Author Topic: Splurge and cut, or cut and splurge?  (Read 411 times)

Kit Nicholson

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Splurge and cut, or cut and splurge?
« on: September 15, 2011, 12:32:50 GMT »
When revenues are uncertain, is it more efficient to set ambitious expenditure plans and then cut back, or to set tough expenditure limits and release supplementary budgets? The answer, of course, is neither.

Repeated overbudgeting undermines the role of the budget and can shift expenditure onto a cash basis, which is extremely damaging. As a result, governments are often urged to take a cautious approach to expenditure plans, relying on supplementary budgets to allocate any surplus. But this is also damaging, given that so much of a government's skills and political effort is invested in the annual budget and the supplementary budget is rarely prepared with the same rigour and transparency as the main budget.

Uncertain revenue is best dealt with by an explicit two-tier approach, with a clearly identified reserve pool of expenditure that can be quickly mobilised if funds become available during the year, and that is subject to the normal scrutiny of the annual budget process.

John Short

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Re: Splurge and cut, or cut and splurge?
« Reply #1 on: September 15, 2011, 13:24:05 GMT »
Kit is giving sound advice (as usual), but for those countries who have not yet maxed out on borrowing and reached unwise levels of debt, a modicum of borrowing can assist in ensuring that good initial budgets in the context of a well-formulated MTEF/MTBP can make sense.  However, persistent borrowing to fund recurrent expenditure will be a fiscal disaster! Prudence used to be a matra until boom and bust were abolished!

 

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