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