What is a Budget?


Head of the Finances, Minister of Finance has announced the D-Day. This would be the Forth Budget of the present regime. Every one is anxious about what it may bring forth. Why the hushed voices. Why the apprehension.

A budget, in simple terms for a layman, is a financial record with a list of all planned expenses and revenues. It is a plan for saving, a plan for borrowing and another plan for spending. It should show how each area of saving, spending, and borrowing, will be done in the future. Most often a Country’s annual Budget would specify the intentions of the Government’s preparations and intentions for the following 12 months.

It is an extremely anxious time for the Finance Minister, who had to present his/her document and make it Public. Sometimes taking as long as 10 hours to announce and read out the whole document, the Minister has to explain the progress, in every category, as well as how he/she had managed the financials of the previous year. The way the Country’s net income was managed with comparisons is vital. If a Budget item had a ‘greater income’ in actual terms in the previous Budget, it would be as catastrophic as having an ‘over expenditure’.

The budget should be as accurate as possible for a financial planning of any Country. The lack of perception of the future, would only show that strategic planning methods used to evaluate the Strengths, Limitations, Opportunities, and Threats for a financial plan would be minimal or non-existent. These would be the basic foundation for any plan.

A budget then, as it is mentioned, is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods. In other terms, a budget is an organizational plan stated in monetary terms.

In summary, the purpose of budgeting is to:

a) Provide a forecast of revenues and expenditures, that is, construct a model of how our Country might perform financially if certain strategies, events and plans are carried out.

b) Enable the actual financial operations of the Country to be measured against the forecast.

c) Establish the cost constraint for a project, program, or operation.

To plan for Macroeconomics, there are several factors that should be researched, compared, studied and evaluated before one can make a decision. Other areas that needs to studied locally and compared with global statistics is Economics, Sociological, Technological, Legal, and now the Environment.

What this means is that nothing can be taken in isolation when planning , whether it be a small Company, a Conglomerate or a Country.

It is evident that if you plan to invest in promoting Tourism in a country, it is also vital while planning for accommodation and travel, to concentrate on investing in a safe Environment for the visitors. Everything is integrated. You cannot plan for one sector while isolating other areas. Strategically analyzing decisions of expenditure is the key to a good budget.

That would be good Budgeting. One may ask why present an Annual budget. It is apparent that the changes in Government policies and changes in taxes take place throughout the year. These cannot be of importance to the People through the Annual Budget, as these changes have already happened.

Then one would ask "why announce a annual Budget". That would be for transparency for the workings of the government and a essential component of good governance. People need answers to questions.

It would be interesting to know if, the 15% of the poor population living in our country, has doubled their per capita income to Rs. 7,000/- a month, in the last 18 months. We have made enormous strides in the Government sectors making billions of rupees in net profits. There is enough just in the Profits made by the 2 largest of Banks, BOC and PB and the newest announcement that Central bank has broken a world record in making 52 billion in reserve management. It is said that the CB made this profit even after providing for the losses of the defaulted Greece Bonds. There may be several other public cost management sectors making billions of profits.

When we see the beautiful revamped Race Course Shopping arcade which was inaugurated a week ago, we wonder which section of the Budget the UDA allocated the building expenditure. How much was the labour component of this project. It is stated that the 12 shops paid 10 years lease payments up-front. The Budget must show this income. It is also important because the capital expenditure of the Rs. 450 million on the mini Race Course is less than a tenth of the total project of the Grand Stand and the adjoining Sports Building, that will be completed next year.

As I see it, our budget can be of concern to me, only if it is transparent enough to educate me. So many questions to be answered.

So here is hoping for a good picture on the 8th. of November 2012 with a strategic plan, giving a picturesque translation of our progress from the year before to the next, which will bring prosperity to our country and give confidence to the independent investor.

R. Ratnayeke

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