A budget is an income and expenditure plan in money terms for a given period, usually one year. Budgeting is a significant resource management tool, priority-setting mechanism, and means of achieving objectives for individuals, firms, and especially governments. From a macroeconomic perspective, the national budget plays a significant role in the country’s growth, inflation, employment, and overall public welfare.
The Government Budget: An Overview
Every year, the national governments of all countries in the world prepare a national budget, typically read out by the finance minister or treasury department. The budget states how much money the government plans to raise—via taxes, tariffs, and other means—and what it will spend it on across sectors such as defense, education, healthcare, and infrastructure.
For example, the FY 2025 U.S. federal budget is projected to be $7.3 trillion of spending and $5.5 trillion of revenues, resulting in a projected deficit of $1.8 trillion. This would mean that the government will need to borrow funds to pay for its expenses and increase the national debt.
Types of Budget
Budgets are usually of three types:
Balanced Budget: Revenues are equal to spending.
Surplus Budget: Spending is less than revenues.
Deficit Budget: Spending is greater than revenues.
The majority of contemporary governments are running a deficit budget, particularly in underdeveloped nations, where there is a high demand for spending but limited tax revenue.
Why is a budget necessary?
Resource Allocation: A budget facilitates the allocation of limited resources to priority areas such as healthcare, education, or roads.
Fiscal Discipline: It lays out limits for spending, lessening the likelihood of excessive or frivolous expenditure.
Economic Planning: Macro-economic policy is guided by budgeting, e.g., inflation-control, unemployment-reduction, and income-redistribution policies.
Accountability and Transparency: It is also a guiding framework for assessing government performance and holding public officials accountable.
Key Facts and Trends
The IMF stated that the average government budget deficit globally in 2023 was approximately 5.8% of GDP.
In the Pakistan budget for the years 2024-25, the government set a fiscal deficit equivalent to 6.9% of GDP with far-reaching plans to raise tax revenues.
Health and education are often receiving less than 10% of the entire government expenditure in the majority of developing countries, as noted by both UNESCO and WHO.
Defense spending continues to be top-heavy in several nations. For instance, the FY 2025 United States defense budget is projected at $895 billion and represents the largest single component of discretionary expenditures.
Challenges in Budgeting
Preparing and executing a budget is not easy. Political pressures tend to dictate expenditures, and populism tends to test fiscal sustainability. External shocks such as world oil prices, natural catastrophes, or pandemics (like the case of COVID-19) can upset even the best-laid budgets.
Conclusion
An accurate budget is pivotal to economic stability and growth. It determines what a government prioritizes and how it feels about people’s well-being. As taxpayers, it matters to us to know how our money is utilized. Budget literacy empowers the citizens to participate in effective democratic debate and demand governance improvement.
