This article aims to provide a brief understanding of the budget and government budget. At first, the origin and history of the budget from the global and Nepalese perspectives are discussed, then the types of budget are mentioned in detail. Finally, the general budget cycle is discussed.
Meaning of Budget
The English term Budget is derived from the Latin word ‘Bauge’ and the French word ‘Bougette’. Both the words mean ‘small leather bag or wallet’.
A budget refers to the detailed forecast of revenue and expenditure for a certain period of time. A general understanding of the budget is usually referred to as the government budget.
According to the world bank, ‘the annual budget is usually the legal authority for public spending. It is ideally a one-year slice of a medium-term expenditure plan.’
Under the economic policy of a country, there are two major policies: fiscal policy and monetary policy. The government budget is considered as a major fiscal policy of the government.
A budget encompasses the following components:
- Estimation of Revenue: Tax revenue, non-tax revenue
- Forecast of Expenditure: Current and Capital expenditure
- Financial Provision: Interest and principal payment of a loan
- Source to meet deficit budget (In case of Deficit Budget)
Origin and Development:
In 1773, Chancellor of Exchequer Robert Walpole presented the annual income and expenditure estimation in the parliament of the UK, which was the first time ever in the history of budget practice.
Then the institutionalization of the budget started gradually as France, India, the United States of America, and Russia began budget practice in AD 1803, AD 1860, AD 1921, and AD 1928 respectively.
History of Budget in Nepal
In the history of Nepal, the first budget speech was delivered by the then Finance Minister Subarna Shamser on 19 Magh 2008 BS (2 February 1952 AD). The budget speech was broadcasted on Radio Nepal at 9 a.m.
Might be Interested: History of Industry in Nepal
The size of that budget was almost NPR 8 crore 30 lakhs consisting of NPR 5 crore 25 lakhs expenditure and NPR 3 crore 5 lakhs income estimation. Unfortunately, after the first practice in 2008 BS, there was a budget holiday till 2015 BS; but then after, Nepal has a good budgetary practice till now.
Characteristics
Characteristics refer to the nature of the subject. The following are some characteristics of the government budget:
- Time bounded (especially one fiscal year)
- Estimation of the forecast of revenue and expenditure
- Followed by certain legal procedure
- Major fiscal policy of the state
- Continuous process
- Based on the plan and policy of the government.
Types of Budget
1. Balanced Budget
The budget that has an equal amount of revenue and expenditure is called a balanced budget. Making such a balance is one of the toughest tasks so this is not practical in reality. Hence balanced budget is no longer in practice in the present.
2. Surplus Budget
If a budget has higher revenue than expenditure, it is known as a surplus budget. This is based on classical thought when classical economists believed that lower government expenditure and higher saving is a better option. In the Nepalese history, the surplus budget was presented only once in the fiscal year 2033/034.
3. Deficit Budget
The budget having higher expenditure than the revenue estimation is referred to deficit budget. J.M. Keynes propounded the idea of a deficit budget. After the global economic crisis in 1930, governments had to spend more on increasing employment, speeding up development; so that it became popular. These days also, most developing nations make this kind of budget for their rapid development.
The following sources are used for the fulfillment of the deficit budget.
- Loan from the central bank
- Government bond issue
- The cash balance in the central bank
- New currency issue.
4. Line Item Budget
It is a traditional and control-oriented budget system which is developed in the nineteenth century. In the nineteenth century, the executive power of government and central controlling mechanism was weak and the procedures were not uniform; so it was introduced to maintain economic control and discipline.
It believes that a good budget is a matter of regulation. In this budget format, expenditure headings are mentioned on one side, and allocated budgets are located on another. For example Employee Expenditure 2 lakhs.
This focuses only on input and rule compliance rather than output. Despite having such drawbacks, dropping this budget is not taken as rational to date. Hence, it is in practice with continuous improvements.
5. Program Budget
In the 20th century, incremental and line-item budget improvement was felt. In 1949, the Huber Commission recommended a performance budget at first; in 1950, it developed a program budget.
It tries to tie up policy and plans with the budget using missions and programs. Its major dimensions are as follows
- Planning: setting the process, techniques, and resources to achieve specific goals within a certain period.
- Programming: Scheduling of activities to achieve specific goals in planning.
- Budgeting: Price estimate attached to each goal, plan, program, and project.
6. Zero-Based Budget
According to ZBB, every activity should be taken as a new activity and start with a fresh mindset. In 1977, ZBB was in practice in the USA. Each decision is analyzed to make them cost-effective and efficient. Then the decisions are ranked according to the priority and finally budget is allocated accordingly.
ZBB increases restraint in developing the budget, reduces the entitlement mentality concerning cost increase, and makes the budget discussion more meaningful.
On the contrary, ZBB may increase the time and expenses of preparing the budget and can make it worse if not done the right way.
In the 21st century, different budget concepts are raised such as Environmental budget, Gender equality budget, Poverty alleviation budget, etc.
Budget Cycle
The continuous and step-by-step process of the budgetary system is known as a budget cycle. It is the general budget formulation and implementation process. The general budget cycle is as follows:
1. Formulation
This is the first step of the budget cycle, in which revenue, expenditure, and other financial obligations are projected in detail for the upcoming years. Revenue consists of tax and non-tax revenues. Expenditure encompasses current and capital expenditure.
Budget Formulation Process in Nepal- In detail
Financial obligations incorporate the interest and principal payment of national, bilateral, and multilateral loans.
2. Acceptance
The projected budget speech is presented in the parliament for discussion. After the massive discussion in the parliament, it may be amended if necessary then the parliament accepts the it for its implementation.
3. Implementation
Along with the acceptance, other required legislations e.g. Appropriation Billऽ National Debt Raising Bill, etc. also get acceptance which is necessary for its implementation. In this step, the finance ministry gives authority and resources to other ministries to spend according to the allocation and they implement it with periodic targets.
4. Auditing
During the implementation, required accounting documents were kept according to the laws, by-laws, and procedures. These accounting records are examined by the concerned authority and performed the audit.
5. Evaluation and Feedback
This is the final step of the cycle, where discussions, observations, and impact assessments are done for the evaluation of the implementation, and fruitful feedback for upcoming years is recommended.
Conclusion
Budget is a financial and economic planning that projects the revenue and expenditure for the upcoming fiscal year. It is developed in 1773 AD in the UK but in Nepal it is much later in 1952 AD. Balanced, surplus, deficit, line-item, program, and zero-based budgets are some major budget types. Projection, acceptance, implementation, auditing, and evaluation are the general and major stages of budget cycles.
