Government Budgeting – How It Works

Budget word has been taken from the French word 'Budgette', that signifies 'wallet' or 'Leather bag'.A government budget is to be passed at two stages, first by legislature and then approval should be taken by the president or chief executive and all this is to be done because it is a legal document. This document shows Government’s revenue and expenditure incurred during the financial year, 1st April to 31st March.

The financial performance of the government can be traced in the document and hence it is one of the most vital document. The plan of the government with respect to finances is also presented in the document. People of India, ranging from a common man to the one’s having seat In Parliament wait for the budget to be presented because of the following reasons:

1. It gives crystal clear information about the Government’s performance over the past financial year.
2. It helps you determine financial policies and programs of Government for the next financial year.
3. To assess how the standard of living will be affected by Government budgeting for the next whole financial year.
   
   
   
   
   

Government budgeting is done at all levels, central, state or local. The decisions are taken on behalf of people through civil bodies. The other basis on which government budgeting is done are social, economical, political and regional. The other factors on which the budgeting depends are the monetary policies, fiscal policies, trade policies etc. The main intention behind preparing a budget is to the raise the revenue earned than the expenditure in a fiscal year.

In words of Mary Landrieu, a government budget should reflect the values and priorities of a nation and its people. The facts of the budgeting of UK government are stated below

1. The UK fiscal year ends on March 31 of following calendar years. Thus, UK budget for fiscal or financial year 2012 would cover period from April 1, 2012 to March 31, 2013.
2. A month before the fiscal year starts the budget is presented in UK i.e. in march. Government decided on the proportions by summers.
3. The prime minister has a complete control over the sessions of the parliament and hence as a result quick action on the budget is taken.
4. Each department submits their individual funding request. This request is termed ‘Main Supply Estimates to HM Treasury. Then the consolidation of data takes places after which it is released under the following name, ‘Central Government Supply Estimates: Main Supply Estimates’.
5. The UK Government hold back the right to put forward ‘Supplementary Estimates’ in spring and winters of the fiscal years so that the agencies can be updated about the total spending of the current year. In addition to ‘Supplementary Estimates’, agencies also need to submit ‘Estimate Memorandum’ to the oversight committee justifying and describing the changes.

Government budgeting and its components

Rene Storum rightly defined budget as a document that contains introduction approved plan of public expenditures and revenues. According to Rene Storum, "A budget is a document containing a preliminary approved plan of public revenues and expenditure”.

The two components of Government budgeting are:

1. Revenue budget: Revenue Budget - The financial statement compiles together all the revenue receipts. It is the revenue collected by the means of receipts and taxes.

• Revenue receipts: This is earned by Government from all possible sources in the course of governance. There is no decrease in the assets and these receipts are free from liabilities. These can be classified as follows:

1. Tax revenues: This income is collected from various taxes and duties. This forms the major part of public revenue. There are 2 different types of taxes: Direct taxes which include estate duty, corporation tax, property tax and income tax and indirect taxes include excise duty, custom duties, sales tax and service tax
2. Non-Tax revenues: The government also collect revenue from several other non tax sources. Some of them are fines and penalties, fees, profit from public enterprises, grants and gifts.

• Revenue expenditure: Revenue expenditure is the sum-total of expenses incurred on normal day-to-day expenses. This includes both non-developmental and developmental expenditures by Central Government.

1. Capital Budget: This portion of budget includes expenditure and receipts on the capital account that is projected for the coming financial year. Capital expenditure and capital revenue are parts of the capital budget.

• Capital Receipts: These receipts results in reduction of assets or create liability. They are generated by raising funds via borrowings, disposition of assets and loan recovery. Capital receipts are Government borrowings through sale of securities and bonds, RBI and various other financial institutions.
• Capital Expenditure: The expenses which are incurred in order to buy assets which has long life are termed as capital expenditure. Expenditure on machine, oil exploration, land, equipment and irrigation projects.