Every State performs functions and howsoever broad or limited the functions it undertakes, it must tackle the two-fold problem of obtaining funds to pay for the services it renders, and to manage the expenditure to be incurred thereon.
Public funds are raised primarily through taxation, although there are also other sources of revenues.
ADVERTISEMENTS:
Generally, expenditure is controlled through a detailed financial plan known as the Budget. The Budget is a detailed financial statement, drawn in advance of the fiscal year to which it applies, which lists, in detail, all anticipated expenditures and revenues, in a balanced accountant’s statement. The fiscal year in most of the countries begins on April 1, and ends on March 31, of the following year.
No State ever had a financial system entirely plan less, but until comparatively modem times, well-coordinated schemes were the exception rather than the rule. Toward the end of the eighteenth century, Britain, recognizing the necessity for reviewing fiscal policy as a whole, introduced what may be considered the earliest modem budget.
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The use of the word budget in public finance originated in the expression “The Chancellor of the Exchequer opened his Budget,” which was applied in Parliament to the annual speech of the Chancellor of the Exchequer explaining his proposals for the balancing of revenue and expenditure.
By definition, a budget must present a complete picture of the Government’s finances. Long-term financing of major public schemes constitutes the capital outlay budget, and should show in detail the cost of the capital schemes and the methods by which the cost is to be met.
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The expenditure for the current year, for ordinary running expenditures of the Government, and for such extraordinary expenditures such as is necessitated or likely to be required as relief, etc., constitute the current budget. This must likewise show the means of raising funds to meet the expenses, whether by taxation, miscellaneous revenues or otherwise.
The budget must also give a clear picture of the public debt. Although a complete statement of the total debt need not be included, if sound financing is to be effected, a condensed statement of it should be made, with statement of the obligations to mature during the financial year.