In the recent past, economists and public administrators have greatly emphasized the importance of government in the growth and development of the economy. The government carries out various important functions that have both direct and indirect impacts on the economy of the country. The government also carries out its operation through public administration. Public administration is a management field that involves formulation of various policies. One of the major areas of public administration that requires period formulation of policies is public budgeting.
Through pubic budgeting, the government is able to manipulate various operations of the economy hence controlling and monitoring economic activities. Governments often express their economic policies through public budgeting, hence public budgets serve as vital tools for planning, controlling, and monitoring the economy. Various budgetary decisions of the government affect the performance of the economy, for example, increased government expenditure may lead to inflation. When the government increases its expenditure, money is poured back into the economy. Increased money supply may cause prices of goods and services to increase because the consumers will have excess money to use for purchasing purposes, hence leading to inflation. Similarly, when the government borrows from the public, money is withdrawn from the economy. In this situation the purchasing power of consumers is reduced which may lead to deflation.
Public Budgeting. Rubin defines public budgeting as the process by which governments and policy makers draw plans for revenue generation and redistribution of resources to the citizens of a country (2008). It is the process of managing the receipts and payments of the government.
According to Rubin (2008), public budgeting is an important discipline in public administration because it helps in understanding the various approaches that a government can use during budgeting activities. Clynch and Lauth also assert that various professionals view public budgeting form different perspectives, for example, political leaders would see pubic budgeting as a tool for meeting their political goals and selfish interests, whereas economists and the general public view public budgeting as an appropriate way of distributing or allocating public resources within a country or region (2006). In my opinion, public budgeting provides various ways in which the government can accumulate and redistribute national resources to ensure equitable economic growth and development within the country. Public budgeting is a tool for resource allocation. Similarly, through public budgeting, the government is able to provide necessity goods and services such as education, healthcare, and national security which might not be effectively provided by private sectors.
Public budgeting involves development and implementation of the government budget. The government budget outlines various approaches to be used in generation of revenues such as taxation and other non-taxation techniques as well as the methods of allocating and redistributing the resources. In public budgeting, three important principles have to be observed. These principles include accountability of the government, efficiency of the approaches used in allocating resources, and efficacy. Efficacy concerns the final outcomes of various approaches used in resource allocation. It deals with how a particular budgeting approach may impact the society.
Features of Public Budgets. Public budget has various features that distinguish it from private or personal budgets. Firstly, public budgets must be clear and easy to understand, they should not be ambiguous. Secondly, as suggested by White and Wildavsky, an effective public budget must be feasible and enforceable after its approval by the legislative authority (2009). A good public budget may also combine a variety of considerations such as economical and social impacts, uniqueness as well as strict adherence to the revenue and expenditure estimates. Thirdly, public budgets should have accurate estimates that are within reasonable ranges.
Furthermore, public budgets must be specifically designed towards achieving of well defined goals and objectives. They should comprehensively outline various sources of revenues and how the revenues generated shall be allocated being consistent with previous budgeting objectives.
There are two types of public budgets, namely operational budgets and capital budgets. Operational budgets deal with revenue generation and forecasting of expenditures over a given financial period, usually one fiscal year. On the other hand, capital budgets focus on long-term expenditures and acquisition of long term resources.
Approaches in Public Budgeting. Various approaches have been applied in public budgeting. These approaches include priority based budgeting, zero-based budgeting, program budgeting, performance based budgeting, and flexible freeze budgeting. Priority based budgeting entails allocating national resources to various programs of the government based on the importance or priority of the individual programs. For example, to education, infrastructure, and healthcare services may be allocated more resources than to promotion of tourism or sporting activities. Zero-based budgeting focuses on allocation of resources based on ability of the department to utilize all the resources and achieve its goals and objectives effectively. Program budgeting refers to a budgeting technique in which resources are allocated to particular programs based on their objectives and goals. In program budgeting, resource allocation is based on what the program offers or provides.
On the other hand, performance based budgeting focuses on the ability of a given program to effectively make use of the allocated resources and maximize benefits that would be generated from such programs. Rubin proposes that performance based budgeting is implemented in the basis of the ability of a program to convert inputs into outputs effectively and efficiently (2011).
Lastly, flexible freeze budgeting focuses on techniques and ways of reducing total government expenditure. In flexible freeze budgeting, allocation of resources may be shifted from one program to another depending on the environmental changes and possibility of success of the programs.
Problems Faced in Public Budgets. In public budgeting, the government is faced with various challenges such as effective allocation of resources that would maximize utility, reduction of various costs associated with revenue generation and resource allocation, equitable resource allocation as well as addressing the varied needs and wants of citizens. Due to scarcity and limitation of economic resources, economists and policy makers are often faced with the problem of efficient public budgeting.
The government usually generates revenues through taxation. Garrett, Graddy and Jackson assert that taxation forms the largest source of government revenues, usually more than 70 percent of total revenues (2010). Other sources of government revenues include fees for licenses, surcharges and commissions on services rendered to the public, and profit incomes generated by state corporations. On the other hand, the government spends its income on various social activities such as provision of educational and healthcare facilities, ensuring national security, development of infrastructures such as transport and communication networks, public investments, and administration of justice amongst other functions. This implies that the government has abundant expenses to cater for with the limited revenues collected. In most cases, the revenues generated are not enough to meet all the expenditures of the government. This has resulted into a shortfall of most public budgets, a situation usually referred to as budget deficits.
Budget Deficits. A budget deficit refers to the measure by which government revenues fail to meet the target public expenditures. Budget deficits refer to excessive expenditure by the government that exceeds its revenues. Public budgets suffer from financial deficiency when the total amount of public expenditures is more than the total amount of receipts. Some people often confuse government budget deficit with national debt. National debt is different from budget deficit in that national debt refers to the total amount of money owed by the government, whereas budget deficit is where expenditures are in excess of the revenues.
Causes of Budget Deficit. In most cases, budget deficits usually result from excessive spending by the government. It occurs when the amount of money spend is more than the amount of revenues generated. Budget deficits may also be caused by reduction in economic activities that would generate adequate incomes for the government. Moreover, deficits in public budgets are also caused by overreliance on imports in international trade. A country that heavily relies on imports often has to increase its expenditures. Most imports are usually expensive and, thus require substantial amounts of money. This, consequently, results into increased expenditures.
Deficits in public budgets may also result from poor planning and forecasting during budgeting. In my opinion, when governments do not effectively plan on how to generate adequate revenues as well as properly forecast its intended expenditures, it may encounter budget deficits because it will not be able to generate adequate incomes or it may overspend on certain budget items or programs. Budget deficits may also indicate over-investment by the government into infrastructural activities.
Rubin suggests that in most developing countries, deficits in public budgets can be pegged to transfers of debts by colonial rulers from the Western Countries, hence resulting into high interest rates (2011). Budget deficits may also result from mismanagement of economic resources by government officers.
Additionally, deficits in public budgets are also caused by global economic crisis, for instance, global increase in oil prices has forced many countries to increase their total expenditures. In my opinion, most developing countries often lack adequate financial resources, hence they are forced to borrow heavily from more developed countries. This increases their public debts which eventually negatively affect their public budgets. Corruption in government dealings and embezzlement of public funds may also lead to budget deficits. Increased government expenditures may also be caused by occurrences of natural calamities such as earthquakes, famine, and wars. According to White and Wildavsky, the occurrence of natural catastrophe often forces a country to increase its expenditures in response to such calamities (2009). This increase of expenditure is usually unplanned during the budgeting and planning.
Approaches to Solving Budget Deficits. Prominent economists and scholars have postulated different ways for combating, reducing, and managing budget deficits. According to Rubin (2011), the government may increase taxes so as to increase the amount of revenues generated through taxation. For example, Germany successfully raised its tax rate in early 1990s when it was faced with great budget deficit. The additional revenue generated can then be used to offset the deficit in public budgets. Increased taxation can be achieved through raising the tax rate amongst individuals, for example, the rich or high-income earners may be levied bigger taxes than the low income earners. For government to effectively increase revenues generated through taxation, it must raise the tax rates that individuals and corporations are charged.
Apart from increasing tax rates, the government may also ensure effective taxation techniques and procedures. This may entail changing tax codes or adequate implementation of tax laws to prevent individuals from invading tax obligations. The government may also remove tax incentives to business entities, such as tax exemptions. so that it may generate more revenues from taxation. However, it is important to note that changing or affecting tax rates may drive away potential investors, hence reduction in investments opportunities and increase in unemployment rates. Taxation is thus a very sensitive way of generating revenues which requires adequate planning and proper management during its implementation.
Moreover, the government may also reduce its total expenditures. For example, it can reduce transfer payments and investment in non-basic amenities such as recreational centers. According to Garrett, Graddy and Jackson, the government may offset budget deficits by reducing its debt service liability (2010). This involves reducing the amount of previous debts of the government through regular payments or servicing. Reducing debt service liability ensures that principal public debts do not accumulate additional interest hence reduce expenses. In my opinion, adequate servicing of previous public debts helps the government to cut down total expenditures without necessarily affecting the estimates of current budgets. Governments may also reduce budget deficits through domestic borrowing. Domestic borrowings such as treasury bills and government bonds are usually cheaper and attract less interest as compared to foreign borrowings.
The government may also avoid wasteful spending such as huge allowances to its parliamentary members and salaries to public officers and other civil servants. Countries experiencing budget deficit that results from trade imbalance should ensure that they effectively regulate their exports and imports. For example, if the country is importing more goods and services than it exports, it should regulate and monitor the quantity of imports so that trade balance may be achieved. The government may also increase investments in high income sectors of the economy such as manufacturing and industrial goods. Investment in capital resources and other economically viable projects would enhance continued generation of income.
Garrett, Graddy and Jackson argue that governments experiencing budget deficits may reduce expenses by cutting down the total budget (2010). Governments may also adopt budgetary measures such as increased tax bases to increase its revenues. Unethical practices such as corruption and misappropriation of government resources should be highly discouraged. This is because such malpractices often deprive the economy from essential income generating resources as well as potential revenues. Transparent administrative policies should be adopted by the government to ensure effective administration of national resources.
I would also suggest that developing countries should reduce their dependency on imports from more developed countries. Such imports are usually more expensive than exports. Imbalances in trade result into reduced foreign exchange earnings. Last but not least, policy makers and the government should avoid underestimation of expenditures as well overestimation of revenues. Budgets should be prepared in more precise and accurate manner. Governments should avoid unrealistic estimates of public expenditures and revenues.
In conclusion, I would like to put forward that budget deficit is a major problem that has challenged many governments, especially in most developing countries. It is thus the sole responsibility of the government to take appropriate preventive and regulatory measures to ensure that public budgets are not faced with financial deficiencies. Governments should formulate and adopt various legislations to help in preparing balanced budgets. In my opinion, budget deficits can also be controlled by the government through a combination of reduced spending and raised taxation.
Budget deficits often force governments to borrow extra money from external sources such as private individuals and organizations as well as form foreign countries or international monetary organization like the international monetary fund (IMF). This results into increased liability of the nation. Finally, budget deficits are harmful to the general economy of a country and should be controlled or evaded by all means possible.