GOVERNMENT BUDGETING

- In the modern world every government aims at maximization of the

welfare of its country. It requires a number of infrastructural economic
and welfare activities. All these activities requires huge expenditure to be
incurred. This requires appropriate planning and policy. Budget helps in
planning and framing policies.
 OBJECTIVES OF GOVERNMENT BUDGET

Reallocation of Reducing Inequalities in Income

Resources and Wealth

Management of
Economic Stability
Pubic Enterprises
I. CONCEPTS, PRINCIPLES AND THEORIES:
A. Concepts

a.1. History

- The term “budget” may be traced to the Middle English word “bowgette”, derived from
Middle French word “bouget”, diminutive of bouge leather bag, which in turn was derived from the
Latin bulga, meaning bag or purse.

- The bouget was used by the King’s treasure, the exchequer, to carry documents explaining the
king’s financial needs.

- Later, the budget containing the documents explaining the needs and resources of the country,
was carried by the Chancellor or the exchequer to Parliament.

a.2. What is government budgeting?

An annual statement showing items wise estimates of receipts and expenditure during fiscal year.
The receipts and expenditure, shown in the budget are not the actual figure but the estimated values
for the coming fiscal year.
It is a critical exercise of allocating revenues and borrowed funds to attain the economic and
social goals of the country. It also entails the management of government expenditures in such a way
that will create the most economic impact from the production and delivery of goods and services
while supporting a healthy fiscal position.
a.3. Why is government budgeting important?

Budgets are variously referred to as financial plans, work plans or programs, or political and
social documents with objectives such as:

1. Strengthening administrative or more processes

2. Achieving more effective or more stringent fiscal controls
3. Securing efficiency and economy
4. Effecting better utilization of resources
5. Controlling inflation or improving economic conditions
6. Broadening awareness and understanding of budget control

B. PRINCIPLES
Principle No.1
Since resources are scare in relation to demands, the basic economic test which must be applied
is that the return from every expenditure must be worth its cost in terms of sacrificed alternatives.
Budget analysis, therefore, should be basically a comparison of the relative merits of alternative uses
of funds.
Principle No.2

Incremental analysis such as analysis of the additional values to be derived from an additional
expenditure, is necessary because of the phenomenon of diminishing utility. Analysis of the
increments is necessary and useful only at or near the margin; this is the point at which an additional
expenditure of any purpose would yield the same return.

Principle No. 3
Comparison of relative merits can be made only in terms of relative effectiveness in achieving a
common objective. The most common method of determining the relative effectiveness of things vis-
à-vis their professed relative merits is through Cost-Benefit-Analysis.
C. Theories

c.1. Prof. Philip E. Taylor

- An American economist
- 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.

c.2. Allan Schick

- A distinguished university professor of Public Policy at the University of Maryland who views
the budget as a process consisting of a series of activities relating expenditures to a set of goals.

c.3. Grooves and Bish

- Budgeting is generally treated as a part of the expenditure process, rather than as a

revenue-raising process. It is necessary to provide a comprehensive view of revenues and
expenditures to facilitate the process of rationing involved in raising and spending public revenues
c.4. Aaron Wildavsky

- He says that the budget is a document containing words and figures which proposes
expenditures for certain items and purposes. The words describe items of expenditures such as
salaries, equipment, travel; or purposes such as preventing wars, improving mental health and figures
are attached to each item or purpose.

c.5. Eric Kohler

- He defines the budget as a financial plan which serves as the pattern for and a control over
future operations and as a systematic plan for the utilization of manpower material or other resources.
 II. COMPONENTS OF BUDGET

Components of budgets refers to structure of the budget. Two main components of Budget are:

■ Revenue Budget: It deals with the revenue aspect to the government budget. It explains how
revenue is generated or collected by the government and how it is allocated among various
expenditure heads. Revenue Budget has two parts:.

– Revenue Receipt: Refers to those receipts which neither create any liability nor
cause any reduction in the assets of the government. They are regular and
recurring in nature and government receives them in its normal course of
activities.

– Revenue Expenditure: Refers to the expenditure which neither creates any

assets nor causes any reduction in any liability of the government. It is recurring
in nature.
■ Capital Budget: It deals with the capital aspect of the government budget and it consists of:

- Capital Receipts: Refers to those receipts which either create a liability or cause a
reduction in the assets of the government. They are non- recurring and non-routine in nature.

- Capital Expenditures: Refers to the expenditure which either creates an asset or

causes a reduction in the liabilities of the government. It is non-recurring in nature.
 III. THE BUDGET PROCESS
THE BUDGET CYCLE
A. Budget Preparation: It contains budget parameters (including macroeconomic and fiscal targets
and agency budget ceilings) as set beforehand by the Development Budget Coordination Committee
(DBCC); and policy guidelines and procedures in the preparation and submission of agency budget
proposals.

B. Budget Legislation: Alternatively called the “Budget Authorization phase,” this starts upon the
House Speaker’s receipt of the President’s Budget and ends with the President’s enactment of the
General Appropriations Act.

C. Budget Execution: This is where the people’s money is actually spent. As soon as the GAA is
enacted, the government can implement its priority programs and projects.

D. Budget Accountability: This phase happens alongside the Budget execution phase. Through
Budget Accountability, the DBM monitors the efficiency of fund utilization, assesses agency
performance and provides a vital basis for reforms and new policies.
 IV. ORGANIZATIONS FOR THE PHILIPPINE BUDGETING

A. The Development Budget Coordination Committee (DBCC)

The role of the DBCC is primarily to review and approve the macroeconomic targets, revenue
projections, borrowing level, aggregate budge level and expenditure priorities and recommend to the
Cabinet and the President of the consolidated public sector financial position and the national
government fiscal program.

B. The Department of Budget and Management (DBM)

In 1992, government budgeting aimed to make the National Budget an instrument for
breaking the boom and bust cycle that had characterized the Philippine economy in the past. Beyond
sustaining the operations of government and its projects, the budget became an economic stimulus and
a means to disperse the gains economic development.
 V. METHODS AND TECHNIQUES IN BUDGETING

A. Orientation in Budgeting 
a.1. Control orientation: The process of enforcing limitations and conditions set in the budget and in
appropriations and securing compliance with the spending restrictions imposed by central authorities.

a.2. Management orientation: Involves the use of budgetary authority in both agency and central
levels to ensure the efficient use of staff and other resources in the conduct of authorized activities.

a.3. Planning orientation: Process of determining public objectives and the evaluation of
alternative programs.
B. Line-item budget approach

- Also called “Item of Expenditure Approach”

- It controls expenditure at the department or agency level with emphasis on the accounting
aspect of government operations in terms of items brought or paid.

C. Performance Budgeting
- Objects of expenditure are deemed as significant factors in relation to what they are used for
and not in relation to their specific character.
- The objects of expenditure are linked to planned work or services, thus, the accomplishment of
the planned activity the overriding of a performance budget.

D. The Philippine Experience in Performance Budgeting

- This act required that the whole budgetary concept be based on a triad of functions,
projects and activities defined in terms of expected results.
E. Planning, programming and budgeting systems (PPBS)

- Originally developed by the Rand Corporation in Sta. Monica, California for use by the US Air
Force.

- It is a result of the three district but closely related current thoughts in budget making;
economic planning, efficiency in government and management of national economies to control
cyclical fluctuations.

- It responds to the need for an economic allocation of resources and the effective conduct of
government policy.

F. Zero-base Budgeting (ZBB) Approach

- A management and budgeting process which necessitates each manager responsible for a major
activity, cost center or function to justify fully his budget proposal following a systematic method of
identifying, analyzing, evaluating and raking present and new projects.