GOVERNMENT

BUDGETING
Chapter One: Introduction
• Definitions of government budgeting
• Basic terminology in government
budgeting
• The roles/functions of government
budgeting
• Type of budgeting
 Introduction
 budgeting is concerned with the translation of financial
resources into human purposes.
A budget, may be characterized as a series of goals with
price tags attached.
 Funds are limited and have to be divided in one way or
another, the budget becomes a mechanism for making
choices among alternatives.
 Budgeting is often used to refer to the overall process of
allocating resources as well as to the preparation of
specific documents.
 It is the central element of public fiscal management.
 It is both a document and a complex of collective
decision process.
 Definitions of Government Budgeting
It is a plan of resources and how it will be spent
A mechanism for efficient utilization of resources
It is a decision-making system for allocating funds
and tapping resources in order to achieve
governmental priorities and objectives efficiently,
economically, and effectively.
 It is the central element of public fiscal
management.
It is both a document and a complex of collective
decision process.
 Varied definition exist but the common feature are
evident.
 Most writers agree that budgeting is not just listing
of proposed expenditure but a critical and most
often, complex decision making process
 Axelrod(1988) define budgeting as a nerve center of
government.
 It is a decision making system for allocating funds
and using resources in order to achieve governmental
priorities and objectives efficiently, economically
and effectively
 Snyder(1977) describe Budgeting as a complex process
it involves aspects of
 managerial or planning,
 politics,

 economics, and
 Accounting

 It is a planning or managerial and/or administrative

instrument/ process
 because it involves making decisions under conditions of
uncertainty that have consequences for future time periods
 Budgeting as a political process
 because it is the "allocative" mechanism that
allocates scarce public resources among the social
and economic needs of a jurisdiction,
 whereby decisions are made about "who gets"
what in the public sector - how the resources are
allocated to different levels of government.
 It
answers big questions of politics: Who gets how
much for what purpose and who pays?
A budget is an economic instrument
 It can direct a nation's states’ and even
municipality's economic growth and
development.
 government budgets are the primary
instruments for
 evaluating redistribution of income,
 stimulating economic growth and development,
 promoting full employment,
 combating inflation, and
 maintaining economic stability.
 It is also an accounting process or
instrument
 revenue and expenditure information are
structured to facilitate continuous inspection,
evaluation, and management control.
 It holds government officials responsible for
both the expenditures and revenues of the
programs over which they exercise control.
 Basic Terminologies in Government Budgeting
 

 Appropriation:
 Law of the legislative that provides funds for
operating agencies to be spent.
A portion of an organization budget request
approved by the legislative body
 Budget Calendar:
 Specifies the sequence of tasks to be done in
preparing a budget
 detailed procedure that outlines several budget
activities for a budget cycle on a calendar year basis
 Budget Cycle
 Composed of recurring, and sometimes, overlapping
events in the budgeting and spending process.
 involves the preparation, review, approval, and
appropriation of the annual budget.
 Financial Calendar
 Links cycles of expenditure planning (activity) and
budgeting(resource) and specifies stages in each cycle.
 The schedule and institutional responsibilities involved
are clearly defined.
 Fiscal Year.
 Government's yearly accounting, which begins on
a specific month and ends on the 12th month of
that year.
 Grace Period.
 The period of 30 days immediately following the
end of each fiscal year in which every public
body shall pay all invoices received before the
end of that year.
THE ROLES/FUNCTIONS OF
GOVERNMENT BUDGETING

What are the roles/functions of

Government budgeting ?
Role 1: Allocates Resources to Achieve
Governmental Priorities, Goals and Policies
 the
budget reflects thousands of decisions on what will be
done and at what cost.
 furnishesa framework for debate and decision about the
size, allocation/share/portion and financing of limited
resources to achieve policy and program goals.
 Sincefunds are limited and have to be divided in one way
or another, the budget becomes a mechanism for making
choices among alternatives.
 thebudget is a supreme political document. The figures
found in the budget tell the tale of those who "won",
"lost", or stayed even in the contest for available
resources.
 Role2: Raises Funds through Taxes and Loans to Finance
the Budget
 Budgetsare also financial plans that lay out not only proposed
expenditures but also the revenues and loans
 Thefinancing of the budget raises a host of issues on fair play,
equity, and economic and fiscal policy such as:
 What proportion of national or state income should taxes consume?
 Who should bear the tax burden?
 What impact will raising or lowering taxes have on the economy in terms
of economic growth, price stability, and employment?
 How much of the budget should be supported by taxes? Loans?
 To what extent, if at all, are deficits tolerable? Should tax limits be set?
 Should
taxation be directed to social ends such as redistribution of income
from high- to low-income groups?
 Role3: Stabilizes the Economy through Fiscal
Policy in Relation to Monetary Policy
 Budget stabilizes the economy through fiscal policy
(the mix of expenditure, taxes and debt financing) in
relation to monetary policy (the control of money
supply and interest rates).
A recession results in lower personal income and
corporate profits, hence, resulting to a decline in
revenue. At the same time, expenditures for welfare
programs rise and deficits mushroom.
 In recessions; governments cut taxes, increase
expenditures, borrow funds extensively, and through
the central bank, reduce interest rates.
in a booming economy with full employment,
the maximum utilization of resources and a
sharp demand for goods and services will most
likely raise inflation as money chases scarce
goods and services.
In this situation, governments will try to
dampen the overheated economy through
expenditure cuts, tax increases, and the rise of
interest rates.
 Role4: Holds Operating Agencies Accountable for
the Efficient and Effective use of Resources in the
Budget
 The annual (or biennial) budget cycle offers the executive
and legislative branches of government a periodic means of
taking stock of the performance of programs and projects
and the use of available resources by agencies
 In requesting funds for the incoming fiscal year, agencies
must account for, through the budget system, the efficiency
and cost effectiveness of their programs.
 In theory then, the budget process enforces accountability.
 Role 5: Controls Expenditures to make certain that they are legal, valid,
appropriate, and accurate
 Budget offices exercise their control through two powerful instruments: the
allotment process and the accounting system.
 A. The Allotment Process
In most governments, money does not flow
automatically to agencies after the legislature
approves appropriations. It is allotted monthly,
quarterly, or at other intervals, by the budget office
for at least three reasons:
◦ (1) To avoid premature exhaustion of appropriations;
◦ (2) To keep the rate of expenditures in line with the flow of revenue; and
◦ (3) To provide agencies with the funds actually needed in the course of budget
implementation.
 B. The Accounting System
 The accounting system controls actual expenditures,
from appropriations to allotments.
A proposed expenditure must run through the
accounting system to make certain that it complies
with the terms of the appropriation bill, the allotment,
and the financial laws of the government.
 Purchase orders, payrolls, vouchers and contracts that
fail to meet this test are turned down.
 In addition, the accounting system provides essential
data for budgeting.
 It sets up an account for each appropriation and
allotment and accumulates all the expenditures and
obligations against the appropriations.
 Thus, it is in a position to signal periodically the status
of the appropriations, the amounts spent and obligated,
and the unexpected and unobligated balances.
 This early waiting alerts the budget offices to the
possible dangers of overspending, and enables them to
take corrective action.
 Role
6: Provides a Mechanism for Transferring
Funds from One Level of Government to
Another
 With major revenue sources preempted by the national
government, state and local governments rely on an
inadequate tax base to finance their own programs
 As a result of intergovernmental financing, all levels of
government share, in varying degrees, the costs of the
major domestic programs, specifically welfare,
education, health and transportation.
 it enables the national government to delegate the
implementation of major programs to state and local
governments
 Transfer payments assume varying forms:
 (a) revenue sharing,
 (b) block grants, and
 (c) categorical grants.
 The overwhelming favorite of state and local
governments is revenue sharing since it has few
strings attached to it.
 Block or broad-based grants,
 which are lump sums dedicated to major program areas
such as community development, health, education,….
 Recipients must comply with an array of planning policy,
fiscal matching, and reporting requirements.
 Categorical grants
 The most restrictive grants that the federal
government transfers funds to state and local
governments for specific programs and projects
and attaches numerous conditions to the use of
these funds.
 By the very nature of categorical grants, chief
executives and legislature have little discretion in
allocating funds.
 Role7: Serves (in most countries) as a
Mechanism for Achieving Planned Social
and Economic Development
medium- (usually spanning five years)
and long-term (spanning five years plus)
social and economic planning serve as a
framework for budgeting in most
countries.
 Role8: Provides Leverage through the Power of
the Purse /prize to Pressure Operating Agencies
to manage their programs more Efficiently and
Effectively
 the budget process has offered an opportunity to examine
systematically the efficiency, productivity, and effectiveness of
all programs and projects through the power of the purse/reward,
and to initiate appropriate remedial action where needed
 In making a case for continued and/or additional funding,
agencies attempt to demonstrate the positive impact of their
programs and the efficiency of their organizational structure,
operating systems, policies, staff utilization, and resource
management.
 TYPES OF BUDGETING
There are two basic types of budgeting:
(a) Expenditure budgeting and
(b) Revenue budgeting
 Expenditure budgeting reflects what activities are
going to be done and at what cost in a particular
year.
 Revenue budgeting is the identification of revenue
sources and determining the amount of revenue from
each source.
 Expenditure can either be a
 Recurrent expenditure
 expenditures spent for payment of salaries and other
office expenditures that are incurred periodically.
 Such expenditures do not generate revenue.
 Capital expenditure.
 are designed for economic development like the
construction of infrastructure.
 They are usually one-time and massive expenditures.
Under expenditure budgeting
therefore, there are two kinds of
budgets:
 the recurrent budget and
 the capital budget expenditure for
fixed assets and consultancy services
End of Chapter ONE!

Thank You!