Public Sector Governance and Accountability Series: Budgeting and ...

138 Anwar Shah and Chunli Shen
Public Budgeting: Motivations for Reform
Public budgeting systems are intended to fulfill several important functions.
These functions include setting budget priorities that are consistent with the
mandate of the government, planning expenditures to pursue a long-term
vision for development, exercising financial control over inputs to ensure
fiscal discipline, managing operations to ensure efficiency of government
operations, and providing tools for making government performance
accountable to citizens.
The most fundamental function of a budget is to control public expenditure,
which is commonly carried out by exercising financial control over
inputs. Input controls have been more concerned with how much money
is spent and how it is spent than with what it is spent on. Input controls
often put ceilings or caps on each category of expenditure, or even each
item of expenditure.
The budget also functions as a very significant statement of government
policies, one in which policy objectives are reconciled and implemented in
concrete terms. The budget sets forth policy priorities and levels of spending,
ways of financing the spending, and a plan for managing the funds. As Aaron
Wildavsky (1986: 9) puts it, “Little can be done without money, and what
will be tried is embedded in the budget.” Because funds are scarcer than
desires, a budget also serves as a mechanism for allocating resources. A
budget is not only a tool of macroeconomic policy but also a management
mechanism. It provides a key source of constraints on and incentives for
public servants demanding better public services at lower costs. Last but not
least, the budget document can be a major tool of accountability, whether to
the legislative body or to the press and the public. It can help hold administrators
accountable not only for the funds they receive but also for a given
level of performance with those resources. It can either give citizens a sense
of ownership and control and respond to their interests, or it can alienate
them by making it difficult to participate in the budgeting process or making
budgetary information inaccessible.
Each of these functions is a potential use of a public budget. Typically,
a budgeting system cannot execute these functions equally well at the same
time. The relative strength of each function depends on budgeting tools and
techniques, but most critically on political decisions about which issues matter
to the government. The government budget, therefore, is oriented around
those issues.
The traditional line-item budget presents expenditures by inputs and
resources purchased. The budget is classified by disaggregated objects of
expenditure and by operating and capital expenditures. Operating expenses