Definition:
A budget is a financial statement of the planned income and expenditure for a period of time usually one year or fiscal year.
A fiscal year is simply an accounting year which, in Cameroon runs from 1st January to 31st December of each year.
A budget is usually drawn up in the form of a balance sheet showing the major sources of estimated revenue on one side and planned expenditure on the other side. Individuals, companies and the government usually set up their budget at the start. Thus, we can talk of national budget established by the Ministry of finance with the help of all the Ministries on behalf of the government and voted by parliament put in to law by the bead of state at the beginning of the year. We also have organizational budget by a company or institution, council budget by urban or local councils, and even private budget by private individuals etc.
The budget is important because it forms the basis of government's long-term financial planning as well as an instrument of fiscal policy I. e. It helps to regulate the Levels and composition of consumption, investment, government expenditure and net exports.
Types of Budget
There are three types of budget namely: balanced budget, budget deficit and budget surplus. Here, we focus on slate or government budget.
- Balanced budget
It is a budget in which government’s current revenue from taxation and other receipts (T) is equal to government's current spending (G) for any fiscal year. It is usually written in economics as G=T. This means that the government is spending exactly the amount it receives from taxation and other sources. It is always very difficult to achieve a balanced budget in a country because of poor financial management.
Reasons for adopting balanced budget
- It stabilizes the economy I.e. a steady increase in national income
- It ensures stable rate of economic growth
- It avoids government borrowing
- Budget Deficit
This is a budget in which government's expenditure (G) is more than the government's current revenue from taxation and other receipts (T) in any one fiscal year. It is symbolically written in economics as G > T. This means that government S spending more than it receives from taxes and other sources.
A budget deficit is always financed from borrowing or running down accumulated foreign reserves.
Reasons for adopting budget deficit
- It is used to cure deflation in the country
- It is used to stimulate aggregate demand
- It increases employment or job opportunities in the country
- It ensures economic growth
- Budget Surplus
It is a budget in which government's current revenue from taxation and other receipts (T) is greater than government's current spending (G) for any fiscal year. It is usually written in economics as T > G.
This means that the government is spending less than it receives from taxes.
Reasons for adopting budget surplus
- It raises funds for debt repayment
- It raises enough money to finance capital expenditure
- It is used to cure inflation
- lt helps to avoid government borrowing
- It ensures equitable distribution of income