Friday, October 2, 2009


A budget is an organization's forecast or estimate of its income and expenditure for a given period usually a year. It indicates the project or items on which the organization will spend its revenue for the period and also the sources from which the organization expects to raise the revenue to spend. Government budget is normally divided into two parts-the capital estimates and the recurrent estimates.
The recurrent estimates or expenditures of government is concerned with those routine expenditures for its day to day operation which occur yearly such as workers' salaries, stationery items, and other materials for the running of the government. According to Nwabuzor (1990:56), this part of the budget has relatively little impact on the operations of business enterprises except for those that rely on government patronage for their existence.
On the other hand is the capital estimate. It is this part of the budget that greatly affects business in any given year. It involves government spending on capital projects such as road construction, construction of new hospitals, schools, purchase of heavy arms for the military etc.
Moreover, a budget can either be deficit or surplus, a surplus budget estimates more revenue than expenditure. In other words, the government will spend less than its expected revenue. This is also called a deflationary budget because it means less government spending and contracted money supply to the economy. When the government spends less, the citizens will earn less as income, their propensity to spend will therefore be reduced and this will have its own impact on company's fortunes as fewer commodities will be demanded by the citizens.
Business activities will thus be contracted.
On the other hand, the budget may be a deficit budget in which case, the government intends to spend more than its revenue. In this case, the government must borrow to finance the deficit and what this means is the pumping of more money into the economy. When more money is pumped into the economy, there will be a general increase in consumer's disposable income and therefore, increased sales and profits for businesses. Deficit budgets are therefore used to expand economic activities in the economy, and are called inflationary budgets.

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