CHAPTER
ONE
INTRODUCTION
1.1 Background of
the Study
A budget is
a quantitative expression of a plan for a defined period of time. It may
include planned sales volumes and revenues, resource quantities, costs and
expenses, assets, liabilities and cash flows. It expresses strategic plans of
business units, organizations, activities or events in measurable terms.
Government
budget is a government document presenting the government's proposed revenues and spending for a financial year that is often passed
by the legislature, approved by the chief executive or
president and presented by the Finance Minister to the
nation. The budget is also known as the Annual Financial
Statement of the country. This document estimates the anticipated government
revenues and government expenditures for the ensuing (current) financial
year. For example, only certain types of revenue may be imposed and
collected. Property tax is frequently the basis for municipal
and county revenues, while sales tax and/or income tax are the
basis for state revenues, and income tax and corporate tax are the
basis for national revenues.
The practice of
presenting budgets and fiscal policy to parliament was initiated by Sir Robert Walpole in his
position as Chancellor of the Exchequer, in an attempt
to restore the confidence of the public after the chaos unleashed by the
collapse of the South Sea Bubble in 1720.
Thirteen years
later, Walpole announced his fiscal plans to bring in an excise tax on the consumption
of a variety of goods, such as wine and tobacco, and to lessen
the taxation burden on the landed gentry. This provoked a wave of public
outrage, including fierce denunciations from the Whig peer William Pulteney, who wrote a
pamphlet entitled The budget opened, Or an answer to a pamphlet. Concerning
the duties on wine and tobacco - the first time the word 'budget' was used
in connection with the government's fiscal policies. The scheme was eventually
rescinded.
Budgeting process
is the continuum of budget preparation, approval, execution, reporting, Audit
and review (Jouhson, 1979). This process revolves round the executive and
legislative structures in a democratic system. In a capitalist economy like Nigeria, government plays an essentialcompensatory
function; that is, it performs those functions that the market economy does not
do efficiently or lacks the incentive to do at all. Thesefunctions have been classified as allocation, distribution and stability
(Musgrave and Musgrave, 1979). In a federal system, federal, state, and locallevels of government perform these functions in varying degrees. TheFederal
government is more heavily engaged in economic stabilization and redistribution
functions than are state and local governments, and controls larger budgetary
allocations. One of the main functions of government is to collect various
forms
of revenue and to utilize these revenues to provide social services to thepeople
in an efficient manner as possible. In order to achieve this,
then government annual budget, which has become one single most important and
pervasive instrument for resource allocation, management and control comes in. Governmental
budgets provide the legal authority for taxing
citizensand spending public monies (Brooks, 1992:40). Federal budgets, from ageneral
point of view are a tool of economic planning, making
reasonableestimates and projections based on prevailing socio-economic indicators
(Johnson, 1996:37). Broadly, the purposes and associated features of the public
sector budget may be considered in terms of three aspects: As a tool of
accountability, as a tool of management, and as a tool of economic
policy.Budgeting as an instrument of economic policy has more varied
functions(Anyafo, 1996:177).
Firstly, in policy terms, it indicated the
direction of the economy and expresses intentions regarding the utilization of
the nation’s resources. In operational terms, it leads to the determination of
growth and investment goals. Secondly, the budget is concerned with macro-economic
balance in the economy. The policy choices in this regard include specification
of the amount of growth that is compatible with factors such as employment and
price stability.
However, it has
to be
recognizedthat in the final analysis, budget at federal Government level or otherGovernmental levels is very much a political exercise than economicconsiderations.
Traditional “line
item” budgeting system in use in Nigeria was born of a concern that the lack of
adequate spending controls was contributing to
anenvironment where there was increasing danger of corruption. For thisreason the budget reformers of the late 19thand early 20thcenturiesadvocated
budgeting systems that would promote accountability over the use of
resources…establishing thrift and, to a lesser extent, efficiency as the primary
values of budgeting (Udoma, 2002:6). The most important focus of the
budget system is to specify the line item ceilings in the budget
allocationprocess and to ensure that agencies do not spend in excess of their
allocation. Anyafo (1994) identifies the activities depicting the budgeting
process of the federal government. Specifically, the process includes:
Presidential articulation and communication of budget policy
objectives. Ministerial call circular further amplifies the president’s budget
policy guidelines in a call circular to the federal ministries, extra –
ministerial departments and parastatals requesting the advance proposal for the
forth coming fiscal years’ budget.
Ministerial budget hearing and defense, and draft estimate
consolidations. Federal executive council review of draft estimates and
approval of draft estimate. Presidential presentation of draft estimate before each house of national
assembly not later than 6o days before the expiration of each financial in the
form of an appropriation bill.
Legislative discussion
of budget policy objectives, second reading at plenary and further considerations by Appropriation committee andsub-committees, legislative ministerial defence, national assemblyharmonisation
and approval of the appropriation bill.
Approved appropriation bill with presidential assent produces anappropriation
act for implementation.
Appropriation
Acts are enacted annually for the purpose, not only for regulating financial
and accounting matters, but principally to provide for theissue from the Consolidated Revenue Fund such sums of money asconsidered
justifiable for the recurrent expenditure including contribution to the
Development Fund for capital projects for the service of the federation. Section
81(2) and 120(2) of the constitution authorizes the President of
theFederation and Governor of a State to make Withdrawals from theconsolidated
Revenue Fund of the Federation and States, respectively, of theSum necessary to meet that expenditure and the appropriation of thosesums
for the purpose specified therein. In Nigeria, the 1999 constitution
(section 80 subsection 1-4) is expliciton the unlimited authority of the National Assembly to determine thecontents
of the budget, and section 81(1) authorizes that “the president shall cause to
be prepared and laid before each House of the National Assembly at any
time in each year estimates of the revenues and expenditures of the Federation for
the next following financial year.” It is clear that it
is the president that initiates the annual budgets, which goes through the
NationalAssembly appropriation processes. Accordingly the only restriction mustapply
to the budget process, is that the budget must be finance-able. The
basis of government budgets has been questioned in recent times.With
respect to the mandatory use of cash basis of accounting as prescribedby the
Finance (Control and Management) Act 1958, Chan (1992:1)
agreesthat a strong and enduring relationship exists between governmentalaccounting and budgeting. Thus, submitting that the accrual basis of accounting,
which takes into account the long-term consequences of
currentbudgetary decisions, should be adopted in the short-term in formulatingannual
budgets. The wide acceptance of this view would have a profound impact on
government budgets and budgetary processes. Under this view, accounting will
still follow this period’s budget; but accounting will also
leadthe budget of the next period. However, the National Council on
Governmental Accounting (NCGA, 1979:11) opines that
while the accrual basis is the superior method of accounting for the
economic resources of any organization, it agrees that the cash basis
accounting is adjudged useful forshort-term fiscal control. Accordingly, the NCGA recommends use of theaccrual basis to the fullest extent practicable in the governmentenvironment. The most difficult challenge that the federal government and stategovernments are facing in budgeting
is the challenge of budgeting in a declining economy;
with dependence on crude oil as major revenue base. The challenge,
therefore, is to reverse this trend of budgeting process and to grow the
economy, as Alan Schiok said in his book ‘The Federal Budget: Politics, Policy,
and Process’(Udoma, 2002:16): “Every budget is a hostage to economic performance, congress and the president cannot balance the
budget when national output is declining and unemployment is soaring”. One
of the most important tools to drive the economy and reverse this declining rend
is the budget mechanism. How we allocate our resource today will determine what
our tomorrow will look like.
Anyafo (1996:244)
reported that Chairman Mao Tse-tung (1893-1976)declared to the Chinese “thrift should be the guiding principle in ourgovernment expenditure”.Anyafo (1996:245) posits that the principle of strict budget discipline is a nationally acclaimed principle of publicexpenditure,
which stipulates that all levels of government should confinethemselves to the limit of expenditure in the approved estimate orsupplementary
estimate. This principle advocates for a balanced budget
asan important cornerstone of budget discipline. It requires that aggregateexpenditure
should be equal or preferably less than prudently determine the aggregate
revenue.
1.2 Statement of
the Problem
There are serious
problems in the Nigerian budgeting process and this is indicated by the
magnitude of budget variances recorded over the years. There are observed
problems of bribe-for-budget syndrome, budget passage delays, oils windfall
crisis, disagreement on oil price benchmark for budgeting between executive and
the legislature, lack of definite economic objectives and commitment to
delivering the objectives, non-alignment of economic objectives with budgetary
allocation of economic objectives with budgetary allocations and series of
cases of non-implementation of appropriation Acts and supplementary
appropriation Acts. These observations above have several implications. A
foremost implication is that the existing budgeting process has not been
effective in promoting the desired culture of budget discipline, balanced
budget, quantity and/or quality budgeting for national economic development.