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THEORY OF THE BUDGET:

APPLICATION TO
DEVELOPING COUNTRIES
MISCONCEPTIONS ON BUDGETING
Literature on budgeting is so numerous that causes confusions on
the instead of enlightenment.
These are due to:
Lack of system
Lack of comprehensiveness
Lack of consistency
Lack of integration in the budget documents
Despite of the mentioned misconceptions,
practical efforts and results show that:
Budget appears to be the most maligned, misunderstood and
controversial subject with regard to national government
policy.
Budget is termed as...
Nothing but a mere scrap of paper
Voluminous farce
Huge piece of garbage
BUDGETING PRINCIPLES & THEORIES
The term budget traced back to the Middle English word
Bowgette, derived from Middle French word Bouget, diminutive
of bouge means leather bag, which in turn was derived from the
latin word Bulga meaning bag or purse.

Bouget was used by the Kings treasurer, the exchequer, to


carry documents explaining the kings fiscal needs. Later the
budget containing the documents explaining the needs and
resources of the country.
BUDGET ACCORDING TO SOME
ECONOMISTS
*The term budget according to an American Economist, Professor Philip E.
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 a budget can a more
unified view of the financial direction which the government is going to be
observed.
Allan Schick views it as a process consisting of a series of activities relating
expenditures to a set of goals.
According to Grooves and Bish:
Budgeting as the process through which public expenditures are
made.
Budgetingis treated as part of the expenditure process,
rather than revenue-raising process.
Budget necessary to provide a comprehensive view of revenues
and expenditures to facilitate the process of rationing (involve
in raising and spending of public revenues.
Public
budgeting serves as the allocation of expenditures
among different purposes so as to as to achieve the greatest
results.
According to Aaron Wildavsky
Budget is a document containing words and figures which proposes expenditures for
certain items and purposes.
Expenditures
Salaries, Equipment, Travels
Purposes
Preventing wars, Improving mental health
Figures are attached to each item or purpose.
Budgeting is concerned with the translation of financial resources into human purposes.
The purpose of the budget is varied as the purpose of men.
Wildavsky emphasizes the importance of the political and behavioral aspect of
budgeting.
He considers the budgetary process as a phenomenon of human behavior in government
setting and treats politicians as dealers of preferences and of what people want.

Representation in money terms of governmental activity.


Eric Kohler defines budget as...
a financial plan which serves as the pattern for and a control
over future operations and a systematic plan for utilization of
manpower material or other resources.
Two major management functions of budget:
1. Budget serve as plan indicating requirements of certain
factors cash, productive capacity
2. Budget serve as a control, containing criteria of cost or
performance which are compared with actual data on
operations, thus facilitating evaluations and possibly
encouraging or even enforcing some measures of efficiency.
MODERN DIMENTION OF BUDGETING
FOR NATIONAL DEVELOPMENT
A budget is...
Reflection of what the government is doing or intends to do.
Translation in financial terms of the action program of government.
coordinated & planned expenditures with expected revenue collection
proposed borrowing operations
An instrument of administrative control.
Central financial apparatus
Root of multi-purpose orientation of budgeting;
Control, Management and Planning
Budget can be variously referred as...
Financial plans; Work plans or programs; or Political and social documents.

Objectives of budgeting:
1. Strengthening administrative process
2. Achieving more effective or more stringent fiscal controls
3. Securing efficiency & economy
4. Effecting better utilization of resources
5. Controlling inflation
6. Broaden awareness & understanding of budget control
Budget preparation & formulation is an opportunity for
government to assess the volume of taxation & expenditures to
offset threats of inflation or economic recession.

A work program with emphasis on relating cost to performance.


Asa tool for learning the relationship for government programs with
economic & financial conditions & trends.
For designing suitable economic & financial policies and measures.
Budget relates to public expenditures & policy analysis as
observed by Robert Bangs(American Economist)

Fiscal policy cannot be divorced practically from the total


structure of economic policy, which in turn is merely a part of
larger cosmos of general policy within which any government
administration operates.
TOWARDS A PRACTICAL AND
OPERATIONAL THEORY OF
THE BUDGET FOR
DEVELOPING COUNTRIES
On what basis shall it be decided to allocate X dollars
to Activity A instead of allocating them to Activity B?
-V.O. Key Jr. professor of Political Science.
V.O. Key Jr. inferred that there is a lack or no theory
of the budget.
Budgeting is a matter of philosophy as can be gleaned in
the diverse interests of the present government as well
as in the interests of the future ones.
Each year, national government budget before its
authorization or final legislation, is presented in the
form of Appropriation Bill that expresses social
consensus which sound akin to the mystic doctrine of
the general will.
Constantly, in the process of formulating Appropriation
Bill, choices have to be made between the demands of
the different groups and factors, aside from making the
estimates of the relative political strength of
contending groups that frequently enter in the decision.
A recognition by the national and political leadership that the allocation of
the limited resources of government, which is translated yearly through
the GAA.
* Does the act embody the general will in the light of the authorized
appropriations for each Sector, objective of expenditure?
* Is there a rational allocation?
* What were the basis for allocation? And such need is one that is actually
felt and articulated by the target beneficiaries of the programs and
projects?
Budget as an Economic Theory and Political Philosophy

1. Who finally sets and decides on priorities?


2. What are the bases/criteria for the prioritization?
3. To What extent and how do citizens participate in this area?
4. What are the techniques employed in the prioritization?
5. How is the social desirability of the approved programs measured?
6. What happens if the programs which were deprioritized, turn out to be
the Program really needed by the general will? Will there be reallocation
of resources?
VERNE LEWIS DIMENSIONS OF
BUDGETING

According to Verne Lewis (American Economist)...


A theory of budget through the application of the basic
economic phenomenon: Marginal utility theory
Theory of budgeting are based on the following:
Budget analysis
Incremental analysis
Comparison of relative merits
PRINCIPLES IN ECONOMIC
THEORY OF BUDGETING
(VERNE LEWIS)
Principle 1:
Since Resources are scarce 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 2:
Incremental analysis is necessary because of the
phenomenon of diminishing utility.
Analysis of increments is necessary and useful only at
or near the margin, this is the point of balance at which
an additional expenditure of any purpose would yield
the same return.
Principle 3:
Comparison of relative merits can be made only in
terms of relative effectiveness in achieving a common
objective.
In the case of the Philippines, while our technical expertise is on par with
those of industrialized countries, A single flood, a prolonged drought, an
earthquake or internal security problems can throw the most well planned
budget out of gear and set carefully formulated priorities into disarray.
Dr. Jose Soberano.

To him, the problem is not so much a question of theory and technique, but
the very problem of poverty itself.
THEORY ON BUDGET (AS APPLIED
IN PUBLIC FISCAL
ADMINISTRATION) DR. JOSE SOBERANO
REQUIREMENTS TOWARDS A
NORMATIVE THEORY OF THE BUDGET:

A Positive Government
Scientific Policies
An Abundant Economy
A Responsive Society
A Positive Government

This is committed to actively formulate programs in


fulfillment of societal balance necessary for the good
life. It is a government that is established and
sustained according to its Performance in preserving
the public interest (underscoring supplied) and
dedication to the cause of public service.
Scientific Policies

This is able to ascertain in popularly understood terms


the requisites for the good life, the delimitations of
the public interest, and the nature of the societal
balances for which it is organized. These are the
policies which have operations and processes open to
precise verification and validation in every significant
aspect of performance.
An Abundant Economy

This assures everybody the optional level of welfare


consistent with resources availability, techno progress,
population policy, and ultimate human creativity. No
artificial scarcities are imposed on account of doctrine
other than the logical necessities governing production
and civilized social living.
A Responsive Society
This is directed towards the propagation of the Common
Good, keen awareness of rights and entitlements amidst
the possibilities of organized life. It is responsible for
its performance according to the rules of civility and is
knowledgeably prepared to reciprocate benefits
received with services rendered.
TAPOS NA!!!