Memorandum to: Supervisor
The Lack of a Budgetary Theory
There is significant aridness in the American budgetary literature regarding one of the most important issues of public budgeting, which is the distribution of public budget for varied purposes so that highest return can be achieved (Fao.org, 2016). However, the energy absorptions in the building of mechanical institutions for purposes of budgeting have created a diversion in attention from problems of basic budgeting. The issue is identifying the basis on which allocation of dollars for activities A and B is decided.
There are some aspects of pure economics associated with public expenditure but is often less talked about. The explanation of economics as the science of the study of human behavior in the form of association between scarce resources (with alternative use) and ends open many debates on whether behaviors related to the budget are political or economic (Allen, Tommasi, & Organisation for Economic Co-operation and Development, 2001).
The chapter has a focus on few of the public budgeting problems and the causes behind the same. The mentions in the chapter open varied perspectives for public administration employees and students for realizing the significance of budgets in any organization. There are two major ideas or points presented in the chapter (Neuby, 1997). They revolve around the two issues: a. the problems related to public budgeting b. possible exemplified solutions to the problems.
Problems related to public budgeting:
- There are only rare occasions that the budget authorities think ahead of processes to evaluate the particular function (ends) estimates. An approach to the estimate review of individual entities has a direction headed to the end achievement efficiency. There is the high significance of the ways that an agency decided to utilize or actually utilizes available resources with the optimal efficiency (Reviglio & International Monetary Fund, 2001). However, using this approach means that a fundamental issue is missed out- the issues at to if there is worth in carrying the function or the scale of carrying the function. The results would be fund transfers from and towards relative utility activities.
- The factors, which determine the governance of budgetary officials’ decisions, also pose a problem, which is more related to the philosophy of politics.
- When we consider the side of expenditures, there is differentiation by budget authorities on bases like productivity and unproductivity of expenses, public expenses classification, and demonstration that public expenditures have seen a rise and discussion on the decision of public expenditure optimal aggregate. However, there is no final clasp with the issues of public revenue allocation into varied objects. The issue lies in the harmonizing of public revenues in all affiliated agencies.
- Additional problems would relate to the creation of criteria for the selection of public expenditure objects. The central issue in the productive state is constituted with this issue. There is no success of planning agencies in the clear formulation of policies related to public funds allocation.
Exemplified solutions:
- For the second problem, there is a review of public expenditure theories by Mabel Walker, and she suggests a method for the ascertainment of expenses distribution tendencies making an assumption that there would be pointing towards “a norm of expenditures consistent with the state of progress at present achieved by society,” in the way. However, the implication is limited to the municipal level and not the federal level (Paissues.blogspot.com, 2012).
- For the third problem, in case we could create over-all planning as opposed to simply planning, there should be the availability of a framework that balances values by giving credit to both future and present interests. As the evidence, there has been the creation of a machinery of the Government, which facilitates the alternative expenditure facilitation by the planning agencies. One instance would be the formation of Water Resources Committee related to National Resources Planning Board and the remaining subsidiaries.
- For the fourth problem, there should be careful considerations to the assumptions made for working and training officials, taking to end and reflecting that there is the public will or interest in all matters of the budget. A curious investigation into these terms could create higher problem awareness and proper implementation of budgetary policies.
Toward a Theory of Budgeting
The chapter discusses theories from the economic science which could explain how and why public expenditure budgeting is mandatory. The three principles considered are:
- Given that demands will always be higher than the scarce resources, the applicable primary economic test would be to evaluate the return on all types of expenditure and the opportunity costs related to forgone alternatives. The merit comparison of alternative fund uses could be done, which means indulging in a budget analysis.
- The analysis of the added values that are anticipated to be derived from added expenditure, which is termed as Incremental analysis. This is in relation to diminishing marginal utility. It should be considered that this analysis is to be done on the margins, which are balance points where the same return would be given by additional expenses for any specific cause.
- The relative merit comparison can only be based on the comparative effectiveness in the achievement of some common objectives.
There are other terms and their deliverables that have been well explained in the chapter.
Relative value is the basis for the decisions on budgeting. There are no absolute values for the standard. It would not be sufficient to mention that a specifically designed expenditure is desired or worth talking. Costs should be worth the benefits derived. This means that the results should create higher value than obtained resources, considering the opportunity costs.
There are certain limitations to the process of relative value mentioned above. There is no easy application of the various methods of relative value like incremental analysis, constitute of relative effectiveness, budget analysis formula. These have theoretical soundness; however, the implication may be a tough task. The precision of value use lacks many times. There will be validity in the theoretical implementation of these formulae; however, the usefulness in the practical terms is restricted because of the dependency on number accuracy.
The bringing out of the alternative budget procedure advantages will be based on the comparison of methods and techniques of budgets used. There is labeling of varied techniques for the same such as open-end budgeting, work measurement and unit costing, fixed-ceiling budgeting, analysis of decrease and increase, listings of priority, and item-based controls. There is no mutual exclusivity between these methods. There could be proper incorporation for some whereas some are used in primary budget estimation and others in processes of budgetary controls.
The class combined theories and practical examples to explain the various budgetary methods and techniques. The theoretical principles and statements need to be well understood before applying them in practical.
References
Allen, R., Tommasi, D., & Organisation for Economic Co-operation and Development. (2001).Managing public expenditure: A reference book for transition countries. Paris: Organisation for Economic Co-operation and Development.
Fao.org,. (2016). Chapter 4 - Budgetary control. Retrieved 8 February 2016, from http://www.fao.org/docrep/w4343e/w4343e05.htm
Neuby, B. (1997). On the Lack of a Budget Theory. Public Administration Quarterly, 21(2), 131. Retrieved from https://www.questia.com/library/journal/1P3-26123907/on-the-lack-of-a-budget-theory
Paissues.blogspot.com,. (2012). Public Administration Issues: THE LACK OF A BUDGETARY THEORY (by: V.O. Key, Jr., 1940). Retrieved 8 February 2016, from http://paissues.blogspot.com/2012/07/chapter-13-lack-of-budgetary-theory-by.html
Reviglio, F., & International Monetary Fund. (2001). Budgetary transparency for public expenditure control. Washington, D.C.: International Monetary Fund, Fiscal Affairs Dept.
