La psicología y las nuevas formas de educación

1.0 Introduction 2.0 Objectives 3.0 Main Content

3.1 The budget

3.2 Government Expenditure 3.3 Types of Budget

4.0 Conclusion 5.0 Summary

6.0 Tutor-Marked Assignment 7.0 References/Further Readings 1.0 Introduction

Budget is a document that explicitly describe the spending decision of the government vis-à-vis the projected revenue and the source. Budget balance is the difference between total government expenditure, that is, taxes minus government expenditure. If government expenditure is denoted by G and government revenue by T, then budget balance can be written as:

T = G or T– G = 0 2.0 Objectives:

At the end of this unit, you should be able to:

 Understand the meaning of government budget

 Know the reason for increase in government expenditure

 Know how government expenditure if financed.

3.0 Main Content

147 3.1 The Budget

This is a financial statement of the sources and uses (i.e. Revenue and expenditure) of the government. It as “a financial plan of the projected expenditures and revenues of a unit of government to ensure fiscal period”. It is

“basically a tool for selecting a particular mix of public and private goods and services.”

Budget is needed to perform some allocative function just as the price mechanism performs in the private sector Management use budget as a tool direction and control of work programme. In Nigeria, the budget is initiated by the executive through the Ministry of Finance. It is presented to the Senate and House of Representatives for debate and adoption.

There are four characteristics of budget. They are:

i. Equilibrium: there must be a balance between the revenue and expenditures;

ii. Comprehensiveness: It must take care of all facets of the economy;

iii. Unity: All fiscal operations are spelt out in the budget; and

iv. Periodicity: The Nigerian budget is usually read at the beginning of every year.

The budget is an important economic document of a country. It reveals the state of the economy and what future trends the country will follow. The budget is always presented like a balance sheet in a tentative form after all ministries have submitted their inputs. It is then sent to the congress, that is, Senate and House of Representatives to be adopted as a final budget. The legislative body will scrutinize, adjust or delete or ask the executive to modify some portion of the budget. Once the budget is passed by the house it becomes operational. In a democracy, no government can spend money without the approval of the parliament. Hence, the executive can only make use of the budget after it has been adopted by the house. The executive can either operate a surplus budget, that is, when the revenue to be generated is forecasted to .be greater than expenditure, or it can operate a deficit budget where expenditure is greater than revenue. A balanced budget is where the government intends to spend the actual money it received. That is, the revenue equals expenditure. At the end of the accounting year, the executive including its various ministries and parastatals must account to the whole country how money was realized and spent.

Self Assessment Exercise Define the term “budget”

148 3.2 Budget Concepts

1. Recurrent expenditure: These are costs known as running cost, which the government undertakes in its day-to-day activities. These costs include wages -and salaries, national debt interest, etc.

2. Recurrent revenue: These are receipts of monies from fines, taxes, fees, etc.

by the government.

3. Capital expenditure: These are expenditures on capital projects. Such projects include, provision of hospitals, roads, defence, social and community services, etc.

4. Capital receipts: These are loans, aids, grants, etc. made to the government by foreign governments or international organizations. Other arms of government can extend such facilities.

Self Assessment Exercise

Differentiate between recurrent expenditure and revenue.

3.3. Types of Budget 3.3.1. Budget Surplus

A situation in which income exceeds expenditures. The term "budget surplus" is most commonly used to refer to the financial situations of governments;

individuals speak of "savings" rather than a "budget surplus." A surplus is considered a sign that government is being run efficiently. A budget surplus might be used to pay off debt, save for the future, or to make a desired purchase that has been delayed. A city government that had a surplus might use the money to make improvements to a run-down park, for example.

When spending exceeds income, the result is a budget deficit, which must be financed by borrowing money and paying interest on the borrowed funds, much like an individual spending more than it can afford and carrying a balance on a credit card. A balanced budget occurs when spending equals income.

3.3.2. Budget Deficit

Budget deficit is a status of financial health in which expenditures exceed revenue.

The term "budget deficit" is most commonly used to refer to government spending rather than business or individual spending. When referring to accrued federal government deficits, the term "national debt” is used.

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In the early 20^th century, few industrialized countries had large fiscal deficits. This changed during the First World War, a time in which governments borrowed heavily and depleted financial reserves. Industrialized countries reduced these deficits until the 1960s and 1970s despite years of steady economic growth.

Budget deficits as a percentage of GDP may decrease in times of economic prosperity, as increased tax revenue, lower unemployment and economic growth reduce the need for government programs such as unemployment insurance. If investors expect higher inflation rates, which would reduce the real value of debt, they are likely to require higher interest rates on future loans to governments.

Countries can counter budget deficits by promoting economic growth, reducing government spending and increasing taxes. By reducing onerous regulations and simplifying tax regimes, a country can improve business confidence, thereby prompting improved economic conditions while increasing treasury inflows from taxes. Reducing government expenditures, including on social programs and defense, and reforming entitlement programs, such as state pensions, can result in less borrowing.

3.3.3. Balanced Budget

A situation in financial planning or the budgeting process where total revenues are equal to or greater than total expenses. A budget can be considered balanced in hindsight, after a full year's worth of revenues and expenses have been incurred and recorded; a company's operating budget for an upcoming year can also be called balanced based on predictions or estimates.

It is commonly used in reference to official government budgets. For example, governments may issue a press release stating that they have a balanced budget for the upcoming fiscal year, or politicians may campaign on a promise to balance the budget once in office.

It is important to understand that the phrase "balanced budget" can refer to either a situation where revenues equal expenses or where revenues exceed expenses, but not where expenses exceed revenues.

Self Assessment Exercise

Differentiate between Budget Surplus and Balanced Budget 5.0 Conclusion

A budget is a financial document used to project future income and expenses. The budgeting process may be carried out by individuals or by companies to estimate

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whether the person/company can continue to operate with its projected income and expenses.

5.0 Summary

In this unit we have learnt what a budget is, and its concepts. However, we can finally say that a budget comprises the deficit, supply and balance budget and a surplus budget was discuss in this unit as an anticipated profit, while a balanced budget is that revenues that are expected to equal expenses. More so, a deficit budget is when expenses exceed revenues. Budgets are usually compiled and re-evaluated on a periodic basis. Adjustments are made to budgets based on the goals of the budgeting organization.

6.0 Tutor-Marked Assignment 1. Write short note on the following

(a) Balance budget (b) Surplus Budget (c) Deficit budget.

2. List and explain the importance of a good budget in a country.

3. Is there any differences between recurrent expenditure and recurrent revenue

4. Balance budget is the best budget a good country should embrace yearly.

Do you agree with this assertion? Discuss 7.0 References/Further Readings

Abdullah H.A, (2000). The Relationship between Government Expenditure and Economic development, DDT Publication limited.

Ewing, B., Payne, J., Thompson, M., Al-Zoubi, O. (2006) “Government expenditures and revenues: evidence from asymmetric modeling”, Southern Economic Journal, 73(1), 190-200.

Fasano, U., Wang, Q. (2002). “Testing the relationship between government spending and revenue: Evidence from GCC countries”, IMF Working Paper WP/02/201.

Friedman, M. (1978) “The limitations of tax limitation”, Policy Review, summer, 7-14.

Von Furstenberg, G.M.R., Green, J., and J.H. Jeong (1986) “Tax and Spend, or Spend

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