BALANCED BUDGET
Author: Dr.VSR.Subramaniam
Website: http://ww.drvsrs.com
Added: Wed, 08 Nov 2006 23:54:36 -0500
Category: Politics
Views: 122

A. THEORY ON BALANCED BUDGET John Maynard Keynes (1883 to 1946) was a British economist. His ideas, called Keynesian economics, had a major impact on modern economic and political theory. Also it guided many governments in formulating their fiscal policies. He is particularly remembered for advocating that the government should use fiscal and monetary measures to lessen the burdens due the adverse effects of economic recessions (Economic declines), depressions (Shortage of all needed items) and booms (Prosperity). Economists consider him one of the main founders of modern theoretical macroeconomics. His popular expression "In the very long run, we are all dead" is still quoted. From a Keynesian point of view, a balanced budget is achieved when the government has enough fiscal discipline and be able to equate the Revenues with Expenditure over the business cycles (which is normally 1 year). In other words, a government's budget is balanced if the Income = the expenditure. This warrants a balancing of the a deficit (Loss) during the periods of low economic prospects, are matched by a surplus (Profits) in periods of high economic activity. B. PRIVATE CORPORATE UNITS. All private corporate units in the world, always attempt to prepare a surplus budget, so that, the year-end pictures is a Surplus or Profit (Income > Expense). A portion of this surplus is distributed as dividend to the share holders, as well as another portion is kept aside for internal investments and enhancement of the corporate infrastructure. These units, budget with well quantifiable inputs, provide to expand the Revenue base through advertisements & sales promotions, and work to reduce the costs trough value analysis / operations research models etc… The market image and the credibility of the unit improves in direct proportion to the quantum of surplus, the corporate units could generate as per their budgets. The motivation behind this approach is that these units are “Answerable” to the promoters and share holders, who own the company. C. GOVERNMENT Government is a central machinery, equal to a very large scale Public Corporate sector, controlled by the elected representatives. It is expected to generate the Revenues (Income) through Customs, Direct and Indirect Taxes, Excise duties, Fees for the government services etc… and spend (Expense) in the welfare, health, infrastructure, education etc.. to keep the nation and the public in a happy and satisfied level. Also the Government should function as a “Non-profit” organisation, by a balanced approach for burdening the public for the income = the actual cost of the services provided (without any profit content). Hence the Government should aim for a "balanced budget". Logically it leads to a Balance budget with Income = Expenses. For this the approach should be :- a) To prepare the Income heads and the expected amounts first. b) Cumulate the Expenses from the bottom to the top level (Rural to district to state and then to the national level). c) Mach the Income with Expense, trim, modify and set the implementation standards. D. GOVERNMENT SETUP On the other hand, a government has to budget with many intangible (not quantifiable) variables like population growth, expected production from the volatile sectors like agriculture, and the level of inconsistency in quantifying the income from other services, tax, excise etc.. limit the approach for a Balanced budgeting. There are too many disadvantages to attempt and achieve a balanced budget by any government. D1. ADMINISTRAIVE FREEDOM. The government, is a public machinery. The elected representatives, even though externally take an oath to be responsible, answerable and serve the public who elected them, internally feel that a) They are not answerable to any body in the nation. b) Enjoyment of the privileges and immunities provided for an elected representative, as their self-gained privilege. c) The nation is a public property, not owned by any one individual in the nation. d) Grab as a big a portion of the Budgeted Expenses to their elected constituencies, without any idea of the methodology to generate a Revenue (Income) to equate the grabbed expense quantum. The cumulative effect of all the above (a) to (d) results in the creation of a large sized Expenses first. The government then attempts to generate the revenue (Income) from all possible avenues, with many intangible (non quantifiable) factors, to meet an already generated Expense quantum. Since the logical and the mathematical sequence of the budget methodology is reversed (Instead of Revenues first and Expense next, the Expense takes a lead and drives to find the Revenues), a Balance budget generation becomes impossible. D2. INCOME – NON PROMOTABLE The estimated income in the budget are supported with many assumed factors. Like a private corporate sector, there is no avenue to advertise, promote, provide incentive to etc.. to attract and optimise the expected revenue sources. In most national environments, the expected income always fall short of the targets. Hence, interim legislations are made to increase the taxes, customs, excise duties etc… All these activities are beyond the normal control, and offset the scope and implementation of a Balanced budget. D3. LOOSE EXPENSE CONTROL A Government cannot have a very strict vigilance on the expenses actually incurred with reference to that in the budget provision. Also the government machinery is normally not that serious to control costs at all levels, or perform a spot value analysis to reduce the cost accumulation. Any Balance budgeting fails in an uncontrolled expense infrastructure. D4. INTERNATIONAL DISTRACTION As soon as a member is elected to the government (irrespective of the status of development of their nation) feel that he/she has assumed the responsibility as a care taker of all nations in the world around. Because, it can add and propagate a broad-based personal image, as well as it provides an incentive to capture their wealth, to add the much required Income, to support the Budget expenses. Developed national governments watch out for any disturbance between any two nations in the world. Then they jump into a war situation. With their influence in UN, promulgate sanctions to choke the selected nations. Otherwise provide an expensive peace negotiation platform. Either war or peace, they are always at the cost of the domestic budgeted Revenue. Please refer to my Webpage “A Push to George (in) Bush” at http://www.drvsrs.com/sedsgo.htm D5. IMPOSSIBLE BALANCED BUDGET Many governments like USA, Canada, Singapore etc… are attempting to enunciate legislations to constrain the State and Central governments to have a Balanced budget. Because of the reasons D1 to D4 above, it is impossible to implement a Balanced budget by any government in the world. It is not the mandatory legislations that bring the Balance budget into practice. Only the infrastructure and disciplines among the elected members to consider the domestic development as more important, and a spirit of active implementation of the budget, can alone bring the possibility to implement a Balance budget. E. DEFICIT BUDGET – AN EASY ECAPE Hence all governments safely and comfortably prepare a Deficit budget, were Income < Expense. This has 2 implicit and advantageous assumptions. a) Don’t bother too much about the integrity and generation of the revenue generation from domestic sources, to meet the domestic budgeted expense heads. b) Look for external loan sources like IMF, World Bank, Regional development institutions etc…. at advantageous terms, to meet the deficit. The developed nations plan to payback these loans from the future revenue generations, while the developing / under developed look for justifications and logical reasons to write-off these loans in subsequent years. F. BALANCED BUDGET - HOW TO IMPLEMENT ? This is a million dollar question !! It is possible to implement a Balanced budget by any nations in the world, through the following steps. a) Government should function with the documented Quality objectives / Policies / Procedures / Rules and Disciplines like an ISO 9001 : 2000 certified Corporate organisation. b) The performance of the government and the actual occurrences, with reference to the budget, should be subjected to a Quality audit at every 2 monthly intervals. c) Any non-conformity and distraction from the budget provisions should be documented and the action responsibility / methodology should be identified. These non-conformity should be corrected before the next 2 monthly audit. d) Any budget amendment should be justified with reference to the Quality objectives / Policies / Procedures / Rules and Disciplines, already documented. e) Government should conceive the term “Productivity” and “Management decisions” with reference to the Socio-economic development units than mere quantum units, and set priority value to the intangible (non- measurable) components. Please see my Algebraic model “A Redefined productivity concept and Socio-economic oriented Management decisions” at http://www.drvsrs.com/mgmtfull.htm f) Government should target to make the Domestic investments through Domestic savings AND have Domestic technology (Latest technology moderated to suit the local conditions) manned by Domestic labour. Please see my Geometric model “Accelerate your Socio-economic development : An eccentric bi-circular model and solutions at http://www.drvsrs.com/sedfull.htm.

About the Author:
Consultant in Socio-economic development, ISO 9001:2000 and Management Information Systems. Contributing author to Ideas & Research Papers in Economics, Social Science Network. Expert in Economics at Allexpers Over 45 years of experience with multi-nationals, Commonwelath, Caribbean Development Bnak etc...

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