A government budget is a document prepared by the government and/or other political entity presenting its anticipated tax revenues (Inheritance tax, income tax, corporation tax, import taxes) and proposed spending/expenditure (Health care, Education, Defence, Roads, State Benefit) for the coming financial year. In most parliamentary systems, the budget is presented to the lower house of the legislature and often requires approval of the legislature. Through this budget, the government implements economic policy and realizes its program priorities. Once the budget is approved, the use of funds from individual chapters is in the hands of government, ministries and other institutions. Revenues of the state budget consist mainly of taxes, customs duties, fees and other revenues. State budget expenditures cover the activities of the state, which are either given by law or the constitution. The budget in itself does not appropriate funds for government programs, which requires additional legislative measures.
The practice of presenting budgets and fiscal policy to parliament was initiated by Sir Robert Walpole in his position as Chancellor of the Exchequer, in an attempt to restore the confidence of the public after the chaos unleashed by the collapse of the South Sea Bubble in 1720.
Thirteen years later, Walpole announced his fiscal plans to bring in an excise tax on the consumption of a variety of goods and services, such as wine and tobacco, and to lessen the taxation burden on the landed gentry. This provoked a wave of public outrage, including fierce denunciations from the Whig peer William Pulteney, who wrote a pamphlet entitled The budget opened, Or an answer to a pamphlet. Concerning the duties on wine and tobacco - the first time the word 'budget' was used in connection with the government's fiscal policies. The scheme was eventually rescinded.
The institution of the annual account of the budget evolved into practice during the first half of the 18th century and had become well established by the 1760s; George Grenville introduced the Stamp Act in his 1764 budget speech to the House of Commons of Great Britain.
Government budgets are of the following types:
- Union budget : The union budget is the budget prepared by the central government for the country as a whole.The Union Budget of India, also referred to as the Annual Financial Statement in the Article 112 of the Constitution of India, is the annual budget of the Republic of India. The Government presents it on the first day of February so that it could be materialised before the beginning of new financial year in April. Until 2016 it was presented on the last working day of February by the Finance Minister in Parliament.
- State budget : In countries like India, there is a quasi-federal system of government thus every state prepares its own budget.
- Plan budget: It is a document showing the budgetary provisions for important projects, programmes and schemes included in the central plan of the country. It also shows the central assistance to states and union territories.
- Performance budget: The central ministries and departments dealing with development activities prepare performance budgets, which are circulated to members of parliament. These performance budgets present the main projects, programmes and activities of the government in the light of specific objectives and previous years' budgets and achievements.
- Supplementary budget: This budget forecasts the budget of the coming year with regards to revenue and expenditure.
- Zero-based budget: This is defined as the budgetary process which requires each ministry/department to justify its entire budget in detail. It is a system of budget in which all government expenditures must be justified for each new period.
Budgeted revenues of governments in 2006
The two basic elements of any budget are the revenues and expenses. In the case of the government, revenues are derived primarily from taxes. Government expenses include spending on current goods and services, which economists call government consumption; government investment expenditures such as infrastructure investment or research expenditure; and transfer payments like unemployment or retirement benefits.
Government budgets have economic, political and technical basis. Unlike a pure economic budget, they are not entirely designed to allocate scarce resources for the best economic use. They also have a political basis wherein different interests push and pull in an attempt to obtain benefits and avoid burdens. The technical element is the forecast of the likely levels of revenues and expenses.
A budget can be of three types:
- Balanced budget: when government receipts are equal to the government expenditure.
- Deficit budget: when government expenditure exceeds government receipts. A deficit can be of 3 types: revenue, fiscal and primary deficit.
- Surplus: when government receipts exceed expenditure.
A budget can be classified according to function or according to flexibility.
Division of responsibilities
The relationships between the federal government and the states and localities are complex and are not well described by a simple look at expenditures. In some cases, the federal government pays for a program and gives broad discretion to the states as to how to carry out the mandate. In other cases, the federal government essentially dictates all the terms, and the states simply administer the program.
Government budget is a subject of importance for a variety of reasons:
- Planned approach to the government's activities
- Integrated approach to fiscal operations
- Affecting economic activities
- Instrument of economics policy
- Index of government's functioning
- Public accountability
- Allocation of resources
- GDP growth
- Elimination of poverty
- Reduce inequality in distribution of income
- Tax and non-tax receipt