Chancellor of the Exchequer George Osborne leaves his official residence No 11 Downing Street in London with his traditional red dispatch box as he departs for the House of Commons to deliver his annual budget speech
Image: © Matt Dunham / AP/Press Association Images

What is a budget anyway?

As the UK Chancellor George Osborne delivers his annual budget, Victoria Waldersee asks 'what is a budget anyway?'

What is a budget? Depends on which country you ask...

People don’t generally like talking about their budgets, let alone divulging every detail of how much they have, what they’ll spend it on, and when.

Government budgets are different. Seeing as governments get their money from the public, it’s their duty to tell the public what they’re planning on doing with it. Governments do this with varying amounts of fanfare in different countries around the world – in the UK, the Chancellor presents the budget in a bright red briefcase, and in China, it’s announced on television like it’s a teaser to the year’s most highly anticipated blockbuster. Considering the different words different countries use to describe budgets can shed some light on how even a dry word like this can actually be interpreted in more ways than one...

Ernest Stokes holds aloft a case with the word 'budget' written on it on budget day 1966 in London
Ernest Stokes celebrates UK Budget day in 1966. Image: © PA / PA Archive/Press Association Images

Time to pull out the ‘knapsack’!

The English word ‘budget’ comes from Old French 'bulge', or the Latin word ‘bulga’, which just means a leather bag or ‘knapsack’. Governments collect money, primarily from taxes, but also customs duties and those pesky fines we get from driving too fast or parking in the wrong place. It sticks it all in its wallet, counts up what it’s got, and spends it on public services. We call the money that comes in ‘revenue’ and the money that goes out ‘expenditure’. Eventually the knapsack’s empty, but hopefully that doesn’t happen until it’s time to pay our taxes again.

Meine Damen und Herren, hier folgt der 'Bundeshaushaltsplan'!

Obviously, 'knapsack' isn’t a long enough word for the Germans (I should know, I am one). Money can’t just go in and out of a leather bag: where’s the plan?! To set a proper example, theirs is 3080 pages long!

The front page of a German budget
Der Bundeshaushaltsplan

They do have a point: government budgets are more strategic than digging around in the leather bag for an extra penny here and there. Governments generally spend their budgets on a mixture of:

  • Government consumption: buying goods and services for public use e.g. paying teachers’ salaries, buying equipment for public hospitals, stocking up military bases
  • Government investment: Financing infrastructure and research that enables goods to be sold and services to be carried out e.g. building schools and hospitals, paving roads
  • Transfer payments: Reallocating money within a country to give it to those in need e.g. pensions, unemployment benefits, tax credits.

Pero por favor, es solo un ‘presupuesto’

The really difficult job that governments face when they’re deciding how to spend their budget is that they don’t actually know exactly how much money they have to spend.

The value of a government budget depends on the total value of the goods and services that the country produces that year (also known as GDP); the average salary people earn (because that determines what governments can get in income tax); and what will happen to the value of their currency over the course of the year (if occurs, for example, then a budget which looks like it can last the whole year might shrink in value without actually shrinking in size).

So maybe the Germans are being too ambitious. The Spanish just call budgets a ‘presupuesto’ (pre-supposed), which sounds just vague enough to get them out of trouble if things don’t go like they thought they would (“It was only pre-supposed!”).

So what would the ideal government budget look like?

Budgets can be balanced, with revenue and expenditure being equal; in surplus, where more is coming in than going out; or in deficit, where more is going out than coming in.

Some say governments should manage their budgets like people do: keep a safety cushion of a surplus, and don’t spend money you don’t have. Others say that doesn’t make sense: the only way for a government to get the money it needs is to spend. Why? Because the more it invests into infrastructure, research, and education, the healthier the economy becomes, the higher the amount governments can take in via taxes, thus the more they have to spend next time.

Who’s right? In economics, it’s never totally straightforward. And although a good dose of planning and transparency is important, we also need to remember that even governments can’t always predict what’s going to happen…

Maybe sticking to ‘presupuesto’ is the best bet.

This article was authored in British English

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Reader Comments

  • J. Christopher Proctor

    There’s also the idea that governments need to run small deficits at some point to get money into circulation.