Factors to Consider In Budget Estimations
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Public budgets are viewed as control measures for the purpose of carrying out accounting and management responsibilities of legislative bodies. For such tasks, estimation of the budget revenue and expenditure is based on the capabilities of the legislative units and existing or proposed sources of revenue to perform as expected. With the current economic crisis, it has become hard for the legislative units to draft accurate and consistent estimates that can be used to make legislative decisions. The crisis, with the perception of budgets, as control measures, in terms of the prosperity of legislative units, forces those involved to use selective criteria in prioritization and making estimates in the budget. For example, the different levels of government have different sources of revenue, but almost similar structure of expenditures. Estimation is the foremost step in the budgeting process, requiring each level of legislative to stretch out to its maximum capability in expenditures, and not wait for help from other levels. While the budget process at all levels of government requires those involved to make impactful policy decisions about expenditures, each level contends for revenue sources that are most beneficial to its own legislative needs.
Types of various public budgets and their objectives
There are various budgets types as discussed in Ellig & McTigue (2011) and Lee & Johnson (1977) depending on decision strategies. Mainly, they are influenced by a political angle with the aim of achieving narrow political agendas in order to gain support in the legislative bases. In such cases, the budget tends to be managerial-oriented rather than leadership-oriented due to the accountability factor. A good example of such budgets is the performance budget, which categorizes expenditurea as per the legislative units. In this type of budget, the resources and the expenditures are in line with their respective administrative units, forcing the units to compete for revenue sources that are most beneficial. The most important intent of a performance budget is to help administrators to fine the work competence of operating units. Program budgets are almost similar to the performance budgets, but at times overlap the legislative units, as their purpose is considered as the legislative unit. For example, a federal purpose unit may as well cover the program to be carried at local levels. Zero base budgeting (ZBB) acts as the watch dog for program budgeting; this means that the ZBB evaluates the performance of the program budget activities and decides whether the activities should continue to be funded or not. Balanced budget calls for income to be equal to or to exceed expenditures. In most cases, this type of budget does not apply on the federal level due to the different states’ budget approaches (Ellig & McTigue, 2011).
Relationship and contrast of federal, state and local budget
The federal, state and local budgets are related in a manner that the local budget reflects the amount expected to be received from the state’s government; the state budget reflects the level of revenue it expects to receive from the federal government, and the amount it plans to use on the local level; the federal budget reflects the amount it plans to hand out to each state (Lee & Johnson, 1977). State and local levels of legislation utilize and target special sources of revenue in their budget approximations. The special sources, such as casinos, are best suited to be accessed and supervised on the state and local levels. In the early years before 1960s, federal budgets were based on the different coverage of revenues and expenditures. Later on, the budget used a unified structure that allows for similar reading surpluses and deficits. Another common issue within the different budget levels of legislation is the reliance on business cycle, expectation of taxpayers, and future fiscal policy to make estimation within their budgets. Probable macroeconomic effects of tax and spending legislation are dependent on assumptions of the business cycles, and at times, on the unpredictable economic fluctuations. At the same time, when the business cycle is down, assumptions in the budget will rely on the taxpayers’ expectations.
Purposes of Tax Expenditure Analysis
Tax expenditure analysis (TEA) has employment as the foremost reason for its existence by spotting tax provisions that provide incentives to the different levels of people (Lee & Johnson, 1977). TEA is very important for policy makers in the process of business estimation, as they do not “incorporate any behavioral response of taxpayers or changes in the timing of tax payments.” It is under such capacity that the TEA selects the viable sector and characters qualified for special tax provisions. On the same note, TEA influences the budget to have special considerations for the different levels of legislation’s ability to fund the budgets.
Impact of the economic state on future revenue forecasts
The understanding of the economic state is very important in understanding the limits and capabilities of the economy in the scope of major policy change platforms, such as statutory, budgetary and regulatory. In terms of budgetary platform, the economic state has a large impact on the future revenue forecast. This is after considering the need to evade a deficit in future plans. It is, therefore, the duty of the economic state to give the budget planners a direction or platform for estimating the future revenues after monitoring the incoming revenues. There are a number of ways to approach the issue of revenue forecasting, such as: regression, weighted averages, and exponential smoothing. This is to mean that the economic state of an entity is responsible for the level of aggression in budget prioritization and efficiency.
A budget, as a control tool, can also be used to identify needs and measure success of a legislative unit economic capability. This can be achieved if the budgets implement the tools of identifying community needs, prioritizing these needs, identifying challenges and opportunities. Most budgets concentrate on creating needs for the community without consulting the community. For example, it is recommendable that while drafting budgets, the community’s view should be considered, so as to work with the real figures instead of hypothetical data. The key success measure in the budgets is the ability of the budgets not to rely on short term solutions to cover the deficits. This is because short term solutions often “eat” the community in the long run. A budget with fewer deficits, covered by a short term solution, does not count for a successful budget. A budget would rather have a high deficit, but with implementation of a long-term solution. For example, a budget should not consider using reserve resources to lower the deficit level, but rather should consider funding a permanent solution to the crisis despite an increase in the deficit.
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