ü Themodern approach.
In order to understand thedifference between the classical and modern theory, we must distinguish the twoconcepts of public savings. In the classical system, the entire income receivedat full employment is always respent oneither consumption or investment. Savingis automatically converted into investment. Hence, saving is always matched by a corresponding amount of plannedinvestment. In such a system, all publicrevenues—taxes and borrowings—reduce private spending.
This reduction will take the form of declinein consumption or investment. Hence,government expenditure does not add toaggregate demand of the commodity. The concept of saving is different from themodern theory.
In this system, the private sector does not provide fullemployment automatically and savings are not matched automatically by plannedinvestment. Hence, the operation of the budget is likely to affect aggregatedemand and a deficit in the budget maybe required to reduce unemployment. 2. Kinds of BudgetAgovernment budget may be of many different kinds as it serves several purposes.
To name them: ü Executive and legislativebudget. The executive budget is onewhich is prepared by the chief executive with the aid of the budgetdepartment. It is then presented to thelegislative branch of the government fortranslation into legislation. It is thepreferred type of budget, which is more commonly used by the larger governmentunit. On the other hand, the legislativebudget is prepared by or for a committee of the legislative branch for adoptionby that branch. ü Multiple and unified budget. Multiple budget is the traditional budget,which is divided into parts and each part presented separately.
A unified budget is presented as it is thetotal effect of a budget which is more relevant. ü Conventional and cashbudgets. In the conventional budget alsoknown as the administrative budget, revenue and expenditure are shown onaccrual basis and those flows of funds are excluded, which do not belong to thegovernment.
It presents an inadequate picture of the governmental activities. Inthe case ofa cash budget, all the flows of funds to and from the government areshown on the actual payment basis. ü Revenue and capital budget. Capital budget covers items which increaseassets while revenue budget covers those revenue which are of recurring nature. Factors Influencing LocalBudgets.
Local budgets are extremelysensitive to their political, economic, social and legal environment.Politically, the proximity of local governments to citizens means that publicopinion will play a key role in shaping spending decisions. Economically, both the revenue and expenditure sides of thebudget are sensitive to cycles of boom and bust, as well as to completion for residents and businessinvestment. Local governments areprimarily concerned with using their budget decisions to stimulate economicgrowth by attracting new industries or keeping a large employer from leavingthe area. Changes in inflation andinterest rates can tear apart the best-laid financial plans. Socially, budgets are sensitiveto factors such as in-and out-migration, the age distribution of the population,problems such as drug use, homelessness and crime.
Leagally, governments have towork within laws that limit debt, require a balanced budget, specify legalrevenue sources, mandate particular activities, procedures or spending levelsand forbid certain activiites. 3. Budget StrategiesBudget decisions affect people’slives in many ways. As a result,people who want to influence budgetary decisions must decide how best to exertthat influence.
A number of strategiesare common in budgetary politics.ü Cultivating Clientele Support. Theseare the groups with a continuing and strong interest in the governmentprogram. Having a large, organized, andpolitically active clientele will make gaining the support of the President andother lawmakers a good deal easier. Aprogram that lacks strong celestial support may be vulnerable to budget cutswhen funds are relatively scarce. ü Gaining the Trust of Others. Buildingand maintaining the trust and confidence of other participants in the budgetprocess is an important strategy. Beingaware , well prepared, honest of those participant’s expectations andpreferences will make things flow more smoothly.
ü Documenting a Need. Thisinvolves developing and convincing evidence of the need for some course ofaction or evidence that some existing course of action is beneficial. Ex.
Arising crime rate may help to persuade the city council to increase the fundingfor law enforcement. ü Looking for Sympathetic DecisionMaking. A strategy which makes use of alarge number of participants like in the case of US. ü Coping with Painful Actions. Whenpainful budgetary actions are threatened, officials may try to shift blame toother decision makers. If a budget mustbe cut, officials may try to cut less visible and less painful items such ascutting back on maintenance or postponing major purchases. ü The “Camel’s Nose”.
Peoplewho are seeking funds for a new programmay employ the “camel’s nose” technique, which involves asking for a smallamount of money for the first year and somewhat larger amount in each succeeding year ratherthan asking the huge amount of money inthe first year. This strategy assumesthat budgeting is relatively incremental, gradual changes are likely togenerate less opposition than abrupt changes. ü Making the Program Appear Self-Supporting. An important budgetary strategyis to present the program as at least partly self-supporting. Example: A highway may be financed in part by tollspaid by the highway users. ü Capitalizing on ContemporaryCircumstances.
One budgetary strategy involvestaking advantage of favorable conditions that may temporarily improve aprogram’s attractiveness. During acrisis, a program may gain funding if it can be presented as a potential remedyfor whatever is causing the crisis. Afriendly political environment may enable a program to begin or expand itsoperations, if program supporters areprepared to take advantage of that environment when the opportunity arises.
Minimizing the Risk of Future Cuts. It seeks to deal withconcerns that fundingmay be withdrawn after it has been committed. Ex. Equipment will be purchased as soon as money