| Government budgets represent between 25% and | | | | rates.This is the price of adhering to an |
| 50% of he Gross Domestic Product (GDP), | | | | economic fad.Balanced or low deficits budgets |
| depending on the country. The members of the | | | | are a good things when the economy is roaring |
| European Union (Germany, France) and the | | | | ahead. But there are certain things that only |
| Scandinavian countries represent the apex of | | | | governments can do: defending the country, |
| this encroachment upon the national | | | | maintaining law and order, disaster relief, |
| resources. Other countries (Great Britain, to | | | | ensuring market competition. One of the more |
| name one) fare better. But even the more | | | | important functions of any administration is |
| developed countries in South East Asia do not | | | | to act anti-cyclically, to encourage economic |
| clear the 25% hurdle.The government budget, | | | | activity in times of recession - and to hold |
| therefore, is the single most important | | | | the economic horses when they go wild. A |
| economic decision, the most crucial economic | | | | government cannot do this when its hands are |
| event every (fiscal) year.The government | | | | tied behind its back by a totally arbitrary |
| finances its budget mainly by taxing | | | | limitation: no more than 3% budget deficit |
| individuals and corporations. Ultimately, | | | | (why 3? why not 2.65%?). This Maastricht |
| households pay the bill. Even corporations | | | | criterion will prove, in the long run, to be |
| are owned by individuals and earn their money | | | | lethal to the very idea of a European |
| by selling products and services to | | | | Union.What is a budget?It is a program. It |
| individuals. Higher taxes are likely to be | | | | charts the government's expenditures and |
| passed on to customers or to employees. There | | | | allocates its resources for a period of one |
| are numerous kinds of taxes, regressive and | | | | fiscal year. Some fiscal years start and end |
| progressive, direct and indirect, on earnings | | | | in January (Israel), others in October (the |
| and on property - but they all serve to | | | | USA). But budgets always relate to fiscal |
| finance the budget.Another method of | | | | years because of their dependence on tax |
| financing the budget is by borrowing either | | | | revenues. Modern government budgets make a |
| in the capital markets (by selling bonds as | | | | clear separation between current expenditures |
| the government of the USA does) - or by | | | | and the development elements. These were |
| "voluntarily" deducting part of the wages (as | | | | mixed in the past and this served to cloud |
| Israel used to do until a decade ago). Such | | | | issues and to disguise gross misuse of |
| borrowing has grave repercussions: the | | | | funds.But this structural separation did not |
| national debt grows, debt service (repayments | | | | change anything basic. Budgets are |
| of interest on the debt plus the principal of | | | | statements, mainly of policy. The budget |
| the debt) consumes more and more of the | | | | delineates clearly - and if it doesn't do so, |
| national resources and the government crowds | | | | it surrenders through careful reading and |
| individuals and - more importantly - | | | | analysis - the political, economic and social |
| businesses out of the credit markets. In | | | | priorities and goals of the government which |
| other words, the money that is lent to the | | | | prepared it. Politicians can talk a lot about |
| government is not available to finance | | | | the importance of this or that - but it is |
| consumption, investments and working capital | | | | only when they put (other people's) money |
| for businesses. The competition on the scarce | | | | where their mouth is that an indisputable |
| resource of capital increases its price, | | | | priority is established. Money talks (loudly) |
| interest rates. Government borrowing has | | | | and the budget proclaims the true face of the |
| disastrous economic consequences in the long | | | | government which conceived it.In this sense, |
| term: reduced consumption, heightened | | | | a budget is also a monitoring tool. By |
| interest rates, stagnant investments - all | | | | comparing financial projections, finances |
| leading to recession and negative or reduced | | | | allocated to specific purposes in the budget |
| growth rates.Recognizing these unfortunate | | | | - to the actual use made of the funds and to |
| results, governments the world over have been | | | | the extent that they were expended, it |
| converted to the new religion of balanced | | | | becomes clear whether the government "has |
| budgets or, at least, reduced and controlled | | | | kept its word", "changed its mind", or |
| budget deficits.The two best known examples | | | | "reneged on its promises". A budget is a |
| are the United States and the European | | | | promise, it is a contract between the elected |
| Union.One of the things which used to | | | | government and the nation, it is approved by |
| distinguish between political camps in the | | | | parliament and has the status of a law. A |
| USA - Democrats versus Republicans - was | | | | budget can be altered only through a vote in |
| their attitude towards the role of government | | | | parliament. It is a document of unparalleled |
| in the economy. The Democrats believed in an | | | | importance, second only to the |
| active government, whose role it is to | | | | constitution.Still, budgets (moreso than |
| ameliorate the excesses of the markets. This | | | | constitutions) are like living organisms:As |
| logically led to less hysteria over the size | | | | circumstances change, new priorities and |
| of budget deficits. The Republicans firmly | | | | emergencies alter the allocation of |
| believe in Bad Big Government and in the | | | | resources. The budget is based on economic |
| overriding necessity to constrain it and to | | | | projections and predictions, not all of them |
| abolish as many of its functions as | | | | successful and come true.This is why |
| politically and economically feasible. Small | | | | additional or supplementary budgets are |
| Government was a pillar of the treaty with | | | | introduced by governments during the fiscal |
| the people which led the Republicans to their | | | | year. These are updated versions of the |
| landslide Congressional victory in 1994.It is | | | | original budget. They reflect the changed |
| an absurd that it was a Republican president | | | | reality better than the outdated original. |
| (Reagan) who was responsible for the biggest | | | | They help to redefine national priorities, |
| increase in the national debt since the USA | | | | reallocate resources, modify national |
| was established. He reduced the interference | | | | spending.These budgets usually include tax |
| of government in economic life mainly by | | | | increases, new economic or social programs, |
| reducing taxes - without the commensurate | | | | or additional specific expenditures. In some |
| slimming down of government itself. The | | | | countries, the legislator must show where |
| result was apocalyptic: enormous twin | | | | will money be found to finance the newfound |
| deficits (budget and trade), a collapse in | | | | enthusiasm embedded in the new expenditure |
| the exchange rates of the Dollar against all | | | | items.Budgets are also influenced by exogenic |
| major currencies, recession and the steepest | | | | factors, not controlled by the government. |
| stock market crash in 1987.Today, the USA | | | | Force Majeure cases, like the floods in the |
| owes 5 trillion USD. True, this is only 60% | | | | Czech Republic (3 billion USD) and in Poland |
| of the GNP - but this time statistics is | | | | (2 billion USD). Geopolitical processes like |
| misleading. The interest payments on this | | | | wars and peace agreements in the Middle East |
| "benign" level of debt amount to 15% of the | | | | (the 1979 peace cost Israel almost 4 billion |
| budget, or 250,000,000,000 USD per annum. | | | | USD to implement). The onerous, depressingly |
| This is more than any other expenditure item | | | | uniform demands of the IMF from poor |
| in the budget, barring defence. And it is | | | | countries: austerity, fiscal tightening, a |
| getting worse.This, however, belongs to the | | | | monetary squeeze, privatization, deregulation |
| past. Clinton is as much a Republican as any | | | | and so on.Some countries are voluntarily |
| and both parties share the conviction that | | | | subject to externalities: the EU countries |
| the budget must be balanced by the beginning | | | | agreed to amend their budget in order to |
| of the century. It seems that it is well on | | | | comply with the Maastricht criteria. The |
| its way there. The projections of the | | | | French and German Premiers appointed special |
| objective and reliable Congressional Budget | | | | committees to review the budget. The reports |
| Office (CBO) are positive: the budget will be | | | | submitted by these committees forced the |
| balance shortly, long before it was projected | | | | governments to cut spending, increase taxes |
| to do so.But it was an American, Benjamin | | | | and tighten the fiscal discipline (never mind |
| Franklin, who once (1789) said: "Only two | | | | that the French committee failed to take into |
| things are certain in this world - death and | | | | account the renaissance of the French economy |
| taxes". This spectre of a balanced budget | | | | and greatly exaggerated the projected budget |
| already provokes interest group to pressurize | | | | deficit). In all these cases an act of |
| the administration to be less tight fisted | | | | rebalancing the budget is called for.The USA |
| and possessed more of a social | | | | has a peculiar budgetary procedure. Its |
| conscience.Nowhere was the new "less | | | | Federal budget is made up of 13 separate |
| deficits" doctrine more apparent than in the | | | | bills. They are submitted to Congress for |
| Maastricht Treaty and, especially, in its | | | | approval by the administration. When the |
| criteria. The latter determine which of the | | | | President and Congress disagree, some of the |
| member countries of the EU will join the Euro | | | | bills are not approved and certain government |
| single currency zone in the first wave of | | | | operations are shut down. This happened in |
| entrants in 1999. One of the more important | | | | the 1996 fiscal year. In fact, the budget for |
| criteria is that the deficit in the | | | | fiscal year 1996 has been approved only after |
| government's budget will not exceed 3.0% of | | | | the 1997 budget was.In the case of such a |
| GDP ("three point zero" - emphasize the | | | | deadlock, stop gap budgets are passed by |
| Germans who are very worried about the | | | | Congress to allow the government to continue |
| stability of the currency which will replace | | | | to function until a final budget is |
| their treasured DM).As a result of this rigid | | | | positively voted on.Budget are acts of |
| criterion, governments have increased taxes | | | | humans. They represent hard data implausibly |
| (France), imposed one time levies (Italy), | | | | coupled with aspirations, projections, goals |
| engaged in creative accounting (again France | | | | and hopes. They are prone to mistakes, greed, |
| with many others) or unsuccessfully tried to | | | | cronyism, ulterior motives. The existence of |
| do so (the failed attempt to revalue the gold | | | | a mechanism to amend budgets is, therefore, |
| reserves in the coffers of the Bundesbank in | | | | of the essence and to be greeted. A budget |
| Germany). Some were aided by buoyant | | | | amendment is often ceased upon by the |
| economies (France), others by favourable | | | | opposition as proof of the government's |
| public opinion (Italy), yet others by | | | | fallibility and failure. But in a changing |
| farsightedness (Germany's Kohl). All of them | | | | world - they who do not adapt through change |
| pay a dear economic, political and social | | | | are doomed. Governments that amend their |
| price. By restraining the budget deficit, | | | | budgets midway merely admit that they are |
| they induce recession or fail to encourage | | | | made of humans and are doing their nation a |
| budding economic expansions. Unemployment | | | | service. |
| rates remain stubbornly high, so do interest | | | | |