Meaning of Government Budget

A government has to perform different responsibilities. These responsibilities are related to public welfare and the general administration of government activities. The government needs financial sources to perform such tasks, duties and responsibilities. The financial sources of the government mean government income from different sources and its spending for different purposes. The government has to make a financial plan for such income and expenditure. This financial plan of government for spending and generating income from different sources is known as the government budget. The word budget is derived from the French word ‘Bougette” which refers to a small leather bag or wallet.

Key Definitions

Defined By	Definition
Bastable	“Budget has come to mean the financial arrangement for a given period with the usual implication that has been submitted to the legislature for approval”
World Bank	“The annual budget is the legal authority for public spending”
Beaulieu	“Budget is a statement of the estimated receipt and expenses for a fixed period”

From the above discussion and definitions, it can be understood that a government budget is a government financial plan. It is the periodical statement of government spending and the sources from where these spendings are to be made. It is the estimated government receipt and expenditure for a specific period. In this context, the government budget has to be understood in the following outlines:

• It determines government expenditure and receipts.
• The budget is estimated for a fixed period, typically for a year.
• Investment and sources of finance are prepared with the objectives of the government.
• All the budget needs to be passed by the assembly or parliament before its implementation.

Components of Government Budget

a.    Revenue Budget: The revenue budget contains revenue expenditure and receipts. In these receipts, both tax revenue (Such as excise duty, income tax) and non-tax revenue (Like profits, interest receipts) are recorded.

b.    Capital budget: The capital budget includes the capital receipts (Such as disinvestment, borrowing) and lengthy capital expenditure (For instance, long-term investments, creation of assets). Capital receipts are government liabilities or decreased financial assets, such as the recovery of loans, market borrowing etc.

Objectives of Government Budget

The government prepares an expenditure according to its objectives and then starts gathering the resources and funds to fulfill the proposed investment. The funds are collected from fees, taxes, interest on loans given to states, fines and dividends by public sector enterprises. The government spends on public welfare, infrastructure development, general public administration, loan repayment etc. The government budget has the following major objectives:

1. Reallocation of resources: It helps to distribute resources, keeping in view the social and economic advantages of the country. The factors that influence the allocation of resources areallowance or Tax concessions and direct production of goods and services.
2. Economic growth: A country’s economic growth is based on the rate of investments and savings. Therefore, the budgetary plan focuses on preparing adequate resources for investing in the public sector and raising the overall rate of investments and savings.
3. Minimize inequalities in income and wealth: In an economic system, income and wealth inequality is an integral part. So, the government aims to bring equality by imposing a tax on the elite class and spending extra on the well-being of the poor.
4. Economic stability: The budget is also utilized to avoid business fluctuations to accomplish the aim of financial stability. Policies such as deficit budget during deflation and excess budget during inflation assist in balancing the prices in the economy.
5. Decrease regional differences: It aims to diminish regional inequalities by implementing taxation and expenditure policy and promoting the installation of production units in underdeveloped regions.
6. Manage public enterprises: Many public sector industries are built for the social welfare of people. The budget is planned to deliver different provisions for operating such a business and imparting financial help.

Types of Government Budget

Considering the nature and difference between revenue and expenditure, the government budget can be divided into three types. The three types of government budget have been discussed below:

1. Balanced budget: A government budget is said to be balanced if the expected expenditure is similar to the anticipated receipts for a fiscal year. This means the amount of estimated revenue and expenditure of the government are equal. Thus, total government receipt and spending have no difference, For example, the estimated revenue for a country for a fiscal year is Rs.1000 million and the planned expenditure is also the same (i.e. Rs.1000 million), the budget of the country is said as a balanced budget. The advantage of a balanced budget is that it ensures financial stability and it avoids wasteful expenditure. However, it has a disadvantage as the process of economic growth is hindered and the scope of undertaking welfare activities is restricted.
2. Surplus budget: A budget is said to be surplus when the expected revenues are more than the estimated expenditure for a particular fiscal year. Here, the budget becomes surplus, when taxes imposed, are higher than the expense. For example, if a country has a total estimated revenue of Rs.1000 million and a total expenditure of Rs. 800 million, the country is said to have a surplus budget with the surplus amount being Rs. 200 million. A surplus budget could be a good instrument at the time of severe inflation as it controls excess demand in the economy. But in a situation of deflation or recession, a surplus budget should be avoided.
3. Deficit budget: A budget is regarded asa deficit budget if the expenditure is more than the revenue for a fiscal year. It is the type of government budget in which the total revenue collected is insufficient to meet the estimated spending of the government. This is the most used type of government budget in modern economics. This type of budget was suggested by Keynes to avoid unemployment or under-employment. The gap between total expenditure and total revenue is covered by the government through withdrawal from its reserves. For example, a government might have total estimated revenue of Rs.1000 million and total estimated revenue of Rs.1200 million, the budget is the deficit budget with the deficit being Rs.200 million. A deficit budget is a good tool that can be used to combat recession. A deficit budget has the advantages such as acceleration of economic growth, an easy undertaking of public welfare programs and it can act as a cure for deflation. It has disadvantages such as encouraging unnecessary and wasteful expenditure by the government, financial and political instability and it generally shakes the confidence of foreign investors.

Importance of Government Budget

A budget has high significance for the economic and social development of a country. It is a financial plan that ensures how the national resources will be allocated and used for the welfare of the country, its community and its people. To be more specific, the importance of budget can be mentioned as below:

1. A budget helps to maintain economic stability by reducing the possibility of potential failures in the economy
2. A budget is a tool that transfers a general idea into a productive, action-oriented and aspirational goal.
3. It acts as a device that identifies and focuses on the development of an underprivileged person.
4. It improves the aggregate financial policy by controlling expenditure.
5. It allocates the resources of a nation on a foundation of social priorities.
6. It comprises efficient and productive programs to deliver goods and services and achieve targeted goals
7. It fosters the expansion of national GDP, per capita income and GDP per capita
8. It facilitates solving economic problems such as poverty, unemployment, income inequality, inflation, recession,   etc.
9. It provides a benchmark to evaluate success or failure in achieving goals and provides suitable improvement measures.