Chapter 3 Government Functions and P. Budgeting (1)

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Course: Public Finance and Management
Unit 3 : Government Functions and
Public Finance Budgeting
Presented by
Mohamed M. Isse
Date: Oct, 2016
1-1
Chapter 2: Outline
 Introduction
 The Purposes of Government
 The Structure of Government
 Roles and Responsibilities of citizens
 The functions of Government
 Forms of Government
1-2
Outline
• What is Government Functions?
1-3
Frequently asked Questions
• Why do we need government?
• What can government do?
• What type of government exist in Somalia today?
• How does decision making occur at the federal,
provincial, and local levels of government?
1-4
The Need for Government

 Since the beginning of civilization there has been an
inherent need for some type of social order.
 One of the earliest types of government was the
monarchy.
 This type of government involves the rule by one
person (man) through divine right .
 The power in this type of government is passed through
heredity.
1-5
Cont’ed:
• This type of government was not truly in the best
interests of the people.
• As a result in many countries;
- England (1215),
- France (1789),
- Russia (1917),
• Later on a new type of government developed Democracy (rule by the people).
1-6
The purposes of Government
• Government is the formal structures and institutions
through which decisions are made for a body of people.
• Most governments today exercise power within the
context of a state.
• Governments function ensures
national security,
maintain order,
resolve conflict,
provide services, and
provide for the public good.
1-7
Life without Government
1-8
What is the Government?
• Government
•
is made up of the formal institutions and processes
through which decisions are made for a group
of people.
1-9
Three main components:
• People—Elected officials with authority and control
over others; public servants who carry out day-to-day
governmental business
1-10
Three main components:
• Power—Legislative to make laws; executive carry
out,
•
enforce, and administer laws; judicial to interpret laws
and to settle disputes
1-11
Three main components:
• Policy—Decision made by government in pursuit of
• a goal; can be a law, a government program, or a set
of government actions
1-12
Discussion
D
1-13
Cont’ed:
 People—rulers and the ruled;
 Government: power and authority;
 Policies—decisions made by government
1-14
Foundation of Government
 State:
– Political unit with the power to make and enforce
laws
– over a group of people living within a clearly defined
territory.
1-15
Foundation
• Local Government :
• Local Government is a political subdivision of the
national government excluding
• The field offices of line agencies geographically located.
1-16
Functions of Government
1-17
The Structure of Government
The Government Branches:- The legislature
- The executive branch
- The Judicial branch
1-18
The legislature
The legislature branch is a part of three branches of
Government :- Headed by congress which includes the house of
representatives and senate
- Main tasks is to make laws
- power includes
- passing law
- impeaching officials
- approving teaties senate
1-19
The executive Branch
• The executive branches:- leaded by the president
- caries out federal or national activities
- recommends news laws
- Deals with world wide issues
1-20
The Judicial branches
The Judicial branches
- Headed by the court
- Responsible for understanding and enforcing
the constitution.
- Reviewing the laws
- looking at cases involving state rights
1-21
The role of citizens
The roles and responsibilities of citizens : Initiating changes in laws and policies
 Running for public offices e.g parliament, president,
mayor, delegates and city council and Governor
 following the laws
 Paying taxes
 Registering to vote at age of 18 years.
1-22
Government Forms
1-23
Organizing National Power
National power
Unitary systems
Consists of a number of smaller
administrative units
Control can be centralized or spread
across geographic regions
Sovereignty rests in a single, national
government with ultimate authority
Has the power to change or abolish
governments laws
Federal systems
Confederal systems
Divides power between a national
government and smaller regional
governments
Levels act independently, but cannot
abolish or reorganize the other level
Independent states join forces in a
central government
States delegate limited powers to the
central government for common
interests
Public Finance Budgeting
• What is the Government Budgeting?
2
1-25
Meaning of Budget
• A budget is a statement of the estimated
revenue and expenditure of the
Government in respect to a particular
financial year.
1-26
Definition
 Budget : Is the master financial plan of the
government. It brings together estimated revenue
and proposed expenditure for the budgeted years.
1-27
Importance of Government Budgeting
 Budget It sets a frame work for policy formulation.
 Budgeting is means policy implementation.
 Budget is a means of legal control
 Budget It’s a tool for accountability and management
 Budget Its an instrument of economic policy
1-28
The Purposes of Budgets
Budgets: provide governments with a mechanism to allocate
resources for the pursuit of goals that are consistent with
community preferences and needs.
1-29
Budget Cycle
 Budget formulation
– Executive drafts budget
 Budget enactment
– Minister of Finance presents budget to parliament,
debates and approves
1-30
30
Budget cycle
 Budget Execution
– Government agencies & departments implement
programmes and spend the money
• Budgeting auditing and assessment
– Agencies and departments report on expenditure
– Auditor General will oversea the expenditures.
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The general stages of the budget cycle
Agencies and
depts report on
expenditure to
Auditor
General
budget
auditing &
assessment
Govt agencies & depts
implement programmes
and spend the funds
Executive drafts
budget
budget
formulation
Medium Term
Expenditure
Framework (MTEF)
Minister of
Finance presents
budget to
parliament,
debates and
approves
budget
budget
enactment
– 3budget
year rolling
budget
execution
32
Components of Budget
 Revenue receipts
- Tax revenue
- None tax revenue
 Capital receipt
- Recovery loans
- Others
 Expenditure
- On plan account
- none plan account
1-33
Figure 1
• .
1-34
Figure 2
.
1-35
Tax revenue
 Tax revenue: includes all revenue earned through
varies kinds of taxes.
 Taxes are broadly divided in two kinds of taxes
- direct taxes and
- indirect taxes
1-36
Direct taxes
 Corporate tax
 Income tax
 Interest tax
 Wealth tax
 Expenditure tax
1-37
Chart 3
.
1-38
Indirect tax
 Custom duties
 Excise duties
 Sales tax
 Service tax
1-39
Chart 4
.
1-40
None tax revenue
 Interest receipts
 Dividends
 Grants
1-41
Chart 3
1-42
Budget chart 3
.
1-43
Local Government Budgeting
• Setting a local government budget involves three key
decisions:1) Allocation: What services will be provided?
2) Distribution: Who will get the benefits?
3) Stabilization/Growth: What levels of growth expected?
1-44
LGB
• The Allocation Decision is based in two criteria:
1) Economic efficiency: Government should provide
services desired by the local citizenry
2) Technical efficiency: Government should provide
services at the least cost and implement properly.
1-45
Local Government Budgeting II
o The Distribution Decision usually considers:-
1) Where to provide services
2) How to provide services
3) How to pay for services
1-46
Local Government Expenditures
 How do local governments actually spend their money?
 This question can be answered many ways.
 Expenditures are often organized by:
1) Function or Purpose (Fire, Water, Sewer, Planning)
2) Basic object (Wages, Supplies, Debt)
3) Other needed services
1-47
LGE
• What factors influence the level of local expenditures?
• Demand Factors (What services do citizens want?)
- Population shifts
- National economic performance
- Relative price of services
- Changes in local income levels
1-48
LGE
• Supply Factors (What services does/can a government
provide?)
- Cost of labor/capital - Economies of scale
- Indexation (welfare)
- Employee productivity
1-49
Local Government Revenues
• Traditionally local governments receive income from four
major sources:- User charges
- Intergovernmental transfers
- Property taxes
- Borrowing
1-50
LGE
• General principles for choosing a local tax structures
are:
- User charges are best for those services where
benefits accrue to users (Utilities)
- Local property taxes are best where the benefits
accrue to the entire population.
- Intergovernmental transfers are best for systems
(Health Care, Education, Welfare)
- Borrowing is best for long-term capital investments
1-51
Consolidated Budget vs. The Capital
Budget
The
Operating
Budget
The
Capital
Budget
(Year 1, CIP)
Years 2-5
“The Rolling
Spending Plan”
The CIP
The Consolidated Budget
Powerbrokers in the budget process
 Treasury
 Politicians
 Donors & IFIs
 Legislatures
 Private sector
1-53
Uganda Budget Example -2007
 Expected revenue: Sh- 2.5 trillion
 Expected foreign aid: Sh- 1.9 trillion
 Recurrent expenditure Sh. 2.6 trillion
 Development expenditure Sh. 1.8 trillion
1-54
Expenditure heads
 Public administration Sh.690 billion
 Military Sh. 380 billion
 Agriculture Sh. 18 billion
 Education Sh. 636 billion
 Health Sh. 374 billion
 Trade and industry Sh. 43 billion
1-55
Public Administration
• Why public administration budget larger than other
budget lines: 70 cabinet ministries
 114 presidential advisors
 81 units of local government
 333 members of parliament
 134 commissions and government bodies
1-56
Chapter summary
• A budget is a statement of the estimated revenue and
expenditure of the Government in respect to a
particular financial year.
• The purpose of Budgets: provide governments with a
mechanism to allocate resources for the pursuit of goals
that are consistent with community preferences and
needs.
1-57
The Budget Cycle
Step 1: Preparation
–Revenues and Expenditures are estimated by separate units
and by the primary budget official. A Proposed Budget is
prepared.
Step 2: Adoption
–Review of the chief administrator’s (Mayor or City Manager)
proposed budget by the governing body (City Council). The
Budget is Adopted.
1-58
Summary
• Step 3: Implementation
– The carrying out of the Budget. Money is collected,
– depts./programs are financed, money is spent, and
government conducts its business.
• Step 4: Evaluation
– Usually undertaken through audits.
1) Financial audit: Detecting fraud
2) Efficiency audit: Detecting waste
3) Program results audit: Detect whether
objectives were achieved
1-59
Calculation example 1
• Central governments collected general revenues
totaling $4 billion in 2013.
•
40 percent of that revenue came as Personal income tax
from federal and state governments.
• The remainder 60% came from local taxes, fees, and
miscellaneous receipts.
• Local governments allocated about $1 billion for domestic
issues payments.
1-60
Given Example
• The major budget classification has been lined as follows:Government expenditure
Transfer payments
- National defense 8%
Old people 8%
- Ministries budget 12%
- Agricultural budget 5%
children
6%
Health care 9%
- Covert appropriation 4%
Education
11%
- local security
9%
Development 8%
- Utilities and Fuel
7%
IDPs
3%
Reserve
10%
Q1: Prepare Budget Plan for the 2013/2014?
1-61
The chapter end
•
The Chapter end
1-62
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