The Government Budget

11 Key excerpts on "The Government Budget"

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  eBook - ePub

  Canadian Public-Sector Financial Management

  Second Edition

  • Andrew Graham(Author)
  • 2014(Publication Date)
  • McGill-Queen's University Press

    (Publisher)

  There is a rich line of enquiry on budgeting as a public policy process itself. We will touch on such matters where they are relevant to our ends. We then turn to an increasing preoccupation of governments around the world that have impacts at both the macro and micro level of public management: budgetary reallocations and cutbacks. Finally, we end this cycle on budgets with a closer look at capital budgeting. The budgeting game is an important one for public managers. It is a serious one, but not without its sardonic elements. For a somewhat tongue-in-cheek look at the behavioural dynamics of budgeting, see Appendix 1, Budget Games People Play. What Is a Budget? A budget is a plan that puts resources in place to implement the goals of the organization. In the public sector, this is the link to policy, legislation, and organizational objectives and strategic plans. For much of the public sector, a budget is a monetized plan that establishes spending limits for programs. Finally, a budget is generally time limited, usually for one year, but with the introduction of multiyear budget forecasting and accrual budgeting, timeframes may vary. A budget is the basis for financial control within the public-sector organization because, as a planning and policy statement, it articulates expectations about the results of the expenditures and begins the control cycle for the responsibility centre manager. 3 As such, it is a useful benchmark for controlling the operations of departments, agencies, hospitals, schools, or voluntary organizations. No examination of public-sector budgets would be complete without contributions from Aaron Wildavsky, who opened up discussions of budgets through an analysis that combines cultural studies, political science, economics, and street smarts

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  N5 Public Finance

  • M Klerck(Author)
  • 2014(Publication Date)
  • Future Managers

    (Publisher)

  N6 – Module 7 Compilation of a Government Budget N6 – Module 7 104 Introduction A budget can be described as a “financial statement (or plan) which contains the estimates of revenue and expenditure over a certain period of time, i.e. normally one year” (Gildenhuys 1993:392). What is government itself but the greatest of all reflections on human nature? If men were angels, no government would be necessary... James Madison (1751-1836), U.S. President. Federalist Papers, no. 47 (Jan. 1788). Budget Concepts Before showing the budget cycle, it is necessary to refer to terms which are used in an explanation of the formulation (drawing up) and the execution (the presentation and approval) of a budget. As we have clearly seen, budgets are used to • compile programmes which need to be executed; • serve as a document for approval by The Legislature (Parliament); • serve as an instrument of control (see Module 2). Revenue : the source of funds – income tax, business taxes (see Module 4 & 5) and property rates and taxes which is the main source for local governments. Expenditure : the spending of funds – this is detailed so that it should be clear to see exactly who gets what funds. Capital expenditure : this is spending on infrastructure or services which last longer than a current year – salaries last for as long as they are paid, but building a school means that capital expenditure has taken place. The maintenance of this building will fall under operational expenditure. Operational/current expenditure : the funds needed to run a department; these include salaries, consumables, maintenance of buildings, etc. Policy directives : at all times any budget should reflect the overall policy of the government of the day; these may be expressed in goals and objectives and in instructions to the various departments concerned. Budget year : the fiscal year of the public service runs from 1 April until 31 March; local government authorities run from 1 July to 30 June each year.

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  Country Analysis

  Understanding Economic and Political Performance

  • David M. Currie(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  When the worldwide economic crisis occurred in 2008, Chile used the savings to stimulate the economy by creating jobs through infrastructure improvements and providing tax reductions for businesses. As a percent of GDP, Chile’s stimulus plan was larger than that of the United States, and it was accomplished entirely by spending previous savings rather than by incurring more debt.

  Sources : Sudeep Reddy, “The new old big thing in economics: J.M. Keynes”, Wall Street Journal , Jan 8, 2009, p. A10; Adam Cohen, “The Portugal study: How EU rules curbed growth”, Wall Street Journal , Mar 10, 2008; Matt Moffett, “Prudent Chile thrives amid downturn”, Wall Street Journal , May 27, 2009, p. A1.

  1. Those in favor of a strong President argue that the budget reflects the President’s estimate of the cost of operating the Government of the US. It is Congress’s responsibility to provide the means of financing those operations.

  2. Those favoring a strong Congress argue that the budget reflects Congress’ desires for taxing and spending. It is the responsibility of the President to implement those desires without refusing to spend for purposes the Congress has appropriated.

  Viewed in this way, the budget becomes a vehicle for carrying out political priorities, and the winner of the budget battle becomes a function of power. The budget is the link between politics and economics and is one of the reasons that economics formerly was termed “political economy.”

  Of course, members of the Senate and the House of Representatives, the two branches of Congress in the US, have their own priorities about how funds are to be raised and how the funds should be spent, so there are political battles between and within the two branches. The next several months after the President presents the budget are spent discussing bills in committees, then on the floors of each branch of Congress before the adopted bills are submitted to the President for signature. The budget document that eventually passes thus reflects work by the Executive branch (the President and administrative staff) and the Legislative Branch (members of the House and Senate and their staffs). The question of whose priorities ultimately are reflected in the budget depends as much on power and politics as it does on economics and national priorities, but that is a fact of life with governments. When a decision must go through the political process, the outcome reflects political realities.

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  Economics

  Theory and Practice

  • Patrick J. Welch, Gerry F. Welch(Authors)
  • 2016(Publication Date)
  • Wiley

    (Publisher)

  164 Chapter 6 The Role of Government in the Macroeconomy TABLE 6.7 Federal Government Unified, On‐Budget, and Off‐Budget Balances, 2000–2014 (Billions of Dollars) In recent years, off‐budget surpluses have reduced the size of the unified budget deficit. Year Unified Surplus or Deficit On‐Budget Surplus or Deficit Off‐Budget Surplus or Deficit 2000 $236.2 $86.4 $149.8 2001 128.2 −32.4 160.7 2002 −157.8 −317.4 159.7 2003 −377.6 −538.4 160.8 2004 −412.7 −568.0 155.2 2005 −318.3 −493.6 175.3 2006 −248.2 −434.5 186.3 2007 −160.7 −342.2 181.5 2008 −458.6 −641.8 183.3 2009 −1,412.7 −1,549.7 137.0 2010 −1,294.4 −1,371.4 77.0 2011 −1,299.6 −1,366.8 67.2 2012 −1,087.0 −1,148.9 61.9 2013 −679.5 −719.0 39.5 2014 −484.6 −514.1 29.5 Source: Economic Report of the President (Washington, DC: U.S. Government Printing Office, 2015), Table B‐19. Figures are for fiscal years. “How Much Do We Love Granny?”offers some background about this predicament. Over the next few years, we can expect proposals for dealing with this impending demographic problem. What would you suggest as a change in public policy to deal with retirement entitlements? The Budget and Fiscal Policy: Tying Them Together All of our discussions concerning government spending and taxing, budgets, and fis- cal policy can be tied together. A surplus budget occurs when government revenues exceed government expen- ditures. Generally, a surplus budget will slow the economy as the amount removed from the spending stream is greater than the amount returned. 5 In other words, a sur- plus budget dampens aggregate spending. Discretionary fiscal policy suggests that the corrective action for managing demand‐pull inflation is a reduction in government spending on its purchases and transfer payments and/or an increase in taxes. Each of these measures leans toward a surplus budget. And, in terms of automatic stabilization, in good times when spending is up, automatically tax collections increase and transfer payments fall.

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  Government Budgeting and Expenditure Controls : Theory and Practice

  • A. Premchand(Author)
  • 1989(Publication Date)
  • INTERNATIONAL MONETARY FUND

    (Publisher)

  The second major task relates to the determination of the resources to be acquired by government from the private sector and to the maintenance of balance between public and private sectors. Resources needed by government are partly determined by its expenditures and partly by its stabilization and distributional goals. These, however, are not independent factors but are drawn from the perceptions of those who are entrusted with the political responsibility of administering the country. The balance between public and private sectors is primarily a political choice and is influenced by several considerations. The process of making this choice is complex and has always been controversial. The typical textbook examples of a pure market economy with private enterprises or of totally centrally planned economies with state enterprises are rarely found in the real world. In practice, therefore, the issue is one of determining the relative boundaries and the duration for which such lines of demarcation should remain in force. As noted earlier, the role of the state had come to be dominant in an economic sense, and its functioning as a stabilizing agent is deeply rooted in Keynesian economics, in the belief that the government has an important role in the management of the economy.

  The third aspect of fiscal policy formulation is related to the consideration of the instruments appropriate to attain the specified objectives. Viewed in terms of government expenditures, the objectives discussed in the preceding section, their determinants, and the instruments available are illustrated in Table 1 . Collectively, the choice of the relevant instruments and the allocation of necessary funds form the heart of budgeting. The significant change that budgeting has undergone—with the transformation of fiscal policy from the goal of balanced budgets to the goal of balance in the economy, to the promotion of growth, and to lessening distributional inequalities—is in the use of strategic economic planning, in addition to the traditional functions of financial and managerial control. The new role of budgeting consists of the determination of the kind and level of activities that are sought to be carried out by governments.

  Table 1 . Public Expenditure Objectives and Instruments

  Note: In a way, all the objectives and instruments listed above are related to each other. But some objectives are more closely related to some instruments and this aspect is illustrated above.

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  Public Finance in Theory and Practice Second edition

  • Holley H. Ulbrich, Holley Ulbrich(Authors)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  1 TABOR (for Taxpayers Bill Of Rights) limits the rate of growth of state and local revenues in Colorado to inflation plus population growth. This formula does not allow for any new programs, any expansion of existing programs, or the possibility that service costs in some areas (such as health care) may grow significantly faster than the inflation factor used to control revenue growth. Revenue in excess of that limit must be refunded to taxpayers.

  In November 2005, voters suspended TABOR for five years through a referendum, allowing the state to spend all the revenue it collects during that period. However, the impact on public services lingers. Although Colorado is a relatively wealthy state, it dropped from 35th in 1992 to 48th in 2006 in per pupil education funding, and the state ranked 49th in 2007 in teacher pay. Other sharp cuts were in higher education, public health, and medical coverage. Despite the negative experience in Colorado, similar legislation or a referendum has been proposed in other states in recent years.

  Summary

  • A budget is a spending plan based on expected revenue that sets priorities for the quantity and quality of services to be provided and/or the transfers to be made. It includes a revenue forecast, expenditure forecasts and appropriations for continuing funding of existing projects and outlays for new projects, and a procedure for funding any deficit or allocating any projected surplus.
  • Revenue forecasts are based on anticipated economic conditions, which are then incorporated into formal or informal models that related the economic forecast to the tax base and, using elasticity relationship, from the tax base to revenue. These forecasts also reflect any changes in the tax structure including rates and tax expenditures. Expenditure budgeting also involves forecasts that are based primarily on inflation projections and population growth.
  • The budget of any government does not usually include all revenue and expenditures. Some revenue and expenditures are recorded separately in off-budget accounts that do not pass through the legislative budget process on an annual basis. Social Security and Medicare are the most important US federal off-budget accounts, while state employee retirement systems are the largest state off-budget account. There are also separate enterprise funds at the federal as well as the state and local level for many fee-financed services such as water and sewerage.

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  Principles of Economics 3e

  • Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
  • 2022(Publication Date)
  • Openstax

    (Publisher)

  However, this analogy between household and government behavior is severely flawed. Most households do not balance their budgets every year. Some years households borrow to buy houses or cars or to pay for medical expenses or college tuition. Other years they repay loans and save funds in retirement accounts. After retirement, they withdraw and spend those savings. Also, the government is not a household for many reasons, one of which is that the government has macroeconomic responsibilities. The argument of Keynesian macroeconomic policy is that the government needs to lean against the wind, spending when times are hard and saving when times are good, for the sake of the overall economy. There is also no particular reason to expect a government budget to be balanced in the medium term of a few years. For example, a government may decide that by running large budget deficits, it can make crucial long- term investments in human capital and physical infrastructure that will build the country's long-term productivity. These decisions may work out well or poorly, but they are not always irrational. Such policies of ongoing government budget deficits may persist for decades. As the U.S. experience from the end of World War II up to about 1980 shows, it is perfectly possible to run budget deficits almost every year for decades, but as long as the percentage increases in debt are smaller than the percentage growth of GDP, the debt/GDP ratio will decline at the same time. Nothing in this argument is a claim that budget deficits are always a wise policy. In the short run, a government that runs a very large budget deficit can shift aggregate demand to the right and trigger severe inflation. Additionally, governments may borrow for foolish or impractical reasons. The Impacts of Government Borrowing will discuss how large budget deficits, by reducing national saving, can in certain cases reduce economic growth and even contribute to international financial crises.

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  Macroeconomic Theory

  A Dynamic General Equilibrium Approach - Second Edition

  • Michael Wickens(Author)
  • 2012(Publication Date)
  • Princeton University Press

    (Publisher)

  5

  Government: Expenditures and Public Finances

  5.1 Introduction

  We now introduce government into our general equilibrium model. In this chapter we focus largely on the role of government in steady-state equilibrium: its expenditures and the implications of The Government Budget constraint for financing these expenditures through taxes and debt. For completeness, we include money and the general price level in the model at this stage but we defer the analysis of money demand, monetary policy, and inflation until later chapters.

  The principal role of government is to provide public goods and services. Most governments also transfer income from one group to another, usually in pursuit of goals such as social equality or, less ambitiously, simply to improve the welfare of the poorest. These expenditures must be paid for. This can be achieved through taxation, or by borrowing (issuing debt to the public), or by printing money (in effect, borrowing from the central bank). In reality, all three financing methods are just different forms of taxation. Borrowing is deferred taxation as debt must be repaid in the future, together with any interest payments. Printing money generally creates inflation, which imposes a tax due to the loss of the real purchasing power of nominal money holdings as prices increase.

  A number of important new issues now arise. Ignoring the question of social equity, why should government, rather than the private sector, provide goods and services? What sort of goods and services should government provide, and what sort should the private sector provide for itself? As debts must be repaid in the future, in the longer term the current generation’s borrowing is paid for from the taxes of future generations. This gives rise to the notion that long-term borrowing involves intergenerational transfers. In what circumstances, therefore, is it justified for government to finance expenditures using debt finance (deferred taxation) rather than current taxation?

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  Development Macroeconomics

  Fourth Edition

  • Pierre-Richard Agénor, Peter J. Montiel(Authors)
  • 2015(Publication Date)
  • Princeton University Press

    (Publisher)

  It is an essential tool for understanding the relationship between monetary and fiscal policies, and more generally the macroeconomic effects of fiscal deficits. To derive this constraint, consider a small open economy operating under a predetermined exchange-rate regime. The central bank provides loans only to the general government, which includes local and central governments. In general, the government can finance its budget deficit by either issuing domestic bonds, borrowing abroad, or borrowing from the central bank. The consolidated budget identity of the general government can thus be written as ˙ L + ˙ B + E ˙ F g = P ( g − τ ) + i B + i ∗ E F g + i c L , (1) where L is the nominal stock of credit allocated by the central bank, B the stock of domestic-currency-denominated interest-bearing public debt, F g the stock of foreign-currency-denominated interest-bearing public debt, g real public spending on goods and services (including current and capital expenditure), τ real tax revenue (net of transfer payments), i the domestic interest rate, i ∗ the foreign interest rate, i c ≤ i the interest rate paid by the government on central bank loans, E the nominal exchange rate, and P the domestic price level. 2 Equation (1) abstracts from the existence of nontax revenue and foreign grants, although these components may be sizable in some developing nations. As discussed in Chapter 1, the proportion 2 Our presentation of the budget constraint of the public sector abstracts from assets such as natural resources and publicly owned capital—components that may, in practice, be important in some countries. Buiter (1983) has argued that the exclusion of such assets and liabilities may give a misleading estimate of the government’s net worth, as well as its present and future financial constraints.

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  The Reform of Macroeconomic Policy

  From Stagflation to Low or Zero Inflation

  • J. Perkins(Author)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  It is not surprising Budget Deficits and Macroeconomic Policy 141 that many studies have found conflicting or uncertain relationships between changes in the budget balance and the level of activity. For this is what one would expect if different forms of government outlay and of taxation have different effects on activity. But that conclusion should not be distorted to say that fiscal measures are ineffective in influencing activity. That would be true only if changes in the budget balance were indicative of the expansionary or contractionary effects of a budget – which they certainly are not. For, as we have seen above, different outlays and forms of revenue have different effects on output or employment for a given effect on the budget balance. It may be mentioned in passing that the argument that business confidence may be increased by cutting the budget deficit does not have any bearing on the foregoing discussion, as it will (if it is valid) operate equally for all the fiscal instruments having a given effect on the budget balance, and so not affect their ranking in relation to their effects on output or employment. To sum up: the budgetary balance is important only because it is the resultant of the various forms of outlays and taxation that make it what it is; and it is those various forms of government outlay and taxa- tion that require to be considered each on its own merits. The social costs and benefits of reducing government borrowing as such should certainly come into the calculation of what policy is appropriate, but only in the context of the costs and benefits of measures that are adopted on the outlay and revenue sides to bring about a given change in that balance.

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  Public Finance

  A Contemporary Application of Theory to Policy

  • David Hyman(Author)
  • 2013(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. G overnments can spend more than they collect from taxes and other sources of revenue by borrowing. By running up the public debt, governments can put off the burden of taxation to the future. When government spending exceeds revenues, the result is a budget deficit. Budget deficits have been common for the federal gov-ernment in the United States since 1960. State and local governments by and large are required by state law to keep their budgets in balance and borrow only to finance capital expenditures. Since 1960, it has been common for state and local governments to run modest budget surpluses. However, unanticipated declines in revenue can result in deficits for state and local governments that require rebalanc-ing of their budgets. The recession that began in late 2007 resulted in sharp declines in revenues for most state governments in 2008 and 2009. Several states had budget deficits amounting to more than 20 percent of their planned expenditures. The deficits forced these state governments to cut expenditures, layoff or furlough state employees, and increase tax rates to bring their budgets back into balance. The recession had a major impact on the federal government’s budget balance in 2009. Revenues declined in that year and expenditures for transfer programs such as unemployment insurance increased, while extraordinary expenditures were incurred to cope with a financial crisis and stimulate an economy with an unem-ployment rate approaching 10 percent.

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