Chapter7: Public Budget BBA 8 th Semester Bakhtar University

Budget Organizational plan expressed in numerical terms. A list of all planned revenues and expenses.  Enable the actual financial operation of the business to be measured against the forecast  Provide a forecast of revenues and expenditures, that is, construct a model of how our business might perform financially if certain strategies and plans are carried out.

Public Budget A financial plan of a government containing details of its programs and policies, and estimated receipts and proposed expenditure under different heads, for a specific period, usually one year.

How the Budget is Prepared? Prepared in the form of a statement followed by explanatory notes on each item pertaining to the government’s proposal for taxation, borrowings and expenditures. Presented in a systematic manner indicating the way in which these would effect the economy.

Sections of Govt Budget First, containing the final accounts of the previous year Second, giving the budget and revised estimates of the current year, and the third comprising the budget estimates for the following year.  Although the preparation of budget is an annual exercise, sometimes this exercise may have to be taken more than once in a year.

Requisites for Good Budget An art of financial management Art of the maximum output with minimum inputs through elimination of wastage and avoidance of duplication of resources. Cost effectiveness should be the guiding principle

Requisites Comprehensiveness: covering all the important areas Clarity: easily understandable Objectivity: should be as close to the actual situation as possible Flexibility: not too rigid regarding detailed allocations. Integrity: executed to the maximum possible extent and as intended by the legislature.

Economic Importance of Govt.Budget. Assessment of Economic Condition Information Regarding Financial Resources Of the Country. Assesment of the Conditiont Proportion Of the Expenditure on Different Sectors.

Knowledge regarding Distribution of Income and Wealth. Indication of Economic Policies and Strategies Indication of Foreign Trade Sector Importance for the consumers

Importance for producers Importance for the Employess

Kinds of Budget Multiple and Unified Legislative and Executive Revenue and Capital Economic and Functional Classification

Multiple and Unified Budget Divided into parts in such a way that each part would enable to highlight the specialized functions of the govt. Unified budget would be more useful for knowing the total effect on the economy which is more important.  In case of multiple budgets lot of exercise have to be done for knowing the true results of the govt.

Legislative and Executive Budgets Legislative: prepared by legislature directly or with the help of committees. Executive: Also passed by the legislature but it is prepared by the executive wing of the government.  Better than the legislative because executive wing is the actual player in the field.

Revenue and Capital Budgets Dividing the public budget into revenue and capital accounts. Revenue: covering those items which are of recurring nature. Capital: items which are of non- recurring nature---acquisition and sale of capital assets.  Depreciation of capital assets is only counted as current expenses.

Economic and Functional Classification Economic: Classification of expenditure and the manner of its financing in terms of economic categories.  Able to gather a valuable information about savings, investment, consumption, financial assets and liabilities etc. Functional: Function means a purpose. Only covers expenditure side.  General services, social services, economic services etc.

Techniques of Budgeting and Economic Stability Modern economists consider budget as an instrument of curing irregularities and correcting the imperfections of the free market economy. Depression and boom, both, are harmful because they create uncertainty in functioning of the economy.

Cont…  Depression: economic activities at a low level  Boom: prices rise due to which fixed income people suffer.

Cont… Govt can intervene in both the situations and stabilize the economy.  During depression the govt can borrow money and spend it on public works.  Increase employment  demand for goods  investment…. Deficit Budget  Heavy taxes  decrease money supply  deflation….Surplus Budget