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The current picture of the united states government spending and budget

Although those preparing the budget can help improve parliamentary understanding through discussions, the budget must ultimately be negotiated by the executive with the legislature. The responsibility for preparing the budget usually lies with the ministry of finance with input from the line ministries and some smaller spending agencies. This exercise is normally controlled by a central budget department located in the ministry of finance, or sometimes in a separate budget ministry.

The character of central budget departments differs widely between countries, however. Some are only responsible for preparing the current budget, excluding debt. In such cases, the capital budget may be prepared by a planning or development ministry or even at a higher level in the prime minister's or president's officewhile the debt service costs are assessed and paid by another entity. Some budget departments are in charge of preparing the entire budget, although not involved in implementation of the budget.

Others have a say on expenditure commitments, and some the current picture of the united states government spending and budget also in charge of monitoring budget execution. It is therefore important to know the precise responsibilities of the budget department. It is particularly useful to know if the budget department is responsible for supplying partial or complete data on budget preparation, expenditure commitments, and full budget execution data. In many developing countries, only partial data on budget preparation may be available in the budget department.

It is important that all data on the current budget, the capital budget, and the debt service including data on secondary and tertiary tiers of government are consolidated to ensure that, in total, they are consistent with macro objectives.

In some countries, research departments of the central bank may carry out this task. What are the basic steps in budget preparation systems? In principle, the basic steps in a standard budget preparation system comprise the following: The first step in budget preparation should be the determination of a macroeconomic framework for the budget year and ideally at least the next two years.

The macroeconomic projections, prepared by a macroeconomic unit in the ministry of finance or elsewhere, should be agreed with the minister of finance. This allows the budget department within the ministry of finance to determine the global level of expenditure that can be afforded without adverse macroeconomic implications, given expected revenues and the level of deficit that can be safely financed.

In a few countries, there are fiscal rules in place that may limit total spending or recurrent spending e.

The next step should be for the budget department to prepare a budget circular to give instructions to line ministries, with the indicative aggregate spending ceiling for each ministry, on how to prepare their estimates in a way that will be consistent with macro objectives. This circular will include information on the economic assumptions to be adopted on wage levels, the exchange rate and price levels and preferably differentiated price levels for different economic categories of goods and services.

Step four is the submission of bids by line ministries to the budget department. Once received there needs to be an effective "challenge" capacity within the budget department to test the costing of existing and any new policy proposals.

The President's 2017 Budget Proposal in Pictures

The next step comprises the negotiations, usually at official and then bilateral or collective ministerial level, leading finally to agreement. Finally, step six is Cabinet endorsement of the proposals for inclusion in the budget that will go to parliament. While the principles should be broadly familiar in most ministries of finance and would even be considered out of date in those industrial countries with the most advanced budgeting systemsactual practices may fall a long way short.

For example, in too many countries the budget department does not prepare a macro framework, nor even a first outline of the budget, let alone indicative ceilings by line ministry, before sending out the budget circular. In such cases, the circular is an administrative mechanism that initiates the budget-making process, usually providing a timetable for budget submissions--that is, estimates of financial requirements by line item and by line ministry or spending agency--but not giving them much guidance in the preparation of their estimates or overall spending limits.

Federal Spending: Where Does the Money Go

Thus, when preparing their budget requests, the ministries often merely add percentages, guided by an inflation projection in the circular, to their previous year's budget. With this "bottom-up approach," line ministries are able to overstate their needs, exerting upward pressure on overall spending. Early in the preparation stage, that is before the budget circular is issued, those advising on the preparation of the budget should ask: Is the budget based on an aggregate level of general or central government expenditure, in cash terms, that is consistent with the macro framework, and any fiscal rules in place?

Does the budget circular to the line ministries provide adequate guidance on preparing budget estimates?

Does it include a guideline or limit for each line ministry on this total spending? Are there suitable reserves? Ideally, within the aggregate total there should be a planning reserve not allocated in guidelines given to each line ministryso the ministry of finance can assign extra resources later during budget negotiations for the most urgent priorities, without breaching the macroeconomic constraint.

Moreover, after all final line ministry allocations have been made, there should still be a contingency reserve within the aggregate that will be held and administered by the ministry of finance to meet genuine contingency spending during the budget year.

What are the typical weaknesses of budget preparation systems? There are often weaknesses in budget preparation systems: Eight common problem areas can be identified: The central government budget is not really unified.

It is a dual-budget system with separate recurrent and capital or "development" budgets that may be based on inconsistent macroeconomic assumptions, budget classifications, or accounting rules. Each budget may be compiled by a different ministry--for example, the ministry of finance for recurrent expenditures and a planning ministry for capital or "development" expenditures.

Projections for the outturn of the previous and current years' budgets are not prepared, or the experience to date is not analyzed, so that budget preparation becomes a simple incremental exercise based on the previous year's often erroneous budget estimates. Satisfactory procedures do not exist for review of expenditure policies and program prioritization. There is no multiyear planning. Extrabudgetary funds are used to divert spending to one or more "off-budget" accounts. Quasi-fiscal expenditures, contingent liabilities, etc.

Appropriations-in-aid are used inappropriately. In many cases, remedying the problems encountered in the above areas would require extensive reforms, so there may be limited scope to make an immediate impact. Even in the short term, however, those reviewing budget preparation can play an important role in sensitizing policymakers to certain weaknesses and so assist in reorienting the system.

Table 1 provides a summary of certain weaknesses and some of their implications. The next subsection deals with the individual issues in more detail. Dual budget separate development and recurrent budgets ; many extrabudgetary funds. Difficulty in developing a consolidated budget. Blurring of capital and current expenditure concepts. With two different budgets it is more difficult to enforce expenditure limits or develop a fiscal adjustment program. Earmarked funds, especially common for financing extrabudgetary funds.

Rigidity in spending priorities leading to inefficient allocation of public resources. Again, this makes fiscal adjustment a more difficult task. Knowledge and analysis of previous year's projected outturn expenditures; availability of volume indicators. Lack of data; data not communicated to budget office, or data are not analyzed. Data in the budget office may be misleading. For example, actual expenditures are usually different from budgeted expenditures, and the actual number of persons employed may be very different from the original budget projection.

Use of macroeconomic framework. Separate price indices by category of expenditure. Inadequate knowledge or incorporation of macroeconomic constraints. Poor estimates of program costs. Leads to a bottom-up approach where the budget is determined more by spending-agency requests. This and inadequate program provision generally lead to overspending. Focus on current year only; no anticipation of future circumstances. May have a negative impact on fiscal sustainability: Alternatively, a lack of planning means imminent problems or recurrent consequences of capital spending are not foreseen.

Procedures for resource prioritization implemented early in budget preparation. No direction in priority setting, or attempt to prioritize until too late in the budget preparation process. Procedures for prioritization are especially important for meeting deficit targets or spending targets.

If priorities are not communicated in a top-down approach early in the budget preparation process, overspending relative to budget is a likely outcome Budget classification according to implementing institution administrativepurpose of expenditure functionaland use of expenditure economic.

Inconsistent nomenclature--for example, mixing functional and economic or budget nomenclature is not consistent with the chart of accounts nomenclature. An economic classification is most useful when designing a fiscal adjustment program. Sometimes the only classification available is administrative--by budget institution--so that reducing the budget requires cuts by institution, and the quality of the fiscal adjustment suffers.

Nor is it possible to understand how expenditures are distributed among different items or for what purpose. What are the typical questions? Is the central government's budget really unified? While the budget document presented to the legislature may appear to be a unified one, in reality the current budget and the capital budget are often prepared following different procedures.

Discretionary Spending

In such cases, difficulties can be encountered in meeting macro objectives where the two budgets are prepared without full coordination, or on different economic assumptions. Such a system can also lead to an inefficient use of funds because, for example, the same item of expenditure may be included in the two budgets, or, more typically, investment projects may be included in the budget, without providing for the necessary corresponding current expenditure. The supposed superior status of items included in the development budget may also tend to squeeze out current expenditures within the affordable total.

Information on planned capital expenditures may be partial, where donor-financed expenditure is significant and coordination with the donors is inadequate. It is important to check the extent to which the budget is unified in the above sense of ensuring the internal consistency of different components.

Quite apart from checking whether the economic assumptions are common and consistent see below however, it is also essential to ascertain whether there has been policy agreement e. If there is inconsistency, the coordination between the two budgets should be strengthened by whatever means available.

A meeting with key donors may also be necessary. Is the macroeconomic constraint explicitly taken into account? Are the economic assumptions underlying the budget accurate and consistent? In some countries the budget is prepared with surprisingly little reference to the macroeconomic prognosis. Often, there is little macroeconomic analytical capacity in the government, or the budget department has no contact with those undertaking such analysis e.

The absence of proper macroeconomic analysis is particularly common in countries that have a "dual-budget" system, that is, separate development and recurrent budgets as described above. With inadequate macroeconomic analysis, there can be insufficient discipline to limit the size of the sustainable budget deficit at the beginning of the budget process.

As a consequence, the budget preparation procedure can be principally driven by the requests from the ministries for increased spending i.