Module 5 Flashcards
Discuss pros and cons of deficit financing in comparison to the balanced budget legislation
Main advantage:
0. Timely, in light of the current financial crisis
0.1. Considered an automatic stabilizer
0.2. Provides some relief during an economic downturn
1. The government can carry out large projects that help its citizens
Provides government with the flexibility to continue with social and economic policy and funding initiatives
2. Borrowing money allows the nation to pay for its armed forces at war, so it can fight and win the war to avoid being conquered and losing all of its property if it loses.
3. If the nations has high enough taxes to pay for its current projects, it is easier to spend more money since interest costs are not a limiting factor.
Main disadvantage:
0. Funded through debt and the attendant increase in interest costs which contributes to larger deficits.
1. The government must pay interest on loans.
2. A budget deficit restricts the amount of money that the government can spend in the future. Any revenue that the government has to pay on its future interest payments reduces the amount of revenue that it can spend on other projects.
In other words, budget options are limited which put pressure on and limit the government’s flexibility with respect to social and economic policies as well as funding options.
3. A budget deficit reduces the government’s options in a bad economy. If a government increases taxes and reduce services to pay off its loans even if the economy is doing poorly and businesses are falling, it could afford to hire additional workers and purchases more products from businesses, creating a stimulus effect.
4. A budget deficit can reduce investment in a country. The nation will have difficulty building canals, power plants, roads and other infrastructure. Investors will not want to buy stocks in a local company or set up their own factories in the country. This reduces the amounts of taxes that the gov takes in, making it more difficult to pay off the debt in the future.
5. A budget deficit can harm national sovereignty. An international ledger, such as the International Monetary Fund, may require the nation to change its laws and spending policies to receive a loan and the nation may even have to sell off its land to repay the debt.
Definition of Deficit financing
Deficit Financing is the practice in which a government spends more money than it receives as revenue, the difference being made up by borrowing or minting new funds. The term, budget deficits usually refers to a consicious attempt to stimulate the economy by lowering tax rates or increasing government expenditures.
Define a balanced-budget amendment
A balanced budget amendment is a constitutional rule requiring the state cannot spend more than its income. It requires a balance between the projected receipts and expenditures of the government.
Discuss the characteristics of capital / operating budgeting.
- Capital budgeting
a. Land acquisitions, construction of building and infrastructure
b. Procurement of items used for one-time, with life expectancy of more than one year - equipment, vehicles, structures
c. Largely funded by government grants, debts and reserves
- Operating budgeting
a. Used for costs that recur year after year, does not have FV
b. Primarily used to staff who deliver City services
c. Cover costs of delivering services -operation and maintenance
d. Largely funded by property taxes and user fees
e. Utilities services are supported by user fees
Illustrate the key objectives, players/committees involved in the House of Commons, deliverables/reports, key responsibilities and a clear timeline for the Planning and Budgeting activities in a federal government department over a one year period.
Fiscal year end is March 31.
February - Budget Speech
- Main Estimates tabled in House
- Supplementary Estimates (B) for the current fiscal year
tabled in House.
- Deadline for submission of departmental Report on
Plans and Priorities (RPP’s)
March-May
- Budget plan tabled in House
- Estimates referred to standing committees and the
deadline for their detailed review is May 31.
- Departmental RPP’s tabled in House and reviewed by
standing committees.
June- November
- Call Letter for the production of the Main Estimates for
the next fiscal year
- Public Accounts (Government’s main F/S) and Annual
Financial report for the previous fiscal year tabled in
House
- Observations of the Auditor General on the Financial
statements of the Government of Canada tabled in House
June-November
- Supplementary Estimates (A) for the current fiscal year
tabled in House
- Economic and Fiscal Statement delivered by Minister of
Finance to the Standing Committee on Finance
- Departmental performance reports (DPR’s) for the
previous fiscal year tabled in House.
- House Finance Committee pre-budget consultations
December-January
- Main Estimates documents due;
1. Online Manuscripts
2. Standard Objects of Expenditure Reports
3. Explanation of Year-Over-Year resource Changes in
Main Estimates (comparison between current and next
year)
4. Interim Supply Requirement
Define accrual budgeting and explain the purpose behind it.
Budgeting is the most important process as it translates policies into concrete programs. It is a political process, with budgeting documents providing the venues for effectively communicating a government’s intentions, holding the government accountable and forming the foundation for legislative approval and administrative control.
List the three major government budgets documents and their contents
- The Summary budget
The summary budget provides an overview of the government’s fiscal policy and can include additional papers detailing spending, revenue and taxation highlights. The summary budget includes the financial impact of the government budgeting entity and may provide forecast for additional years. The budget speech delivered in the legislature normally provides an overview of the summary budget. - The Estimates
The Estimates are a set f expenditure plans that provide details on selected information found in the summary budget. The Estimates are considered the legislature’s working documents and provide source material for the breakdown of forecasts for the individual organizations the budget covers.
- Appropriations
The appropriations, a set of legal documents referred to as money bills set out the maximum authorized expenditures approved by the legislature. Normally, there are two types of appropriations: the first are authorized expenditures that require approval under the money bill for the fiscal year; the second are statutory appropriations for expenditures that have been authorized under another act.
Explain the benefits of accrual accounting.
- Improved information bases
- Better comparative data
- Improved accountability and transparency
- The overall improvement to management practices
“ Accrual accounting provides tremendous scope for organizations to manage their finances more effectively.” - Accrual accounting provides government decision makers with improved information and understanding of the cost of activities while allowing for rigorous budget monitoring. Ex) Accrual budgeting helps decision makers to better grasp the long-term effects of current policies on public finances
- Helps to better plan capital asset requirements.
- Acts as a catalyst for large-scale administrative reform.
- Ensures comparability with other public accounts prepared on an accrual basis
