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Introduction to Public Administration

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Introduction To Public Administration­MGT111
VU
LESSON 28
PUBLIC BUDGET
At the end of the lecture students will be able to:
-
Explain the types of Budget
-
Understand financial administration: i.e., public budget, its approval and implementation
Background
The institution of budget originated in the West. During the days of absolute monarchy the
treasury was controlled by the king and he could spend as he wished. The struggle for representative
government in England began with the right to control budget. `No budget without representation was the
concern raised. The right to control expenditure through appropriation was asserted. In other words it
meant that the budget that government has to be approved. The executive was required to produce for the
approval of the parliament every year a complete plan of income and expenditure. This is because the
budget was document of future plans of government and that expenditure was done to address public
needs. Therefore, public representatives were to approve public expenditure. In the Indo-Pakistan sub-
continent same was true. There was no better way of asserting control than to require the government to
submit a comprehensive plan for the approval of the legislature showing how much money is needed for
any one year and how they propose to raise and spend it. This plan was called `budget'.
The forms and types of budget have also under gone some changes. For example a conventional
budget is a line-item budget in which each type of income that is earned is line-wise indicating (As in
example in lecture 27). Similarly each expenditure made is line-wise shown. But the types of budget have
been experimented and tried in developed countries. Each of the types is discussed below.
1. Performance Budgeting
After World War II, attempts to make budget effective were intensified, and performance
budgeting was introduced. Much of the idea came from the first Hoover Commission, published in USA
which noted that the budget for 1949-1950 contained 1625 closely printed pages, with about 1.5 million
words. But all these details in terms of work to be completed were not very clear. Accordingly, the
commission recommended that "the whole budgetary concept of the Federal Government in USA should
be changed and the budget should indicate upon functions, activities and projects," to be completed in the
budget document. This was called "performance budget." The term program budget came to be used by
many people to mean the same thing.
In 1949, the USA parliament approved an amendment to the National Security Act and allowed for
performance budgeting in the Defence Department. But slowly and gradually the details that were given in
the beginning in the budget were included as annexure. In many agencies the budget estimates were not
significantly more meaningful. Proposed expenditures were grouped by categories, and substantial progress
was made in defining work measurements, but just why expenditures were requested for certain purposes
and not for others was often not clear. So the performance budgeting could not take off in the country
where it started.
Planning-Programming-Budgeting (PPB)
Performance budgeting emphasized work plans, but not in the context of comprehensive, long-
range planning of all government policies and activities. It did not concentrate on reconsideration of goals
and determination of policies, rather, on defining the work to be accomplished to carry out existing agency
objectives. Planning-programming-budgeting (PPB), an innovation of the 1960s, was an attempt to integrate
budgeting with overall planning for the government as a whole, and to make the planning, execution and
evaluation of government policies as rational as possible.
PPB advocates say that the planning, programming, and budgeting that has taken place in
governments has often been disjointed, with little attention given to the weighing of the relative merits of
alternative goals, programs, projects, and the different ways of carrying them out. Expenditure estimates
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Introduction To Public Administration­MGT111
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have not been presented in such form that the reviewing officials can determine exactly what programs and
projects will be under-taken and why they have been chosen over other possibilities.
PPB has its roots in industry, where it was practiced by General Motors as early as 1924; it was also
used in the War production Board's Controlled Materials Plan in USA, in effect during World War II. Later,
in government it was developed in weapons systems research performed for the Department of Defence
(DOD) by the Rand Corporation USA during the 1950s.
Zero-Base Budgeting (ZBB)
In the 1970s, another budget innovation with the objective of making public budgeting more
rational was introduced called zero-base budgeting. ZBB was developed by Peter A. Phyrr in the Texas
Instruments Company. Characteristics of ZBB are:
(1)
consideration of a reduced level of expenditure, that is, one below the current expenditure
level, and
(2)
Alternative levels of expenditure for decision units. The decision unit is the lowest-level
program or organizational entity for which budgets are prepared.
In the conventional line-item budget, the budget for next period is prepared by increasing a
percentage amount in the existing budget. In ZBB the budget for next year is presumed to be zero and then
estimates are worked a fresh. To give you example lets suppose the budget for previous year was
Rs.200,000. Now when we start preparing budget for next year we presume all items in budget to be at
minimum level or zero level. From here new estimates will be worked out.
Incremental Budget
An incremental budget is the one which is based on the last year's actual expenditure figures, which
are increased and included in the next year's budget figures.
Example:
Last year expenditure figure
=
100,000
Current year budget with 10% increase in oil price
=
110,000
So incremental budget is an increase in price of goods and services at a percentage which are
included in next year budget.
Medium Term Budgetary Framework (MTBF)
This budgetary approach is based on medium term projection of expenditure. The medium term is
usually three years projection of expenditure. In this all departments of the government are required to give
three years projections of expenditure. Thus a medium term framework is developed for which income and
expenditure is worked out. This type of budget is very useful where there is political and economic stability.
The Federal Consolidated Fund
The Federal Consolidated Fund is a Fund of government that contains all revenues received by the
federal government, all loans and all money received in return of repayment of loans . Article 78 of the
Constitution of Pakistan explains the Federal Consolidated Fund.
Who is the custodian of the Fund
The payment of money into the fund, the withdrawal of money, the custody of other money etc.
are regulated by the Act of Parliament, therefore all expenditures that are to be incurred are incurred with
the approval of Parliament. The Annual Budget of the Federal government is to be presented before
parliament.
Annual Budget Statement
Every year the Federal Government prepares a budget statement which shows estimated receipts
and expenditure of the government. This is called `Annual Budget Statement'
The Budget Statement will show separately:
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a)
The sums required to meet expenditure described by the Constitution as expenditure
charged upon the Federal Consolidated Fund
b)
The sums required to meet the other expenditure proposed to be made from the Fund
`Charged expenditure': include the salary of President and expenditures relating to his office, salary
of Judges, chief election commissioner, Chairman and deputy Chairman Senate, repayment of loans.
Charged expenditure are put before the assembly and discussed but these are not voted by the Assembly. By
voting it means these do not required approval of Assembly.
Budget Preparation
The major responsibility of preparation of Annual Budget rest with Ministry of Finance. The
ministries/departments/ autonomous bodies are asked by the ministry of Finance in October every year to
submit their estimates for the budget of the following year. Each ministry/department and autonomous
body submits its budget estimates.
It may be mentioned that the financial year begins 1st July and ends 30th June and the budget
estimates are for this period. All budget estimates are prepared and finalized before 30th May as the Budget
is presented to the National Assembly by the Finance Minister in the middle of June to be voted.
When the Ministry of Finance sends `Budget Call' in October, separate estimates are prepared for:
1.
Receipts of the organization.
2.
Non development expenditure to be incurred in financial year.
3.
Development expenditure to be incurred in financial year.
Following details have to be given by the government about receipts:
i.
Main heads of revenue: i.e. what are the major sources of income?
ii.
Capital Receipt: what are the major sources of capital income?
iii.
Foreign aid: any income from foreign aid.
iv.
Debt, deposits and remittances: whether these are any debt to be paid, deposits of
the organization or remittance from abroad.
4.
Development expenditure: is the expenditure on new projects, equipment, etc.
5.
Non development expenditure: it is the recurring expenditure which includes salaries of the
staff, payment of utilities, day-to-day expenditure in running of the organization, etc.
The departments send their budget estimates to the Ministry of finance to be included in the
budget.
It needs to be recalled that when planning was discussed mention was made of the project
approving bodies. These are given in figure 1
FIGURE ­ 1
NEC
ECNEC
CDWP
DDWP
Foreign assisted
Up to 20 m
Projects > 20m
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The projects that organizations include in the budget have to be approved by the relevant body
according to the size of the project investment. Once project is approved by the body only then it is
included in the budget.
Expenditure Authorization
When the budget is ready it has to be presented by the Finance Minister to the National Assembly
for authorization. Expenditure authorization means that the Assembly approves expenditure which can be
made from the budget that was presented. This approval is for one year only. The budget is discussed in the
Assembly which gives assent to spend from the budget.
Following is the budget of Federal Government of the year 200-2001:
Federal Budget
460,600
Revenue Receipt
Tax Revenue
Surcharge
Non tax revenue
153,793
Capital Receipt
44,169
Total internal
Resources
856,625
External Resources
198,063
Total Resources
1,054,688
Concepts
Performance budget :
Budget in which the activities and functions of project
are separately shown and for each activity amount is
allocated.
Planning-programing Budgeting :
Buget and overall plan are integrated.
Federal Consolidated Fund :
Is the Fund of Federal Government that contains all
revenues, loans and money received in return of
repayment of loans.
Annul Budger Statement :
A statement that shows estimated receipts and
expenditure of government.
Non-Development Expenditure :
Recurring expenditure which includes salaries of staff,
payment of utilities and day-to-day running  of
expenditure of organization.
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Table of Contents:
  1. INTRODUCTION:Institutions of State, Individualism
  2. EVOLUTION OF PUBLIC ADMINISTRATION:Classical School, The Shovelling Experiment
  3. CLASSICAL SCHOOL OF THOUGHTS I:Theory of Bureaucracy, Human Relation Approach
  4. CLASSICAL SCHOOL OF THOUGHTS II:Contributors of This Approach
  5. HUMAN RELATIONS SCHOOLS:Behavioural School, System Schools
  6. POWER AND POLITICS:Conflict- as Positive and Negative, Reactions of Managers, Three Dimensional Typology
  7. HISTORY OF PUBLIC ADMINISTRATION I:Moghul Period, British Period
  8. HISTORY OF PUBLIC ADMINISTRATION II
  9. CIVIL SERVICE:What are the Functions Performed by the Government?
  10. CIVIL SERVICE REFORMS:Implementation of the Reforms, Categories of the Civil Service
  11. 1973 CONSTITUTION OF PAKISTAN:The Republic of Pakistan, Definition of the State
  12. STRUCTURE OF GOVERNMENT:Rules of Business, Conclusion
  13. PUBLIC AND PRIVATE ADMINISTRATION:The Public Interest, Ambiguity, Less Efficient
  14. ORGANIZATION:Formal Organizations, Departmentalization
  15. DEPARTMENTALIZATION:Departmentalization by Enterprise Function, Departments by Product
  16. POWER AND AUTHORITY:Nature of Relationship, Delegation of Functional Authority
  17. DELEGATION OF AUTHORITY:The Art of Delegation, Coordination
  18. PLANNING I:Four Major Aspects of Planning, Types of Plans
  19. PLANNING II:Planning ProcessThree principles of plans
  20. PLANNING COMMISSION AND PLANNING DEVELOPMENT:Functions, Approval Authority
  21. DECISION MAKING:Theories on Decision Making, Steps in Rational Decision Making
  22. HUMAN RESOURCE MANAGEMENT (HRM):Importance of Human Resource, Recruitment
  23. SELECTION PROCESS AND TRAINING:Levels at Which Selection takes Place, Training and Development
  24. PERFORMANCE APPRAISAL:Formal Appraisals, Informal Appraisals
  25. SELECTION AND TRAINING AND PUBLIC ORGANIZATIONS:Performance Evaluation,
  26. PUBLIC FINANCE:Background, Components of Public Finance, Dissimilarities
  27. BUDGET:Components of Public Income, Use of Taxes, Types of Taxation
  28. PUBLIC BUDGET:Incremental Budget, Annual Budget Statement, Budget Preparation
  29. NATIONAL FINANCE COMMISSION:Fiscal Federalism Defined, Multiple Criteria
  30. ADMINISTRATIVE CONTROL:Types of Accountability, Internal Control, External Control
  31. AUDIT:Economy, Effectiveness, Objectives of Performance Audit, Concepts
  32. MOTIVATION:Assumptions about Motivation, Early ViewsThree Needs
  33. MOTIVATION AND LEADERSHIP:Reinforcement Theory, Leadership, The Trait Approach
  34. LEADERSHIP:Contingency Approaches, Personal Characteristics of Employees
  35. TEAM I:Formal & Informal teams, Functions of Informal Groups, Characteristics of Teams
  36. TEAM II:Team Cohesiveness, Four ways to Cohesiveness, Communication
  37. COMMUNICATION I:Types of Communication, How to Improve Communication
  38. COMMUNICATION II:Factors in Organizational Communication, Negotiating To Manage Conflicts
  39. DISTRICT ADMINISTRATION:The British Period, After Independence, The Issues
  40. DEVOLUTION PLAN I:Country Information, Tiers or Level of Government
  41. DEVOLUTION PLAN II:Aim of Devolution Plan, Administrative Reforms, Separation of powers
  42. POLITICAL REFORMS:District, Tehsil, Functions of Union Council, Fiscal Reforms
  43. NEW PUBLIC MANAGEMENT (NPM):Strategy, Beginning of Management Approach
  44. MANAGERIAL PROGRAMME AGENDA I
  45. MANAGERIAL PROGRAMME AGENDA II:Theoretical Bases of Management, Critique on Management