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Introduction To Public AdministrationMGT111

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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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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The sums required to meet expenditure described by the Constitution as expenditure

charged upon the Federal Consolidated Fund

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:

Receipts of the organization.

Non development expenditure to be incurred in financial year.

Development expenditure to be incurred in financial year.

Following details have to be given by the government about receipts:

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.

Development expenditure: is the expenditure on new projects, equipment, etc.

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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