Meaning, Main Components and Types of Government or Public Budget
MEANING OF BUDGET
A budget is a financial plan that shows the estimated income (revenue) and expenditure of an individual, organisation or government for a specific period, usually one financial year. In the case of government, it shows the amount of money the government expects to receive from sources such as taxation, oil revenue, customs duties, fees and other sources, as well as how the money is expected to be spent.
A government budget is therefore a statement of the government's proposed revenue and expenditure for a particular financial year. It helps the government decide how available resources will be used to provide public goods and services, finance development projects and achieve economic objectives. The major types of government budgets are balanced, surplus and deficit budgets, depending on the relationship between government revenue and expenditure.
Main Components of a Government Budget
A government budget has two major sides:
A. Revenue (Income)
Government revenue is the money that the government expects to receive during a particular financial year. It is used to finance government activities and provide goods and services to the citizens. Government revenue comes from different sources, including taxes, customs and excise duties, profits from government-owned enterprises, fees and licences, royalties from natural resources, fines, grants, and other sources. In Nigeria, petroleum-related revenue and taxes have historically been important sources of government revenue. The amount of revenue expected by the government helps determine how much it can reasonably spend during the budget period.B. Expenditure (Spending)
Government expenditure refers to the money that the government plans to spend during a particular financial year. Government spends money to provide public goods and services and to achieve economic and social objectives. Examples of government expenditure include payment of salaries and wages, construction and maintenance of roads, provision of schools and hospitals, defence and security, electricity and water supply, agricultural programmes, social programmes, and debt servicing. Government expenditure can be divided broadly into recurrent expenditure, which covers regular expenses such as salaries and administrative costs, and capital expenditure, which covers spending on long-term projects such as roads, bridges, schools and hospitals.Also Read: Meaning of Tax Incidence and Factors Affecting the Incidence of Taxation
Types of Government Budget
Government budgets can be classified into:
Balanced Budget
A balanced budget is a budget in which the estimated revenue of the government is equal to its estimated expenditure for a particular financial year. In other words, the government plans to spend exactly the amount it expects to receive, so there is neither a surplus nor a deficit. For example, if the government expects to collect ₦500 billion and also plans to spend ₦500 billion, the budget is balanced. A balanced budget can help the government maintain financial discipline, reduce the need for borrowing and prevent the accumulation of excessive public debt. However, it may not always be suitable during an economic recession when increased government spending may be needed to stimulate economic activities and create employment.
Surplus Budget
A surplus budget is a budget in which the estimated government revenue is greater than the estimated government expenditure for a particular financial year. For example, if the government expects to receive ₦800 billion but plans to spend ₦700 billion, it has a surplus of ₦100 billion. A surplus budget allows the government to save part of its revenue, repay existing debts, build financial reserves and reduce inflationary pressure by limiting excessive spending. Governments may deliberately operate a surplus budget when they want to reduce excessive demand in the economy or strengthen their financial position. However, if government expenditure is kept too low during a recession, a surplus budget may reduce economic activity and employment.
Deficit Budget
A deficit budget is a budget in which estimated government expenditure is greater than estimated government revenue for a particular financial year. For example, if the government expects revenue of ₦600 billion but plans to spend ₦800 billion, it has a budget deficit of ₦200 billion. The government must find additional funds, usually through borrowing, taxation, sale of assets or other financing methods, to cover the deficit. Deficit budgeting can be useful when government wants to finance major development projects, create employment, stimulate economic activity during a recession or provide essential infrastructure. However, persistent and excessive budget deficits can increase public debt, raise debt-servicing costs and, where deficits are financed through excessive money creation, contribute to inflation.
Summary
A budget is a financial plan showing expected government revenue and expenditure for a specific period, usually one year.
Government revenue is the money expected to be received.
Government expenditure is the money expected to be spent.
Sources of government revenue include taxes, customs duties, royalties, profits and borrowing.
Government expenditure includes spending on education, health, roads, security, salaries and other public services.
The three main types of budget are balanced, surplus and deficit budgets.
