A policy can be defined as a guide to the actions or decisions of people in organization or institution. A policy states how members of an organization should act in specific situations which occur frequently and affect large numbers of people in a group. A policy has three components namely: it must have a process to achieve certain goals, it must have specific goals to realize and it must have a framework within which it functions. According to Dimock a scholar, policies are important in guiding the conduct of people who make decisions and take actions in organizations.
However, the term policy is often confused with other related terms such as a rule, a plan, a decision and a procedure but in reality there is a marked difference between a policy and these other terms. According to the scholar known as James Anderson in his book titled “public policy analysis”, public policy is about why government do things they choose to do and the difference that it makes. Government does many things such as conflict resolution in society, organizing society to carry out conflicts with other societies.
Governments also distribute a great variety of goods and services to the members of the society mainly in the form of taxes. Thus, public policies may regulate behavior, organize bureaucracies, distribute goods, collect revenue any other desirable activity. For this reason public policy is designed to alleviate personal discomfort or societal unease. This is due to the fact that people expect government to do many things for them and indeed there are no personal or societal problems for which some group will not demand a government solution.
Public policy studies therefore deals with the description and explanations of causes and consequences of government activity. It therefore connotes a positive side of an action in the sense that it emphasizes an initiative by government to solve problems faced by people. The government has many sources of revenue which include: Taxes-The government can get its revenue from various sources of taxes in a country. Tax is a compulsory contribution by the government on its citizens to enable it to meet its expenses for a common cause.
Tax enables the government to provide social and merit goods and services. These are the so called public goods and are consumed by all citizens irrespective of whether they pay tax or not e. g. provision of roads, bridges, social facilities etc. Also taxation is used as a controlling the flow of cash and capital in a country to ensure economic stability. It is used as a tool of economic policy e. g. imposition of high import duty in order to protect local industries granting of capital allowances and other tax incentives to encourage the inflow of direct foreign investment.
Internal borrowing is another method whereby the public policy can get its funding. This is done through the sale of treasury bills and bonds. It might be restricted to a given percentage of gross domestic products. Although used, it has some effects like it pushes up the interest rates in the economy hence increasing the cost of capital and it may exercise inflationary pressure on the economy once the government repays the money. Aids and grants. This may be given by international monetary fund and World Bank and other bilateral donors.
But it has constraints like strict terms and conditions which are imposed by donors which may be humiliating to the nation, it may not be sufficient to solve the budget deficit problems of the government. External borrowing usually from other countries or organizations such as IMF and World Bank. It has effects like humiliating terms and conditions and also the country will increase its already heavily burden of external debt. A BUDGET AS APUBLIC POLICY A budget is generally a list of all planned expenses and revenues. It is a plan for saving and spending.
A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods. The budget should contain a narrative explaining how you decided on the amount of this reserve and a description of the expected financial results of business activities. The assets should be valued with each and every cost. All other expenses are like labor factory overhead all freshmen expenses are also included into business budgeting. A budget is considered as a proposal to be prepared by the administration and submitted to the legislature.
Its aim could be to present in summary form the facts necessary to shape the policy of the government as well as provide financial support. The summaries of fact included in the budget could also serve as a key to the details of transactions and of estimates which could be submitted with the budget. The constitution inhibition that no money shall be drawn from the treasury but in consequence of appropriations made by the law makes the budget an instrument of legislative control over the administration. To implement policies, government requires money as well as institutional structure.
The budgetary process provides a means of allocating the available resources among competing interests to which they could be applied. When they device a budget, decision makers function within a definite resource constraint and must base their decisions on the assumption that no more revenue will come in. Therefore they allot the available amount of money for the greatest social, economic and political benefit. Each year there must be a new budget and an annual circle has evolved for the appropriation and expenditure of available public moneys.
The repetitive nature of the budget cycle is important, for those involved might behave differently if they did not know that they have to come back each year after year to get more money. For instance, the government of United States budget system provides the means for the president and congress to decide on how much money to use, what to use it on, and ways of raising the money they have decided to use. It is through the budget system, whereby they determine how the allocation of resources between the agencies of the federal government.
In most cases there are consequences in the decisions made during budget process due to the fact that they affect the state as a whole, nation and local governments, and individuals in the country. Budget decisions in most cases have significance in most of the countries in the whole universe. After the congress and the president have enacted budget decisions into law, the budget system on the other hand ensures that these laws are carried out. The process of planning future business actions and expressing those plans in a formal manner is what is referred as budgeting.
A budget is a formal statement of future plans since the economic or financial aspects of the government are primary matters of consideration. Every branch of the government is necessarily high complex and technical . A budget therefore supply the need for an effective means whereby those who are responsible for direction and control over technical process and who understands the technical needs of the service may formally present to the legislature and through the legislature to the people a well defined plan of work to be financed in order that the government may make a provisional for needs of the country.
The ways in which budgets are made reflect the choices, policies and philosophies of governments. Public finance covers budgeting as well as taxes and revenue. The budget is made up of revenue and expenditure proposal which have great chances of impacting as a public policy tool. Taxation deals with policy issues including: regulating the activities of firms in certain sectors, affecting production in that it can be used to encourage or discourage production, stabilization of the economy through control of inflation and even the distribution of wealth e.
g. exempting low income earners from paying tax. The budget allocations are made to government departments and ministries like agriculture, education, public health, trade, foreign affairs, defense, transport, etc and are formally made by relevant ministries. The exact character of engrossed revenues varies from case to case. Bureaucratic politics is naturally concerned not only with the direct allocation of budget items but also with a struggle to engross revenues and create monopolies or cartels.
Well established government involvement in agriculture includes state corporations like on sugar. Government agencies may be assigned monopolistic rights for the exploitation of mineral resources, to produce and sell sugar or to sell seeds and fertilizers. Similarly, a public health may be established e. g. a dispensary to offer Medicare facilities at a subsidized rate and in return the government generates revenue. The result is that public enterprise actually pays its own way and even produces a profit which goes into the state budget.
The national budget as a policy tool also focuses on education. Public education may be defined as schooling mandated for or offered to all children by the government whether national, regional or local provided by an institution of civil government and paid for in whole or in part by taxes. Public education is applied to basic education, primary and secondary schools. Moreover, post secondary education like middle-level colleges and advanced education e. g. universities-all these constitute public education since the government subsidizes or pays in full to sponsor students.
Ideally, the budget is designed to meet most of the foreseen programs and projects. In spite of the significance of the budget in education, agriculture, revenue generation, spending etc, it is equally necessary to state that the government experiences various risks including; property loss, loss of income or increased costs, damage to real and personal property, liability etc. Different strategies are used to manage risks including: risk elimination, risk reduction, risk assumption, risk transfer and risk insurance.
However, problems in budgetary process seem to be widespread. The list may not be exhaustive but these include: Uncontrollable expenditure; the most important uncontrollable expenditures are the large entitlement programs of social welfare spending such as social security, Medicare and unemployment benefits, back door spending; expenditure decisions that are not actually made through the formal appropriation process, reprogramming and transfers; i. e. the shifting of funds within a specific appropriation account.
Reprogramming involves shifting obligation authority from one program element to another and supplemental appropriations; i. e. made outside the normal budget circle to cover shortfalls during the fiscal year. Supplemental appropriations occur during recession, the demand for unemployment assistance naturally increases and supplemental funding will be required. The budget is made up of revenue and expenditure proposal and hence such proposals have a greater chance on impacting on public policy.
A budget as a policy tool acts as a source of motivation because budgets provides the standards against which actual performance is evaluated and the manner in which it is used can significantly affect the attitude of those who are to be evaluated. If the government is not careful a budgeting process may have negative impacts on the attitudes of the civil servants. A budget is considered as a proposal to be prepared by the administration and submitted to the legislature. A national budget thus prepared and presented would serve the purpose of a prospectus.
The act of appropriation as the legal means of making funds available to the executive branch enables the executive or some officer directly responsible to the executive, to exercise administrative control over liabilities incurred and over expenditures made by the many officers and agents employed by the government in the conduct of its business. Every branch of the business of the government is necessarily highly complex and technical. An act of appropriation of public money should therefore be the result of the most careful consideration of both branches of the government.
For the purpose of consideration on the relation of revenue and borrowing to welfare, a budget is necessary. The budget as a policy tool is used as a basis for evaluating performance among various government ministries. The control functions of the government require that departments /ministries draft an evaluation report on their performance. A budget greatly determines their performance as it allocates various amount of funds to each. Although past performance among various ministries is potentially superior for determining whether the actual results are acceptable or in need of collective actions.
Budgeting promotes study, research and focus of the future: when the government plans with sufficient care and details to prepare a budget, the planning process involves thorough study and research. Not only should this results in the best conceivable plans but it should also instill in executive the habit of doing a reasonable amount of research before decisions are made. Allocation of taxpayer’s money by the budget is massive hence before deciding on what project the government should undertake some funds are set aside by the budget to carry out thorough research to come up with realistic and attainable goals.
The budget can mostly be viewed from the economic consideration. The budget serves as a fiscal policy in terms of expenditure and revenue to stabilize the economy. Governments spend money on a wide variety of things from the military and services like education and healthcare as well as transfer payments such as welfare benefits. These expenditures can be funded through: taxation, borrowing money from the population, benefit from printing money, sale of fixed assets, consumption of fiscal reserves etc. Governments borrow money and may sometimes incur debts.
Several circumstances may force governments into a debtor position including, the need to cover deficits resulting from annual expenditures, the need to finance a long-term project and a short-term cash management to provide disbursement of payments in a timely fashion. No document can rightly be called a budget that does not set up a complete plan of the proposed expenditures for a definite period and balance those expenditures with the estimated means of financing this show a complete picture of the government’s finances.
The budget should be setup and summarized as to make this picture quite clear to the citizens and taxpayers. A budget should be adopted before the beginning of the fiscal period to which it relates so that necessary accounts can be setup. Effective control over the execution of the budget plan; the proper executive authority and supervision should be provided to put the plan into operation. Physical control should be established through accounts and otherwise ensure that the expenditure of the government are being made to the budget plan.
Staff assistance must be considered depending upon the size of the government that can give attention exclusively to the collection of the budget information. There is need for government to have broad and accurate information which must be reliable and indicate clearly the scope of the work and the various activities of the government. For the purpose of considering the relations of revenue and borrowing to welfare, the budget should present for consideration of the legislature a definite financial program.
The level of government borrowing is an important part of fiscal policy and management of aggregate demand in any economy. When the government is running a budget deficit, it means that in a given year, total government expenditure exceeds total tax revenue. As a result, the government has to borrow through the issue of debt such as Treasury Bills and long-term government Bonds. The issue of debt is done by the central bank and involves selling debt to the bond and bill markets. Each general fund spending agency’s financial overview presents and outlines revenues and expenditures for the current budget.
The scheme describes the spending agency’s mission statement services provided, staffing summary, objectives, goals, current year budget highlights and performance measurement information. Each of the other funds classified as special revenue funds, enterprise funds, capital project funds, and internal service funds are detailed in the same format as the general fund. Describe restrictions that are (or could be) placed on those revenues. The government can give restrictions on its revenue in order to achieve its goals or objectives.
For example the taxation of citizens must be compulsory so as to raise public revenue in order to meet public expenditure relating to maintenance of internal security and external defense of a country and also provision of basic social services at a subsidized cost e. g. education, water, recreational activities, health facilities etc. In most cases, accrual basis of accounting is used to in full so as to record expenses as paid not when they take place, diminishing the value of the government‘s capital assets. This is not accounted for as cash expenses, in the long-term, their value as an asset or liability is recognized.
It can be recorded through measurement focus as a separate account, realized as revenue in one department, or revealed as an expense in another. For instance, the general funds and purchasing department would work in series in this kind of arrangement so as to manage the amount used up for procurement and adjust budgets for extra expenses, such as purchase of extended warranties and service plans. The restrictions placed from congress, grantors and private groups often ‘restrict’ these funds for specialized uses.
The government may restrict that revenue coming from taxation for example will be used to run free education for university students or be used to carry out research. The general fund holds money in reserve to pay for utility expenses, or earmarks it with the donor’s wishes for example where the donor wants a certain project to be established by the lending. Capital assets are recorded as expense when they occur, not as cash income which is not the case with businesses. The nature of organizations divides funds into categories of resource restriction not functional operations.
Evaluate how public policy decisions affect the receipt of revenues. For example where the government imposes high rate of tax for its employees or businessmen may make employees to start practicing tax evasion. This is due to the high amounts they will be required to pay as tax and it will minimize their profits which is their objective as they where venturing into business. Decisions suggested in the previous enacted budgets, and how programs are actually performing influence decisions concerning the future budget of a country.
The decision-makers in a country must consider the effects of economic and technical assumptions on the budget estimates so as to avoid over/underestimation. , the rate of inflation, interest rates, the unemployment rate, economic growth and the number of people eligible for various benefit programs, among other things, affect government spending and receipts. For example the government can start some programs in the country so as to help the unemployed to at least to be busy somewhere making something small to sustain them hence affecting the government receipts and spending as it was not budgeted for.
Small changes in these assumptions can affect budget estimates by a large amount of money. Through the process of adopting a budget resolution, it concurs on levels for total spending and receipts, the size of the deficit or surplus, and the debt limit. Stages of implementation of the decisions can use feedback to make changes when high cost programs to collect taxes are reactive to public reaction, overruns in cost, long term worth of the policy, manpower and material, employee activity ,time, and the use of consultants, and third party vendors with substantial interest and involvement in policy objectives.
Usually implementation is the actual application of a policy and it involves activities such as disbursement of funds, the general mobilization of resources in order to actualize programs and projects. The debt issues as other sources, discounts as other income, while the debt service expenditures express issuance costs. Analyze the economic conditions that affect revenue projections Inflation and the rising cost of employee benefits. For example hyperinflation which is the most serious type of inflation also known as runaway or galloping inflation .
it has been experienced in Germany, Austria, Hungary, China and other countries of South America. When this type is experienced, the currency in circulation becomes unacceptable and in the end new currency is issued. Inflation may be due to increase in demand of goods and services may result in arise in price level. Also when cost of production increases the prices goes up it may rise due to the higher wage levels, higher cost of raw material or more taxes on the production of commodities. These may affect the revenue projections by the government in place as it may under forecast or overcast the revenue projections.
In some cases citizens may not comply with the rules and regulations of a country in that they could like to practice tax evasion. This is a criminal offence involving evasion of tax through fraudulent means e. g. the manipulation of financial statements and failure to make full disclosure of taxable income, or engagement in illegal activities e. g. parching, drug trafficking etc where income is generated without paying tax. This affects the revenue projections by the government because at the long run it will end up underestimating the revenue to be expected.
Capital expenditures for replacement of equipment and emergence expenditures like floods which require an immediate attention. This usually affects the revenue projections because it was not budgeted for or projected for. This will end up diverting some amount meant for another purpose to be used in that emergence in order to save the situation. Or in other cases where a machine used in the intensive care unit is not functioning, it will require an immediate attention so as to purchase a new one in order to save the lives of the patients.
Diverting from designed performance measures is crucial because annual cash flow statements and budgetary budget flows are necessary to maintain the business focused on annual expenses and changes to the same. Realistic interpretations of the best use of income generated through taxes, fees, surcharges and capital funds ties it into most effective and accessible to public use of the money that will benefit all the most. Develop a revenue policy that aligns with community values.
A public policy must take into consideration the prevailing customs, traditions and conventions of people. Thus, the policy must not go against established ways of life of the people unless it is extremely desirable to frame one that bans a social evil. Also it must take into account the availability of resources especially financial resources that are critical for its implementation. Such resources may be derived either from national budget or other sources such as donors or loans from commercial banks.
Most employees would like to contribute without any difficulty to the revenue of the country if their community interests are going to be catered for. The residents would like to have available facilities like a hospital near home or work, and that of suburbs wishing to enhance tax base, and enjoy the benefits of their contributions. Strategic plans and major projects often have the same type of written statement of record. Citizens in general, advocate for a return on investment.
Public administrators and urban planners share the idea that government should support reinvestment in communities in order for them to prosper. For example if the country comes up with a policy to have a certain community to contribute more to the kitty of revenue so as to build an hospital . The community will contribute positively because it will help them in many ways like travelling a short distance to get the services and also employment. This will save many lives were it that they were emergencies and people were to travel long distances to get the services.
If there is a plan to initiate a project like an industry in a certain community, the residents will be willing to contribute to that project as they will be assured of the benefits from it. Fines and penalties are also compulsory unreciprocated payments, but are distinct from taxes as they should be punitive in nature and imposed by a judicial body. This may be imposed on people who go against the morals or the norms of the community. Social Contributions are payments either from employees or employers in exchange for Social benefits in the future, or to insure against risk in the future.
Voluntary Social Contributions are excluded from measures of the tax burden e. g. Payments to pension schemes. Conclusion In general, public policy undergoes several stages from problem identification, agenda seytting, policy formulation, policy legitimation, policy implementation and monitoring and evaluation. In the study of public policy there are theories and approaches to its study. They include rationalist/comprehensive approach which emphasizes the idea of maximum social gain from the policy. For a policy to be adopted its benefits must exceed its benefits.
If the forecaster overestimates revenues in any one country, the consequences are serious: plans must be cut so as to meet the revenue which is received, implying that services will be reduced, or citizens will be taxed more in which case political and administrative costs are acquired. if the forecaster underestimates revenue, however, no such consequences must be confronted because the programs will be run within the budget limit. The costs which may be incurred from underestimating revenues are significantly less than the costs which may be incurred from overestimating revenues.
Implementing policy may end up with results which were unexpected; it may come from a policy whose reach goes beyond the problem it was initially meant to address. REFERENCES Dirk Jan Kraan. Budgetary Decisions, A Public Choice Approach (1996), Dye Thomas, Understanding Public Policy, (1984) Henry Nicholas, Public Administration and Public Affairs, (1995) James E. Anderson, Public Policymaking: An Introduction. (2006). McLennan B. Comparative Public Policy (1980) Praeger, Public Sector Management, (1990) Sabatier, P. , and Mazmanian, D. Implementation and Public Policy (1989)