Public budgeting principles and practices

Public Budgeting

Whether it is known or not, public or governmental budgeting is different from non-governmental budgeting. Public budgeting is more concerned with the sustainability of programs whereas as private budgeting is more concerned with maximizing profits while minimizing losses.

Philosophy of Public Finance

The philosophy behind public finance has to do with financial matters relating to the government in terms of taxation among local, state and federal government entities. The government relies on taxpayers to fund the various government programs and agencies. At times, funds will be moved from one program to another to keep a program growing or budgets may be slashed because there aren't enough funds. Public Finance depends greatly on the taxpayers and if there doesn't seem to be enough funds in the budget, taxes may be increased. It is said that the whole process of taxation is unfair because even though the sales tax is the same for everyone, those with lower incomes pay a higher portion of their salaries in taxes than those with higher incomes (McGee, 2004).

Private finance does not rely on the taxpayers at all. Businesses do not rely on their revenue from taxpayers. They operate on a profit and loss philosophy and will go public in order to sell shares of stock in their company to keep it profitable. If a company is not profitable, it does not have the option to borrow funds from another agency or raise revenues like governments do in order to keep their entities afloat.

Governmental Accounting and Nongovernmental Accounting

Government accounting is different from nongovernment accounting because it is based on accountability, whereas nongovernmental accounting is more focused on financial profitability. The government has to use accounting that makes it accountable because it is using the taxpayer's money in order to operate. Government agencies must now follow the Governmental Accounting Standards Board (GASB) and statement #34 of these standards deal with government financial reporting. According to Fickes, GASB 34 changes traditional government accounting to give the readers of government financial reports a more accurate reading of everything (2002). Private accounting firms do not follow these standards because they are not responsible for being accountable to the taxpayers.

Budgeting and Financial Reporting in the Government

The government cannot just act as it wishes when it comes to budgeting and financial reporting. For this reason, there is the Governmental Accounting Standards Board. It is important to budget in order for there to be accurate financial reporting of government operations. The relationship that government budgeting has to financial reporting is that is has the effect of keeping the budging above board and discouraging anything that is not considered above board. Knowing that the budget can and will be made available to the public makes those doing the budget accountable for their actions.