• Income is the money that is earned or received. • Expenditure is the money that is spent.
A balance budget will help to ensure that enough money comes in to cover the different types of expenses.
Types of budget:
Individual budget
A plan on how an individual wants to spend his or her money
Family Budget
Every family plans how to spend the money it earns. Usually, the father and mother plan the expenditure for the family.
National budget
A national budget show methods used by the government to raise money and plan for spending it. Therefore a National budget is made of revenues and expenditure. Revenue is raised through taxes by the Zambia Revenue Authority (ZRA)
Features of budgets
Income and Expenses
Income: all budgets have sources of money that will come in.
Expenditure: all budgets have different expenses that must be paid. E.g. individual budgets have to cover expenses such as food, housing etc.
Different types of income and Expenditure
Recurrent income: this can be income that can be expected every year from different sources.
Recurrent expenditure: this is money that must be spent every year. E.g. national budget includes salaries paid to government employees, running schools etc.
Capital expenditure: this is money spent on new projects. E.g. the national budget allows for capital expenses to build new roads, school, and hospitals.
II. Loans and interest
Sometimes larger expenses have to be financed by borrowing money. E.g., a family may need a Loan to buy a house or car. Government may need loans to pay for the building of new roads or dams.
These loans have to be repaid with interest. This means that the original amount must be repaid, plus an extra percentage of the amount as interest to the bank or institutions granting the loan.
Planning the national budget
• The national budget is prepared by the Ministry of Finance and National planning every year for approval by parliament. • The budget must make provision for expenditure by all government ministries. It must also allow for on-going development infrastructure e.g., repairing of roads and new roads.
The national budget cycle involves four stages:
Preparation and requests: the executive branch of the government forms a committee to analyse the past budgets and look at ways to improve income and expenditure during the coming year. They base their decisions on request prepared by the different government ministries, who must all submit plans of what they intend doing next year.
Legislative approval: after the budget is presented MPs debate the various aspects of the budget. Finally they vote to decide if the budget will be accepted or not. If two-third of the MPs votes in support of the budget, it is passed on to the executive for implementation.
Implementation: the executive distributes the estimated funds to the various stated projects in the different ministries. It is the duty of the recipients of the funds to ensure the funds are used for the intended purposes.
Audit and review: at the end of the every Fiscal year (financial year), auditors audit various ministries and departments to examine how well the budget has been managed by checking whether the funds were used for the intended purposes. At the end of the audit, a report is provided by the Auditor General, who guides the government on future budget decisions.
Sources of income for the national budget
Taxes
Income tax is collected from the salaries of workers in form of PAYE (pay as you earn) when they get paid.
Company taxes are paid by businesses and industries as a percentage of their profit
Value added tax (VAT) is collected on all goods that people buy at shops or services they obtain from companies. Certain goods or services such as basic unprocessed foods are zero rated or exempted from VAT.
Rates and royalties
Property rates are paid by individuals and businesses for the land on which homes and businesses are built.
Royalties are paid by businesses for the right to make an income from using national resources. The main source is from the mining companies for using our countries mineral resources.
Licences are forms of revenue collected from sources such as driving and motor vehicle licences. Fees are collected from sources such as payments by students for university study.
Donor funding
Donor funding makes up a larger part of source of revenue in Zambia. Donor funding is also referred to as international aid, overseas aid or foreign aid
Loans
Sometimes governments increase the revenue for the national budget by borrowing in the form of Loans from developed nations and institutions like IMF and the World Bank (WB).
Loans are usually obtained for carrying out large-scale projects. Loans are supposed to be paid back.
Importance of a budget
A budget allows control over financial expenditure. Recipients manage and account for the use of money
Budget creates awareness of balancing income and expenditure. If expenditure is likely to exceed the expected income, the government has to reduce expenses or find alternative sources of income.
A budget helps in prioritizing which programmes or projects are important.
Transparency: the national budget makes it possible for citizens to know how the government is using public funds.
Budgeting allows for the focusing on development aims, rather than wasting money on less important projects
Lastly, equitable or fair distribution of wealth in a country depends on good budgeting.
Challenges associated with budget implementation
1. Tax evasion
Tax evasion is a deliberate failure by an individual or company to pay legally due taxes.
They do this by wrongfully reflecting their income as being lower than it actually is, so that they will be taxed at lower rates. The government depends on taxes for most of the revenue needed for implementing the national budget.
2. Smuggling
Smuggling is the importation or exportation of foreign products by illegal means.
People smuggle things so as to evade customs duty, as well as the importation of contraband (goods that are imported or exported illegally)
3. Corruption
It affects and distorts the budget implementation process. Through the payment of bribes, some individuals succeed in getting favorable treatment in their economic activities.
4. Fraud
• Sometimes, government money is stolen by those in charge of making payments. • They do this by making payments to companies which do not exist.
5. Control Measures
Effective control measures ensure that the money allocated to different ministries and government services are spent properly:
Overspending the budget means that the government would not be able to meet all its financial commitments. Wasteful spending may mean that funds have to be moved away from other, more important areas to make up for poor budget control elsewhere
Under spending the budget is also problematic. Sometimes ministries are too optimistic in their planning. If the funds are not spent by the end of the fiscal year, the funds may no longer be available when the ministry is able to carry on with the project later.
Misspending could result in funds allocated for one purpose being wasted on unnecessary expenses.
Donor dependency
The Zambian budget is to a large extent dependent on donor aid.
It is therefore ‘vulnerable to aid shocks’ if donors decided to withdraw funding.
If this happens, it means that the government will not be able to do some of the things outlined in its budget.