introduction to budgets: terminology, principles, processes, actors, documentation 1
TRANSCRIPT
Introduction to Budgets:Terminology, Principles, Processes,
Actors, Documentation
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Acknowledgement of sources
International Budget Partnership www.internationalbudget.org
Idasa www.idasa.org.za
The Budgetas State Policy Instrument
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Financial statement containing revenue, expenditure,
and deficit/surplus estimates, which indicates how a
household, organisation or government
plans to use its expected resources to meet its goals
for a given period.
What is a budget ?What is a budget ?
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The budget system Budgeting is concerned with taking decisions
that will translate policy priorities into resource allocations which will further the realization of these priorities
As an expression of policy preferences, budgeting is inherently a political exercise, not a technical one
Budgeting should not be divorced from the strategic management objectives……..WHY?
Because policy and strategic objectives are unlikely to be achieved without the requisite resources (the budget thus constrains the choice of feasible objectives)
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Formulate policy;
Strategic planning
Costing programmes;Cost benefit
analysis;Cost
effectiveness
Resource allocation
and budgeting
Structures and institutions for implementation
(including financial flows)
Service delivery
(implementation)
Monitoring & evaluation:
programme impact assessments & financial audits
Data used to revise
programme and to budget for
future
Where do budgets fit into policy-making & Where do budgets fit into policy-making & service delivery?service delivery?
Demographic and
prevalence data
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The operating (or current) budget:
plans the expenditure on the day-to-day running of the government
function by function, it specifies all the items and activities the govt plans to spend money on
main expenditure items include salaries and wages, admin costs, transport, electricity, etc.
the general rule is that the operating budget should be financed through taxes
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Programme vs. Line-item Budgeting
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Palliative Care
Line- item Budgeting Programme Budgeting
Salaries and Wages L2000 Provision of medicines L800 Payments on Retirement
L70
Overtime L50 Inpatient care L600 Building/Rent Expenses
L300 Home care L250
Motor Vehicles L250 Equipment L100 Hospital mobile care
L700
Freight, Cartage and Packing
L70
Counseling
L300
Advertising L3 Water and Lights L5 Awareness raising L217 Consumable Stores L4
Printing L7 Telephone Expenses L8
Total Expenditure L2867 Total Expenditure L2867
The capital (or investment) budget:represents longer term plans and spending
on fixed assets such as buildings, equipment, roads, bridges, etc.
as a general rule, capital expenditure should be financed through borrowing
Revenue: Where do the funds come from?Generally speaking, there are two sources of
revenue for govt, Taxes and Borrowing.
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The legal foundation for budgetingConstitution Public Finance Acts
Hungary: Act XXXVIII of 1992Georgia: Budget System Law (2003)Romania: Law on Public Finance No. 500/2002Macedonia: Organic Budget Law
Local Government ActsHungary: Act LXV of 1990Azerbaijan: Law on Financial Principles of Municipalities
(1999)Romania: Law on Local Public Finance No. 189/1998Macedonia: Law on Local Self Government
European System of Accounts 1995 (ESA95)Others?
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Budget documents and other terminology
References: International Budget Project (www.internationalbudget.org)
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National / Provincial budgetsEach department/ sector has its own budget.
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Each budget (national, provincial, department, programme) can be presented using the 3 different classifications:
1. by programme
2. by economic classification
3. by standard itemWe are primarily concerned with the programme
classification.Budget documents can provide more/less text on
policies, achievements, goals, programme purpose.
In the Provincial/ Regional/ District Health budgets, standard items are important in order to assess the mix of inputs used for service delivery
Government budgets can have the same information listed in 3 different ways:
Budget Classification Systems
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1. ADMINISTRATIVE CLASSIFICATION
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Budgets are generally developed for each major ministry or department in a country based on the authority that is responsible for executing the budget.
For example, Ministry of Social Services: Department of Welfare and Population Development
2. ECONOMIC CLASSIFICATION Two main sections:Two main sections:
Current expenditureCurrent expenditure
Capital expenditureCapital expenditure
Also known as Government Also known as Government Financial Statistics (GFS) Financial Statistics (GFS) classificationclassification
Current expenditure = operational expenditure (‘consumed within the financial year’)
Capital expenditure: expenditure which results in the formation of physical capital or the acquisition capital assets that constitute a relatively permanent investment (i.e. lasts longer than the financial year)
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Economic classification of national budget
IncomeIncome
ExpenditureExpenditure
________________________________________________________________________
Income – Expenditure = Income – Expenditure = Net Budget Net Budget
Surplus/DeficitSurplus/Deficit
RevenueRevenueGrants / LoansGrants / Loans
Capital expenditure = expenditure which results in the formation of physical capital or the acquisition of capital assets which are relatively permanent investment (i.e. lasts longer than the financial year)
Recurrent expenditure = operational expenditure (‘consumed within the financial year’)
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3. FUNCTIONAL CLASSIFICATION
Budgets could be classified by functional categories (such as defense, security services, economic services, social services) into areas in which the budget is proposed
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www.cbgaindia.org
Example of Education spending under three budget classifications
Economic Classification (in 000s of Rs.)Ministry of Education
Composition of Employees 15,000
Goods and Services
Travel and subsistence1,000
Consultants and contractors 2,000
Communication 500
Inventory 5,000
Transfers and Subsidies
Universities 5,000
NGOs 500
Payments and Capital Assets
Building and other fixed assets 8,000
Machinery and equipments 1,000
TOTAL: 38,000
Administration Classification (in 000s of Rs.)Ministry of Education
Administration & Planning 1,000
Primary Education 15,000
Secondary Education 6,000
Higher Education 11,000
Further Education & Training 2,000
Quality Promotion & Development 3,000
TOTAL: 38,000
Functional Classification (in 000s of Rs.)Education Sector
Pre-Primary and Primary Education 17,500
Secondary Education 6,000
Higher Education 14,000
Vocational Education 2,000
Education not definable by level 200
R&D Education 2,000
TOTAL: 41,700
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Questions
•Which classification would you use to identify the authority responsible for managing the education budget?
•Why do you think the budget for primary education differs between the administrative classification ($15 million) and the functional classification ($17.5 million)?
•The economic classification shows an amount of $5 million under transfers and subsidies to universities. The administrative classification shows that $11 million is budgeted for higher education. In the economic classification, where do you think the difference of $6 million might be reflected?
Budget Principles
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THREE KEY PRINCIPLES OF GOOD BUDGETING
Accountability Transparency
Participation
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Explaining the Triangle Governments are obliged to explain and justify their
decisions regarding allocation of resources and implementation of tasks for which the responsibility has been conferred on them by the electorate. This requirement best describes the concept of accountability.
A good budget process ensures that stakeholders are accountable to one another. Through full participation and transparency, accountability is easily achieved.
What is more important when examining a good budget process is recognising that all the three elements are interdependent. Therefore, if one element is being overlooked, such as participation, the other elements are not likely to be achieved.
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GROUPWORK Principles of Open/ Good Budgets
Group 1: ParticipationDefine ‘participation’How does ‘participation’ work?Why should we encourage or advocate for
‘participation’?Group 2: Transparency
Define ‘transparency’Who has to be ‘transparent’?How can ‘transparency’ be promoted?
Group 3: Accountability What is ‘accountability’?Who has to be ‘accountable’ and to whom?How can ‘accountability’ be promoted?
Group 4: The Three Principles of Open/ Good BudgetsLook at the triangle and explain the logic behind the
diagram. 24
Participation
The system should ensure full participation of all relevant stakeholders. In this regard the stakeholders should include government, parliament, civil society, research institutes and independent bodies interested in resource mobilisation, allocation and utilization. Full participation means involvement in all stages of the budget process, from initiation and drafting to final approval.
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What is Transparency?The budget process should be open to
scrutiny by stakeholders such as legislature and civil society.
Budget information should be comprehensive, accessible, timely, clear and accurate.
Available on a frequent basis and in a useful format.
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Why Transparency & Participation?In a democracy citizens have the right to
information on the affairs of their elected government
Transparency is conducive to better decision-making in government
Transparency is a pre-requisite for effective participation by legislatures and civil society
It is through participation that the ‘checking’ enabled by transparency and accountability are operationalised
Participation can greatly improve transparency because all stakeholders are directly involved in the process 27
Summary: What makes a good budget?
transparency, participation, accountability
a legal frameworka comprehensive budget
contestability and information sharingaccurate and timely
informationpredictability of resources
and policiesPredictability, flexibility
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Budget performance: Concepts
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InputsInputs = resources used to produce resultsexample: money, labour, time
OutputsOutputs = direct results produced by using those inputs
example: # of children immunized
OutcomesOutcomes = changes in the quality of life in society that result from the outputs
example: reduced child mortality
We measure budget performanceWe measure budget performanceby looking at:by looking at:
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Formulate policy;
Strategic planning
Programme costing;
Cost benefit analysis;
Cost effectiveness
Resource allocation
and budgeting
Structures and institutions for implementation
(including financial flows)
Service delivery
(implementation)
Monitoring & evaluation:
programme impact assessments & financial audits
Data used to revise
programme and to budget for
future
Demographic and
prevalence data
Budgetoutcomes
Budgetoutputs
Budgetinputs
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Stimulatory ~ improve job creation,
econ growth, investment
Sustainable ~ fiscal discipline, avoid
debt trap
Policy-driven ~ reflect govt stated
priorities
What Kind of Social & Economic What Kind of Social & Economic Outputs Outputs
are required from Public Budgets?are required from Public Budgets?
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Developmental ~ strategically
target sectors, population groups and
problems to improve development
Equitable ~ be informed by
inequities, not perpetuate those
inequities; ideally eliminate or reduce
inequities33
Social & Economic Outputs Social & Economic Outputs are required from Public Budgets are required from Public Budgets
cont.cont.
What determines the budget? (national resource allocation) Previous budget
• Constitutional obligations/legal framework
• Rights/moral choices
• Policy priorities (political)
• Need (e.g. prevalence rates)
• Cost effectiveness research
• Capacity to spend
• Equity
• Cost of programmes
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Group Activity
With your fellow country persons, identify:
Strengths and weaknesses of your budget systems (In terms of principles and outputs of a good system)
Constitutional obligations/ rights (and Court case rulings) with regards to access to water and sanitation, children or disabled citizens
Relevant LegislationPolicy documentsProgrammes – all aspects of your country’s responseIndicators of progress towards the achievement of
rights
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