Transcript “budget”?

Theory of the Budget
Reported by John C.T. Ko
September 2, 2005
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Outline of the Presentation
I. Theories and Definitions of the Budget
II. Modern Dimensions of Budgeting
III.Practical and Operational Theory of the
Budget
IV. Basic Concepts in Budget
V. Relevant reports from Department of
Budget and Management
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Theories & definitions
Why budgeting?
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Theories & definitions
History of “budget”?
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Definitions of the Budget
Definition I: (American economist, Philip Taylor, 1961)
The budget is the master plan of government. It brings
together estimates of anticipated revenues and proposed
expenditures, implying the schedule of activities to be
undertaken and the means of financing those activities.
In the budget, fiscal policies are coordinated, and only
in the budget can a more unified view of the financial
direction which the government is going to be observed.
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Definitions of the Budget
Definition II: (Allan Schick)
The budget is a process consisting of a
series of activities relating expenditures to a
set of goals.
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Definitions of the Budget
Definition III: (Grooves and Bish)
1. The budgeting is considered as the process through which
public expenditures are made.
2. While considerations of revenue constraints and taxation are
inherent in the budget process, budgeting is generally treated
as a part of the expenditure process, rather than as a
revenue-raising process.
3. Therefore, a budget is necessary to provide a comprehensive
view of revenues and expenditures to facilitate the process of
rationing involved in raising and spending of public
revenues. In this respect, public budgeting serves as the
allocation of expenditures among different purposes so as to
achieve the greatest results.
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Definitions of the Budget
Definition IV: (Aaron Wildavsky)
1. In the most literal sense, the budget is a document
containing words and figures which proposes
expenditures for certain items and purposes.
2. Budgeting is concerned with the translation of financial
resources into human purpose. Thus, the budget may
be viewed as a series of goals with price tags attached.
3. Taken as a whole, the national budget is a
representation in money terms of government activities.
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Definitions of the Budget
Definition V: (Eric Kohler)
1. Kohler defines the budget as a financial plan which serves as
the pattern for and a control over future operations (hence
any estimates of future costs) and as a systematic plan for
the utilization of manpower material or other resources.
2. Two major management functions are clear in this
definition: (1) A budget may serve as a plan indicating
requirements of certain factors (e.g. cash, productivity) at
some future date. (2) A budget may serve as a control,
containing criteria of costs or performance which will be
compared with actual data on operations, thus facilitating
evaluations, and possibly encouraging or even enforcing
some measures of efficiency.
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Modern Dimensions of Budgeting
for National Development
1. Role in the Political Process
2. Impact on the National Economy
3. Instrument of Administrative Control
4. Tool for Learning the Relationship of
Government Programs
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Improvements in Budgeting
1. Strengthening administrative processes
2. Achieving more effective fiscal controls
3. Securing efficiency and economy
4. Effecting better utilization of resources
5. Improving economic conditions
6. Broadening the awareness of budget
control
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Contents of National Government Budget
and 5-Year Development Plan
1. Forecasts
2. Elements of task-setting
3. Target objectives
4. Elements of Planning
5. Figures concerning money movements
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Challenge 2008 – National Development Plan (Taiwan)
Cultivate Talent
for the E-generation
Increase Value-added
Production
Develop a Digital
Taiwan
Improve the Transportation
Infrastructure
Develop the Cultural
Creativity Industry
Develop an International
Base for R&D
Challenge 2008
Double the Number of
Tourists Visiting Taiwan
The Six-year National
Development Plan
Cost: US$ 75 billion
Conserve Water Resources
and the Ecology
Source: Council for Economic Planning and Development, Taiwan
Develop Taiwan as an
Operations Headquarters
Construct New Hometown
Communities
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Challenge 2008 – National Development Plan
 Challenge Goals
1. At least 15 World No. 1 products or technologies
2 . At least doubling of visitor arrivals
3. R&D expenditures 3% of GDP
4. Reduction of unemployment rate to under 4%
5. Economic growth rate above 5%
6. More than 6 million broadband Internet users
7. Creation of 700,000 new jobs
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Practical and Operational Theory
of the Budget
On the expenditure side, on
what basis shall it be decided
to allocate X dollars to Item
A instead of allocating them
to Item B?
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Practical and Operational Theory
of the Budget
3 Principles: (Verne Lewis, 1952)
1. Budget analysis based on relative merits
2. Incremental analysis to be required
3. Comparison of relative merits made in
terms of relative effectiveness
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Practical and Operational Theory
of the Budget
Philippine scholar Dr. Jose Soberano postulated a budget
theory focusing on the fiscal side may be possible if
certain requirements are met:
1. A Positive Government
2. Scientific Policies
3. An Abundant Economy
4. A Responsive Society
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Basic Concepts in Budgeting
What basic law governs the use of government funds?
The following provision of the Philippines Constitution sets
the basic rule for the use of government funds: "Art. VI, Sec.
29. No money shall be paid by the Treasury except in
pursuance of an appropriation made by law. "The
aforequoted provision of the Constitution also establishes the
need for all government entities to undergo the budgeting
process to secure funds for use in carrying out their
mandated functions, programs and activities.
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Basic Concepts in Budgeting
How are government funds appropriated?
Funds for the use of government entities are appropriated or
authorized following the steps : 1) individual agencies
prepare their estimates of expenditures; 2) agencies justify
details of their proposed budgets before DBM technical
review panels; 3) DBM reviews and consolidates proposed
budgets of all agencies for submission to Congress; 4)
agencies explain the details of their proposed budgets in
separate hearings called by the House of Representatives and
the Senate for inclusion in the General Appropriation Bill;
and 5) the President signs the Bill into law or what is known
as the General Appropriations Act (GAA).
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Basic Concepts in Budgeting
What is referred to by the term "national government
budget"?
The National Government budget (also known simply as the
budget) refers to the totality of the budgets of various
departments of the national government including the NG
support to Local Government Units (LGUs) and
Government-Owned and Controlled Corporations (GOCCs).
It is what the national government plans to spend for its
programs and projects, and the sources of what it projects to
have as funds, either from revenues or from borrowings with
which to finance such expenditures.
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Basic Concepts in Budgeting
What is a balanced budget? What happens when
the budget is not balanced?
In the context of government budgeting, a budget is said to
be balanced when revenues match expenditures. When
expenditures exceed revenues, the government incurs a
deficit which may result in the following situations:
1. The government borrows money either from foreign
sources or from the domestic capital market which
increases the debt stock of the NG and its debt servicing
requirements;
2. The government borrows money from the Bangko Sentral
ng Pilipinas; or,
3. The government withdraws funds from its cash balances
in the Treasury
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Basic Concepts in Budgeting
Why is surplus budgeting necessary?
The surplus budget policy is important to encourage
economic growth. The less the government borrows from the
public, the lesser the pressure on interest and inflation rates
and the more funds are made available in the financial
market. Such funds may be used by businessmen to build
factories, hire workers, buy equipment and open more
employment opportunities. The government also needs to
generate a budget surplus to repay the huge debt it has
accumulated over the years. The reduction of the national
budget debt will correspondingly lessen government's
requirements for interest and principal payments. This
becomes important particularly during periods of rising
interest rates and unstable exchange rates.
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Basic Concepts in Budgeting
What is the
system (PPBS)?
planning-programming-budgeting
The PPBS is a concept that stresses the importance of
establishing a strong linkage between planning and
budgeting. It emanates from the policy of the government to
formulate and implement a national budget that is an
instrument of national development, reflective of national
objectives, strategies and plans.
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Budgeting Process
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BUDGET ACCOUNTABILITY
1.Monitoring of agency budgetary
performance
2.Comparison And evaluation of
actual performance with initiallyapproved work targets
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Basic Concepts in Budgeting
What is the General Appropriations Act?
The General Appropriations Act (GAA) is the legislative
authorization that contains the new appropriations in terms
of specific amounts for salaries, wages and other personnel
benefits; maintenance and other operating expenses; and
capital outlays authorized to be spent for the implementation
of various programs/projects and activities of all departments,
bureaus and offices of the government for a given year.
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Basic Concepts in Budgeting
Why are adjustments made on the budget program?
Adjustments are made on the budget even during
implementation primarily because of the following:
1.Enactment of new laws
2.Adjustments in macroeconomic parameters
3.Change in resources availabilities
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Basic Concepts in Budgeting
What is the difference between appropriation and
allotment?
Appropriation refers to an authorization made by law or
legislative enactment directing payment out of government
funds under specified conditions or for specific purposes. On
the other hand, allotment is an authorization issued by the
DBM to an implementing agency to incur obligations for
specified amounts contained in a legislative appropriation.
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Basic Concepts in Budgeting
What is the LIBOR and its significance in the
budget?
The London Interbank Offered Rate (LIBOR) is the rate
offered to prime borrowers in the international capital
market based in London, and is used as the base for most
interest quotations. An increase in LIBOR means an increase
in expenditure for foreign interest payments which will
reduce budgetary surplus if the increase in foreign interest
payments will not be matched by additional revenue flow.
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Basic Concepts in Budgeting
How does the foreign exchange rate reckon with
government expenditures?
The foreign exchange rate is the rate at which a currency is
exchanged for another currency, in the case of the
Philippines, the peso to the US dollar. Any change in the
exchange rate assumption will correspondingly change the
peso cost of all expenditures paid in US dollars like foreign
debt service, repayment and interest, the regular operating
requirements of foreign-based government offices like
embassies, consulates, etc. and other government contracts
which are to be settled using foreign currency.
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Taipei 101
The tallest building in the world
Thank you!
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