The budget is one of the most important policy documents in any government. It details how the government allocates resources among various needs, such as national defense, public safety, infrastructure, education and health care. These and other functions compete for attention and funding from government decision-makers. Government’s limited resources require decisions about what policies and programs to fund and at what level. This decision-making process is inherently political, making the budget a political document, as well as a policy one.
Whether to increase spending on military equipment, whether to fund new highway construction, how much of a raise to give members of the police department and who should bear more of the tax burden: The budgeting process answers these and many other questions. Professor Donald Axelrod, author of “Budgeting for Modern Government,” calls budgeting “the nerve center of government.” A budget reflects the priorities and policy goals of a government. It reflects what proportion of revenues goes to different public programs. Some governments may emphasize military and law enforcement spending, while others may allocate more money to education and health care.
Politics is the process of deciding who gets what, when and how. The budget process goes to the heart of political questions, as government officials decide who gets how much funding for which programs and how these initiatives are funded. Axelrod calls budgeting one of the chief political decision-making systems. Although economic analysis, forecasts and projections of government revenues and expenditures help shape and inform the government's budgeting activities, Axelrod writes that political preferences ultimately determine the outcome.
According to Axelrod, budgeting in government encompasses a series of important functions. These include allocating resources to programs that are designed to achieve government's policy priorities; raising revenues through taxes, fees and loans to fund the budget; ensuring government agencies use their budgeted funds efficiently and effectively; and stabilizing the economy through fiscal policy, or the government's use of its taxing and spending powers.
Because of the politics involved, the potential for conflict exists throughout the budgetary process. In fact, the more limited a government's resources, the more intense the conflict will be. This is especially true when governments face budget deficits, in which expenditures exceed revenues. The United States and other nations' governments often address deficits through debt financing, rather than politically unpopular actions, such as tax increases or spending cuts.