Macro econimics Types of budget

The variety of budgeting methods is extended to the types of efficiency measures used to increase value for money and to the alternative methods of projecting expenditures in cash, volume, and cost terms. Government budget, forecast by a government of its expenditures and revenues for a specific period of time. In national finance, the period covered by a budget is usually a year, known as a financial or fiscal year, which may or may not correspond with the calendar year. When the British chancellor of the Exchequer makes his annual financial statement, he is said to “open” his budget, or receptacle of documents and accounts.

This procedure, to which the United Kingdom moved in 1976, is justified on the grounds that such treatment helps to control inflationary pressures and exerts stricter control than, for example, planning in volume terms. It segregates revenue and capital components, incorporates performance indicators for various schemes, and increasingly focuses on outcome-based allocations. The recent emphasis on digital payments and direct benefit transfers reflects performance budgeting principles, ensuring subsidies reach intended beneficiaries efficiently. While revenue budget handles daily operations, capital budget focuses on investments that create lasting value – like building infrastructure, acquiring equipment, or reducing debt.

Before we discuss about the types of government budgets in Kenya, let’s define a budget. A budget is a document that sets out the government’s proposed revenues, expenditure and priorities for a specific financial year. Faced with the increasing complexity of government activities, many countries have fallen back on the idea of the cash budget. As used in the United States, it presents total payments by the federal government to and from the public (including other levels of government).

Revenue budget: Managing day-to-day operations 🔗

• It reflects the government’s priorities, commitments, and plans for the nation’s future.
• Great significance is ascribed to the size of the expected deficit or surplus, even though there is no legal requirement that the budget be in balance.
• In the late 1970s many countries recognized that the steady growth in public expenditure was putting a strain on their economies, and they attempted to curtail the growth.
• However, not having a surplus in the budget does not necessarily mean a country is poorly governed since it is not necessary for a government to maintain a budget surplus.
• This act, called general revenue sharing, continued into the 1980s although the amounts it allocated generally diminished after 1980.
• Budgeting categories help create personalized savings goals that work with any lifestyle, whether budgeting biweekly or monthly.

The problem is that the distinction between commercial types of government budget and noncommercial activities is often arbitrarily made. A budget is typically created and re-evaluated on a regular basis and is described as an estimation of income and expenses over a given future period of time. The Government Budgeting, sometimes referred to as the nation’s yearly Financial Statement, is the yearly fiscal statement that shows the nation’s receipts and outlays for a given fiscal year.

Again, the requirements of good administration suggest that there should be a single department of agriculture. But that department’s activities impinge on those of others, in both domestic and foreign policy. A budget constructed according to actual programs would cut across departmental boundaries. The cash budget suffers from the defect that it is not directly tied to government decision making. In the United Kingdom all public expenditure planning is now performed on a cash basis, and many programs are “cash limited,” whatever the level of inflation.

Types of budgets

In periods of inflation , although there is greater employment there is also a tendency for prices to rise rapidly. The concept of a balanced budget has been evocated by classical economists like Adam smith . A balanced budget was considered by them as neutral in its effects on the working of the economy and hence they are regarded it as the best. The key is choosing the right budgeting approach for specific contexts and gradually building institutional capacity to implement more sophisticated systems. Many experts suggest a hybrid approach, combining the strengths of different budget types while minimizing their limitations. Imagine if every year you had to justify every expense in your personal budget from scratch – your rent, food, entertainment, everything.

• In a coalition government, the differing opinions are tackled through compromise and contracts approach where the coalition parties keeps the check on the budget process ensuring that it lies within the boundaries of the agreed contract.
• Have you ever wondered whether government programs actually deliver results?
• With increasing globalization and interdependent economies, several external considerations also come into play when the budgets are designed.

Preparing a budget allows companies, authorities, private entities or families to establish priorities and evaluate the achievement of their objectives. To achieve these goals it may be necessary to incur a deficit (expenses exceed income) or, on the contrary, it may be possible to save, in which case the budget will present a surplus (income exceed expenses). The government’s spending and taxing plans stimulate the construction of manufacturing facilities in economically struggling areas in an effort to reduce regional inequities.

The budget of the European Union is an example where authority for major spending, particularly for agricultural support, has devolved to a transnational body. In Europe public expenditure was both larger (as a share of national income) and more centralized during this same time. Although most revenue is raised centrally in the United Kingdom, administration of many programs is carried out at local levels, partly financed by a local property tax and partly through grants from the central government.

Budget 2024: How many types of Budgets are there in India?

Budget consists of a number of different documents, with only limited attempts being made to relate one to another. A sketchy report of the government’s intentions is given in an Autumn Statement, usually published in November, and detailed expenditure plans are provided in February or March in a White Paper. Budget, usually presented in March, is mainly concerned with taxation and is represented in a separate volume entitled Financial Statement and Budget Report. Government budgeting is a fundamental aspect of public administration and governance, serving as a critical tool for economic management, policy implementation, and social development.

Hence, it is recommended in a situation when the economy is close to achieving full employment. A government budget is said to be balanced when the expected revenues are equal to or greater than the proposed expenditure in a particular financial year. Therefore, there is neither a budget deficit nor a budget surplus (hence the accounts “balance”). A government budget is said to be a surplus budget when the expected revenues exceed the expected expenditure in a particular financial year.

For example, instead of simply budgeting ₹50 crores for healthcare, a performance budget would specify targets like “reduce child mortality by 15%” or “vaccinate 1 million children” and then track whether these goals are achieved. The Capital Budget is an account of the assets as well as liabilities of the Central Government. This shows the capital requirements (for creating long term durable infrastructure) of the government and the pattern of their financing. In a coalition government, the differing opinions are tackled through compromise and contracts approach where the coalition parties keeps the check on the budget process ensuring that it lies within the boundaries of the agreed contract. The infamous fallout between the ruling UPA and the Trinamool Congress over the Railway Budget last year is worth citing in reference to the current discussion. Theoretically, it’s easy to balance the estimated expenditure and expected revenue but when it comes to practical implementation, such balance is hard to achieve.