government, revenues are derived primarily from taxes. Government expenses include spending on current goods and services, which economists call government consumption; government investment expenditures such as infrastructure investment or research expenditure; and transfer payments like unemployment or retirement benefits.

Special consideration

Government budgets have economic, political and technical basis. Unlike a pure economic budget, they are not entirely designed to allocate scarce resources for the best economic use. They also have a political basis wherein different interests push and pull in an attempt to obtain benefits and avoid burdens. The technical element is the forecast of the likely levels of revenues and expenses.

Classification

Budget classification is a corner stone for budget management system. Budget classification provides a framework for both decision making and accountability.

Budgetary classification should have such qualities: comprehensiveness, unity, internal consistency.

According to IMF, there are the following classifications that are essential to any government budget:

• Revenue classification (classification of revenues into various categories)
• Expenditure classification
  • administrative classification (classification by entity that is responsible for managing the public funds)
  • economic classification (classification by type of expenditure, for example, salaries, goods and services, transfers and interest payments, capital spending)
  • functional classification (classification according to the purposes and objectives of expenditure, e.g. education, social security,

housing)

Other types of classification exist:

• classification by geographical location of the administrative unit
• classification beneficiaries of subsidies
• classification of sources of financing (external loans and grants)
• classification by program (subdivided by activities)

References

• Professor L. Randall Wray:Why The Federal Budget Is Not Like a Household Budget
• Budget Deficits and Net Private Saving
• Sectoral Balances in State Budget. By Fred Bethune
• Performance Budgeting: Linking Funding and Results, Marc Robinson (ed.), IMF, 2007
• Fiscal Policy in a Stock-Flow Consistent Model by Wynne Godley and Marc Lavoie
• From Line-item to Program Budgeting, John Kim, Seoul, 2007

Further reading

• Higgs, Robert (2008). "Government Growth". In David R. Henderson (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267. 
• Seater, John J. (2008). "Government Debt and Deficits". In David R. Henderson (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267. 

External links

• List of countries by budget; its reference is the CIA's World factbook, in alphabetic order.