B

Budget:
Concept and Principles of Budget Making

By

Ahmad-Nor Mohamed Abdi

 Introduction
Budget is the core or heart of management.
It is a scheme of what amount shall be spent on
what matters.
It is also a tool of legislative control. cis a fund
raising and fund granting authority.
Budget has so many social and economic
implications.
It reflects the social and the economic policies of the
government.
Budget involves government's major decisions.
Such decisions show who pays how much and who
gets how much.
Budget as an instrument for implementing
social and economic programmes of the
government.
It is the very core of democratic government.
It is a powerful instrument of social policy.
Modern states are welfare states and here
budget serves as an instrument for the
promotion of welfare objectives.
The budget is a statement of expected revenue
and proposed expenditure.
The Concept of Budget
The word ‘budget’ is derived from a French word
‘bougette’ which means a leather bag or sack.
The term was used in its present sense for the
first time in the year 1733 when the British
Finance Minister Sir Robert Walpole opened his
bag to take out budget proposals in the House of
Commons, and some members cried out, ‘bougette
is opened’.
Since then, the term ‘bouget’ began to be used
for a financial statement. Now, the term ‘budget’
refers to financial papers, certainly not to the
pouch of leather.
Budgeting is concerned with allocating limited
resources to problems that governments and
other public organizations face.
Budget refers to the estimated receipts and
expenditure of the government.
A public budget is a plan of expected incomes
and expenditures for the upcoming fiscal year,
which is a twelve-month period that may or
may not correspond to the calendar year.
A budget is the financial plan for how the
government will receive and spend money for a
set time period (the fiscal period).
The budget system of any country provides the
means for the Government and the legislature
to decide how much money to spend, what to
spend it on, and how to raise the money they
have decided to spend.
Budgeting is the heart of financial administration.
Leroy Beaulieo defies budget as ‘a statement of the
estimated receipts and expenses during a fixed
period’.
According to Remo Storm it is ‘a document
containing a preliminary approval plan of public
revenue and expenditure’
According to Willoughby: budget is something
more than a mere estimate of revenues and
expenditures.
According to Goode (1984); Public Budget is the
process, which involves the planning, preparation,
legislation, approval, and evaluation of government
resources (revenues) and expenditures.
According to the Webster’s Dictionary; A Budget
Is a Plan that clearly defines the estimate
Expenditure and Revenues of a program (or
Project).
According to Ekstein (1973); Public Budget is a
statement entailing (detailing) the revenues and
expenditures of the government.
According to Felix & Nigro (1983); Public Budget
is the Financial Plan of the government, which
determines the proposed revenues and
expenditures, so as to achieve the goals and
objectives (of the nation).
 Budget is a financial document or an action plan
which is prepared and used to project future
income and expenses. It outlines an government’s
financial and operational goals.
A budget is a statement containing a forecast of
revenues and expenditures for a period of time,
usually a year.
It is a comprehensive plan of action designed to
achieve the policy objectives set by the
government for the coming year.
A budget is a plan and a budget document is a
reflection of what the government expects to do in
future.
It shows detailed &location of resources and
proposed taxation or other measures for their
It is, or should be, at once a report, an estimate,
and a proposal.
It is, or should be, the document through the
chief executive … comes before the fund raising
and fund granting authority and makes full
report regarding the manner in which he and
his subordinates have administered affairs
during the last treasury, and on the basis of such
information sets forth his programmes of work
for the year to come and the manner in which he
proposes that such work shall be financed
More specifically, a budget contains information about:
Plans, programmes, projects, schemes and
activities-current as well as new proposals for the
coming year
Resource position and income from different
sources, including tax and non-tax revenues
Actual receipts and expenditure for the previous
year; and
Economic, statistical and accounting data
regarding financial and physical performance of
the various agencies and organs of the
government.
What are the major components of a Public
Budget?
• Revenues: Funds that are raised through
various means.
• Expenditure: Funds used for spending on
specific programs or capital projects.
What are the revenue sources for a government?
• Tax revenue: which is the revenues collected
from taxes on income and profits, social
security contributions, taxes levied on goods
and services, payroll taxes, taxes on the
ownership and transfer of property, and
other taxes.
• Non-tax-revenue: The recurring income earned
by the government from sources other
than taxes.
What are the major classes of public expenditure?
Expenditure is usually two types:
1. Capital Expenditure: is spending on assets. It is
the purchase of items that will last and will be used
time and time again in the provision of a good or
service.
 In the case of the government, examples would
be the building of a new hospital, the purchase of
new computer equipment or networks, building
new roads and so on.
 Capital Expenditure of the government refers to that
expenditure which results in creation of fixed assets.
They are in the form of investment. They add to the
net productive assets of the economy.
2. Recurrent or Revenue expenditure: are
current or consumption expenditures incurred on
civil administration, defence forces, public health
and education, maintenance of government
machinery. This type of expenditure is of
recurring type which is incurred year after year
 Significance of Budgeting
Budget is one of the major instruments for the
expression of a government’s programmes.
It has a vital role to play in the economy of a welfare
state.
The budget policy of the government aims at removal of
poverty, unemployment, social, and economic
inequalities in society. By taxing the rich, it can mitigate
economic inequality. The signs of the welfare state are
reflected in the budget with its heavy outlay on social
services and the like.
In this way, it is an instrument of socioeconomic change
To plan and control the revenues & expenditures
of the government: Due to limit resources of the
public sector, the government needs to plan
carefully the public budget (revenues &
expenditures).
To control inflation and recession: This means
that the government tries to stabilize the
economy of the country by – stabilizing the prices
of goods and services in the market, in akin with
the demand and supply of the people.
To develop the economy of the country (nation):
Such as, the building of roads, schools, hospitals,
bridges, dams, and other basic facilities and
infrastructures.
To develop the Human Resources of the nation:
This means that the government tries to develop
a more professional pool of human resources.
To create a balance and progressive society:
Balance (Eg. moral-ethical society).
Progressive (Eg. local experts being able to face
the challenges of local & international demands).
Characteristics of Public Budget
Following are the characteristics of a good budget
It is the Financial Plan of the government.
It has a clearly defined Objectives & Action-
plans.
It has estimate Expenditures and Revenues of a
project (or program).
It is expressed in quantitative or monetary terms
It is prepared for a fixed period of time
It is prepared before the period in which it
commences.
Practical to implement
Many people are involved in drawing up a budget
On the basis of budget report performance of the
government is constantly monitored
Functions of Public Budget
It acts as a Blue-print (Financial-Plan) of the
Ministry of Finance.
It acts as a Tool of Control (of the Ministry of
Finance).
It ensures the Smooth-running of the program.
It acts as a Tool to Monitor & Evaluate, the
financial performance.
It provides the Financial Statement (Debit /
Credit) of a program.
 The major principles in budgeting provided

(1)Publicity:
The government budget passes through various
stages i.e. preparation, enactment and execution.
Through these various stages, budget should be
made public. There should not be any secret
sessions, of the legislature to consider budget.
(2) Comprehensiveness:
It should give the complete picture of government
revenues and expenditure. Receipts and
appropriations should be expressed in detail
specifications.
(3) Clarity:
It should be simple. The income and the
expenditure given in the budget should be
sufficiently clear, accurate, precise, specific,
definite and exact.
(4) Integrity:
It means financial programmes which is to be
included in the budget and enacted by the
legislature should be carried out as intended by
the legislature.
(5) Periodicity:
Appropriation (money for particular purpose)
should be authorised for a definite period of time.
An appropriation not used at the end of the period
should generally lapse or be re-appropriated with
the specific amount and purpose detailed.
(6) The estimates should be on cash basis:
The budgets should be prepared on what is
expected to be actually received during the year
and not on demands or liabilities falling due
within the year. Both receipts and payments are in
cash
(6) Budgeting should be gross and not net:
Gross budgeting means that all the transactions
both of receipts and expenditure should be fully
shown and not merely the resultant net position.
(7) Estimating should be as close as possible:
Overestimating or underestimating should be
avoided. Exact or close estimating is necessary.
Budget estimates shall be closed.
The 5 major principles in budgeting provided
1. Annuality
This principle shows that the budgeting is made
for certain term and usually in one year.
Example at Malaysia, budgeting year are same
with fiscal year.
2. Comprehensiveness
Comprehensiveness of the budget means that the
budget must encompass all the expenditures,
revenues, borrowing and other financial activities
of the government.
This creates a framework that promotes sound
appraisal of competing policy options, and
efficient budget planning and execution.
 3. Accuracy
The all revenues and spending that show-off in
budgeting must be appearing even that only the
estimate by public agencies.
4. Functional classification and Specific

This Principle more focus in to ensure the

budgeting must giving first priority
for that the important spending and must be
determined the consequences that
spending are first on top.
The example is in Long Term Government
planning is to focus on the rural development and
agriculture to fulfill the government
objective to reduced the poverty level and
rearrangement the society.
 5. Legitimacy and Prior Authorization
Legitimacy means that decision-makers that can
change policies during implementation must take
part in and agree to the original policy decision,
whether it is made during the process of
formulating the budget or at some other time.
Thank You