Public Management and Administration - Owen E.hughes

168 Public Management and Administration
their aggregate levels, an attempt can be made indirectly to influence the entire
economy. With the advent of Keynesian economics, governments explicitly
accepted responsibility for promoting full employment, price stability, economic
growth and a stable balance of payments.
Fiscal policy is important for providing stability for the economy. Although
spending and taxing have economic effects of their own, the net balance
between them – the deficit or surplus – is of major importance. Keynesian economic
theory argues that if the budget is in deficit – expenditure greater than
revenue – the overall effects are multiplied so that the whole economy can be
stimulated. If the economy is overheated, then the government can, in theory,
budget for a surplus to slow the economy. The budget balance can also have
effects on the net debt position of the government, and can cause reactions in
the private sector, especially in financial markets.
However, from the 1970s there was a change in the intellectual respectability
of the Keynesian model. Relying on the government budget to manage the
economy originally represented an economic revolution in that budgets did not
have to be balanced every year. By varying its budget balance a government
could, in theory, ameliorate the damaging affects of the boom and bust business
cycle. The Keynesian model promised much and was successful for some time,
but the coincidence of high inflation and high unemployment in the mid-1970s
produced a reassessment. The orthodoxy is now that of ‘neoclassicism’, with
the emphasis placed on reducing government, balancing the budget and letting
market forces find a desirable economic equilibrium.
Financial functions of the budget
The financial functions of the budget are analogous to accounting. Balance
sheets need to be drawn up for the whole of government activity, in the same
way as in the private sector. The financial functions of the budget are: first, an
evaluation of total government and public authority expenditures within the
budget sector; and, secondly, to act as the legislature’s instrument of accountability
and control over the government in its handling of financial matters. The
first of these is a pure accounting function to set out estimates of receipts and
expenditures. The second is an important part of the system of accountability.
In the earliest days of the English Parliament the financial role was the most
important role of the legislature, and one that continues today. Magna Carta
was concerned in part with financial matters, with the Crown agreeing to consult
the nobles when taxation was contemplated. A long struggle between the
Crown and Parliament gradually led to the latter’s approval being necessary
when taxation was raised, and spending of it was in turn reported back to
Parliament. Even now, budget day is traditionally the most important day of the
parliamentary calendar. Other countries, particularly those with a British heritage,
have a similar financial reliance on the legislature. A United States