Government Budgeting

A government budget is a document that presents a governing body’s anticipated revenues and proposed spending for a fiscal year. It serves as a blueprint for how a government intends to allocate its resources to meet various needs and priorities. Government budgets play a crucial role in managing public finances, implementing policies, and ensuring accountability in the use of taxpayer money. Government budgets often require legislative approval and are subject to political pressure from interest groups that compete for resources. Government budget is a forecast by a government of its expenditures and revenues for a specific period of time. 

A typical government budget consists of two main components: 

• Revenue: This section outlines the sources of income for the government. It includes taxes (such as income tax, sales tax, corporate tax), non-tax revenues (like fees, fines, and licenses), grants from other governments or international organizations and various forms of borrowing. 

• Expenditure: This section details how the government plans to spend the funds it collects. Expenditures are usually categorized into different sectors such as education, healthcare, defense, infrastructure, social welfare and more. Each sector receives an allocated amount of funds based on the government’s priorities and policies. 

The process of creating a government budget involves several stages, including: 

• Budget Formulation: Government departments and agencies prepare their budget requests based on their expected needs and priorities. 

• Budget Allocation: The central government allocates funds to different departments and programs based on available resources and policy goals. 

• Legislative Approval: The budget proposal is presented to the legislative body (such as a parliament or congress) for review, debate, and approval. Amendments may be made during this stage. 

• Implementation: Once approved, the budget is put into action. Funds are disbursed to various departments and programs as planned. 

• Monitoring and Evaluation: Throughout the fiscal year, the government monitors the actual spending and revenue collection. Adjustments may be made if necessary to ensure the budget remains on track.

The functions of the budget are the tasks assigned to the budget. The budget must fulfill some duties in line with its determined targets and policies. The functions of the budget have changed over time in line with the developments in economic and social life as well as with the state’s understanding. 

The functions of the budget can be divided into classical and contemporary macro-economic functions. 

Classical economists basically assigned four main functions to the budget. These are the economic and financial function, the legal function, the political function, and the audit function.

The Great Depression of 1929, which emerged in the USA and affected European countries and other countries in a short time, caused changes in industry, state understanding and fiscal thoughts. Instead of the neutral, gendarmerie understanding of the classics, modern economists have begun to settle on the understanding of the social welfare state, which intervenes in the economy. Priority has been given to establishing balances in the economy instead of annual balance in the budget. To ensure this, the budget can run a deficit if necessary. After all, with the establishment of balances in the economy, the budget will also come into balance. With the budget, it is aimed to have an impact on economic and social developments. 

Principles of budgeting include the qualities that the budget should have in order to fulfill its duties in the best way. Budget revenue and spending estimations and reporting of implementation results are predicated on clarity, accuracy and financial transparency. All revenues and expenditures of public administrations are shown in their budgets. Public services are carried out in accordance with the methods, principles and objectives determined by the legislation and with the appropriations to be included in the budgets. Among the budgetary principles, the following can be noted: 

• The Principles of Unity and Budget Accuracy 
• Principle of Generality 
• The Principle of Annuality 
• The Principle of Specification 
• The Principle of Equilibrium 
• The Principle of Sincerity 
• The Principle of Accuracy 
• The Principle of Openness, Sound Financial Management and Transparency 

The principle of unity means that all revenues and expenditures of the state are collected in a single budget. Public revenues are in one pillar of the state’s budget, and public expenditures in the other. Thanks to the principle of unity, all revenues and expenditures are clearly seen. Furthermore, the control of the budget is facilitated, and extravagance among public institutions is prevented. 

The principle of generality is that all revenues and expenditures of the state are shown separately and fully in the budget. As a natural consequence of this principle, all public revenues and all public expenditures should be included in the budget without offsetting from each other. The principle of generality prevents certain public revenues from being allocated to certain public expenditures. 

The principle of annuality means that the revenue estimates and the amounts showing the expenses in the budget are valid for one year. All revenue and expenses are limited to one year. The principle of annuality is a principle brought to the budget system by the constitution. Exceptions to this principle are provisional budgets, investment budgets lasting more than one year, and multi-annual budget applications. 

Under the principle of specification, each appropriation must have a particular intended use and be earmarked for a specific purpose in order to prevent any confusion between the various appropriations either when they are authorized or when they are implemented. The budgetary authority (Parliament or Local Government) may therefore be certain that the expenditure that it has authorised is implemented for the purpose for which it was intended 

The principle of equilibrium expressed by the classical economic thought is that public expenditures must not be more than public revenues. The principle of equilibrium means that the budget must include the same amount of revenue and expenditure. In recent years, we see that this understanding of financial balance is mostly based on economic balance. Therefore, today, governments may run budget deficits or budget surpluses to ensure economic stability.

According to this principle, which is also called the subjective accuracy principle, the budget revenue and expenditure estimations and the results of implementation should be compatible with each other. Estimates must be made accurately. Estimates should be neither too optimistic nor too pessimistic. In the budget, the real opinions of the Ministry of Finance, which prepared the budget, should be revealed, expenses should not be shown as low and revenues should not be shown high.

The principle of accuracy is that budget revenue and expense estimates are designed using the recent techniques and calculations. Today, these techniques are used in the best way in the ministries of finance or the units responsible for preparing the budget in almost all countries. Thus, the budget is prepared within the framework of possible economic, financial and social developments or fluctuations in the next year. 

The principle of openness means that the income and expense projections in the budget are organized in a simple and easily understandable manner. The budget must be openly discussed and approved in the parliament 

The traditional budget system is one of the first budget systems. It is inspired by the balanced budget approach of classical economists. The scope of public services in this system is extremely limited. Therefore, the revenue and expenditure aspects of the budget are low. In the traditional budget system, all attention is focused on the factors of production. The outputs obtained because of the activities are not emphasized. In this budgeting system, the unit performing that service is considered when appropriation is given, not the quality and quantity of the public services provided. It does not matter what the resources will be used for or what benefits they will provide. 

The performance budget system aims to measure the effectiveness and achieve the maximum output with the available resources. It is a budgeting system based on cost-benefit analysis. In this system, there are important new developments such as setting goals, finding alternatives to reach these goals, planning, and reporting. Unit costs play an important role in the allocation of appropriations. Performance-based budgeting works when public administrations prepare their budgets following the mission, vision, strategic goals, and objectives in their strategic plans based on performance. 

Planning is the process of determining the best available resources and goals for the future, choosing the goals and programs, policies, and methods to achieve these goals, and making a decision among the options. PPBS was implemented within the framework of the budget reform practices that started in the USA. PPBS is the planned form of the program budget. PPBS has the characteristics of both a performance budget and a program budget by focusing on issues such as cost-benefit analysis through a long-term perspective. PPBS also concentrates on issues such as the budget preparation, the selection of alternative programs, and program analysis. 

Zero-based budgeting system is also referred to as a re-budgeting system. The essence of this budget system is to accept and reevaluate activities as if they were done for the first time. Each year’s budget is evaluated on its own. The budgets of previous years are considered zero. In a zero-based budgeting system, decisions are short-term. The purpose of the zero-based budget system is to review all programs simultaneously and fundamentally and to encourage managers to reallocate funds as they see fit. 

The Presidential Government System was introduced in Türkiye in 2018. The new system substantially revised the budgetary provisions in the Constitution and changed the authorized institutions related to the budget. In the presidential government system, the Presidency prepares the central government budget law proposal and presents it to the Parliament. In the presidential government system, the Undersecretariat of Treasury and the Ministry of Finance were combined and so The Ministry of Treasury and Finance was established. All duties related to the budget within the Ministry will be carried out by the Presidency. The Presidency uses international standards and classifications while preparing the budgets. While preparing the central government budget law proposal, the presidency provides the coordination between public administrations. The Strategy and Budget Presidency and the Ministry of Treasury and Finance coordinate the preparatory work of the central government budget law proposal.

The Grand National Assembly of Türkiye (GNAT), which has the power to decide on behalf of the nation, exercises the budget right in Türkiye. The GNAT, by adopting the budget law, gives the executive body the authority to spend and collect revenue. The executive body also implements the budget within the framework of this authority. It is also an element of the budget right to supervise how this authority is used and to audit the results of the implementation of the budget law with the final account law. 

The fundamental rules for the content, preparation, deliberation and implementation of the budget are included in Law No. 5018’s Article 13, which governs the organization and operation of public financial management. In this context, while preparing and applying the budgets, it is necessary to ensure sustainable development along with macro-economic stability, as well as to take into account the policies, targets and priorities in the development plan and programs, the strategic plans of the administrations, performance criteria and cost-benefit analyses. In addition, while preparing the budgets, the principles such as the public financial transactions will be seen comprehensively and transparently in the budget, all revenues and expenditures will be shown in gross, certain revenues cannot be allocated to certain expenses, income and expenditure balance will be ensured, and issues that do not concern the budget cannot be included in the budget, are also regulated in the Law. Budgets cannot be put into practice unless they are approved or approved by the GNAT or authorized bodies before the start of the year they belong to. In addition, the Law regulates that public services will be carried out in accordance with the methods, principles and objectives determined by the legislation, with the appropriations placed in the budgets to achieve certain objectives.