The budget in its elementary form had been part of almost all monarchies of the history. There have been written documents regarding the existence of the state treasury, accountants and auditors who were employed by the monarchs to protect the royal treasury.
The modern democracies have the legislatures playing an important role in the managing of public finances. The taxes that are collected and the revenues that are generated by the government through several means are to be used for the development and welfare of the society. The emergence of the Welfare State made it important that the government money is being judiciously used to better the living conditions of society in general and the marginalized sections in particular.
The process of budgets fulfills important functions in the economy of the nation. They act as a means to carry out several objectives of the public organization. Some of the important roles of budget in the national economy are:
- Prioritization of the allocation of the public resources
- Achieving policy goals through prudent financial planning
- Establishing accountability regarding the usage of the tax payers money
- Financial controls also ensure compliance to rules and increase in efficiency
In some countries, the executive part of the government also plays an important part regarding the revenues and expenditures of the government and the legislative is reduced to just an approving and reviewing authority, e.g. in UK where the budget process is primarily dominated by the executive (the House of Commons).
A more balanced approach of distributing power is practiced in the USA where the legislature can review and make changes to the budget presented by the President and the President finally approves it after satisfactory checks and balances are concluded.
The dominance of executive or legislature in the budgeting process is a matter of debate as many consider the legislative to be an obstacle in the fast paced globalized economy where foreign direct investment and monetary funding from organizations like IMF and World Bank is of crucial importance to several democracies. There are several measures suggested to expedite the decision making process from fixing the term of the legislatures, introducing citizen panels, attaching funding power at local levels to bringing in two year budgetary cycle and special legislation regarding expenditure management.
The government expenditure is funded by a common pool of tax payer’s money and the policies that are formed with this money are further used to fund projects. The catch here lies in the fact that the people who actually are paying for these policies are the larger group while the people who benefit from these policies might be a much smaller group, which translates that one might not be enjoying the benefits for which one is paying money. Such scenario leads to an excessive spending of public money on policies which are not beneficial to the society as a whole. Such situations are prevalent in democracies which are multi-lingual, multi-ethnic and divided on the basis of regions, religions and other factors.
