Public Budget

A public budget refers to a financial document that outlines a government’s planned expenditures and revenues for a specific period, typically a fiscal year. It serves as a tool for planning, allocation of resources, and economic management, helping to achieve various government objectives, including economic growth, poverty reduction, infrastructure development, and public welfare.

The budget provides an organized structure for managing public finances, ensuring that the government’s priorities align with available resources. It also plays a key role in policy formulation and accountability, enabling citizens and institutions to track how public funds are being spent.

Objectives of a Public Budget

1. Resource Allocation:
   • The primary objective of a public budget is to allocate resources to various sectors such as education, healthcare, defense, infrastructure, and social welfare, based on national priorities.
2. Revenue Generation:
   • It outlines the methods through which the government plans to generate revenue, such as through taxes, borrowing, or state-owned enterprises.
3. Economic Stability:
   • The budget aims to stabilize the economy by adjusting fiscal policies to manage inflation, unemployment, and overall economic growth.
4. Debt Management:
   • The budget helps manage public debt, ensuring that borrowing levels are sustainable and that the debt servicing is accounted for.
5. Social Equity:
   • The budget aims to ensure equitable distribution of resources, focusing on social welfare programs, poverty alleviation, and reducing income inequality.

Components of a Public Budget

1. Revenue Budget:
   • This part of the budget details the government’s expected income sources for the year. It includes both tax revenues (direct and indirect taxes) and non-tax revenues (like fees, fines, and returns from government-owned enterprises). The revenue budget also indicates borrowing requirements if the government plans to run a deficit.
2. Expenditure Budget:
   • The expenditure budget outlines the government’s planned spending. This can be divided into:
     • Revenue Expenditure: Day-to-day expenses like salaries, subsidies, and interest payments on debt.
     • Capital Expenditure: Long-term investments in infrastructure, education, healthcare, and other developmental activities.
3. Deficit Financing:
   • The gap between revenue and expenditure is covered by borrowing, either from domestic or foreign sources. The government may issue bonds or borrow from central banks or financial institutions to meet the deficit.

Types of Public Budgets

1. Balanced Budget:
   • A balanced budget occurs when total revenues are equal to total expenditures. This is the ideal situation for many governments as it implies fiscal responsibility and sustainability.
2. Surplus Budget:
   • A surplus budget arises when the government’s revenue exceeds its expenditures. This allows the government to save or reduce debt.
3. Deficit Budget:
   • A deficit budget occurs when the government’s expenditure exceeds its revenue. The government borrows or creates money to cover the gap. While a deficit budget is often necessary for economic stimulus, long-term deficits can lead to rising debt.

Types of Budgets Based on Presentation 

1. Performance Budget:
   • This budget emphasizes the outcomes of government expenditures. It evaluates whether the government’s spending results in the desired outcomes, such as improvements in education or healthcare.
2. Zero-Based Budget:
   • Under this approach, all expenditures must be justified for each new period, starting from zero. It requires each program to be evaluated for its efficiency and necessity, rather than simply continuing previous budgets.
3. Programme Budget:
   • This budget divides the government’s expenditures into distinct programs, such as defense, education, or health, which are then individually allocated a certain amount of funds.
4. Traditional Budget:
   • This is a conventional approach, where the budget is primarily organized based on the previous year’s expenditures, with incremental changes to reflect new needs or policies.

Budget Deficit

A budget deficit occurs when a government’s expenditure exceeds its revenue in a given fiscal year. Deficits can be categorized as:

1. Fiscal Deficit:
   • The fiscal deficit is the total borrowing requirements of the government. It is calculated by subtracting total revenue (including non-debt receipts) from total expenditure. A high fiscal deficit may signal an unsustainable borrowing trend.
2. Revenue Deficit:
   • A revenue deficit arises when the government’s revenue (taxes and non-tax revenues) is insufficient to cover its day-to-day operations, leaving a gap that must be filled by borrowing or drawing from reserves.
3. Primary Deficit:
   
   • The fiscal deficit minus interest payments on previous borrowings. It shows the extent of the current deficit without the burden of past debt.
     Primary Deficit = Fiscal Deficit – Interest Payments.
4. Effective Revenue Deficit:
   
   • The revenue deficit minus grants given for capital formation.
   • This concept highlights how much of the revenue deficit is due to consumption rather than asset creation. = Fiscal Deficit – Interest Payments.