The budget is generally prepared by legislation and is passed by the president who may also recommend changes in the proposed budget. However, the rules and regulations regarding the preparation and passing of the government budgets may differ from region to region.

The most important thing here is that a budget gives “expected” figures that are reached through research keeping in mind the future scenarios that may change with time. Ideally, every government wants to have a surplus, which is a condition where the revenues are higher than expenditure. However, more often than not, many government budgets do not go as planned and end in a deficit, a condition in which expenditures are higher than income.

Revenues and expenses are the two main features of any government budget. Revenues mainly come from direct and indirect taxes derived from individuals and corporations. However, there are several other non-tax sources of revenue including:

-  Fees

-  Fines or Penalties

-  Gifts

-  Deficit Financing

The most important factor of the non-tax revenue sources mentioned above is “deficit financing”. Borrowing from the market to meet budget deficit is known as budget financing. Quite often governments have to spend a lot that result in them having no option but to look for sources from where they can get loans. Some borrowing sources include:

-  International Organizations such as World Bank and IMF

-  State Bank and Commercial Banks

-  Public

-  Other Nations

Nevertheless, every country should try to keep its expenditures low and only spend money on things that are required. Some major areas that governments spend in include:

-  Defense

-  Investment

-  Goods and Services

-  Subsidies

-  Research etc.

It is recommended that governments stay away from making any unnecessary expenditure. They should utilize every penny careful so that maximum utility is derived. Yet, at times, this becomes very difficult to follow due to certain conditions including natural hazards that not only impact the expected government income but also end up increasing expenditure as the government has to spend greatly on rehabilitation and other such expenses.

Hurricane Sandy, which hit the US in the last quarter of 2012, is a big example of what damage such unforeseen events can cause. In such conditions governments have no option but to increase expenditure as money is needed in rebuilding houses as well as providing food and other necessary items to internally displaced people (IDPs) and affected people.

Developed countries like Australia and New Zealand mostly have a surplus budget. The best practice to have a surplus budget includes reducing expenditure and increasing revenue by unearthing more revenue sources.

In comparison, developing countries mostly have a budget deficit for several reasons such as the fact that they have to spend greatly on imports (mainly technological imports). In addition to all this, the US, which is one of the most developed countries, mostly also has a negative budget mainly because its expenditure gets excessive not only due to natural calamities but also because it gives grants to other countries and also has to spend a lot on its defense budget.

Government budgets serve several purposes. They give governments a layout on how to work in the future. Additionally, they also help countries measure their growth and then plan accordingly. They should always be prepared with care because they impact the whole economy of a country.

Ireland

General Government Deficit or Surplus as % of GDP: -10.3

Ireland continues to dwindle with its condition not seeing any improvement. Its 2011 budget proposed a reduction of €6 billion in expenses to improve the deficit that has been causing troubles in the country.

United States

General Government Deficit or Surplus as % of GDP: -10

The US continues to have a negative budget; however, the conditions are better when compared to the previous years. Nevertheless, looking at the current scenario, it will take the country a good few years to be able to achieve a surplus, which it hasn’t in decades.

United Kingdom

General Government Deficit or Surplus as % of GDP: -9.4

United Kingdom’s 2011 budget was in huge deficit mainly due to the huge expenditure it had to incur on development. The country that hosted 2012’s Olympics had to spend big to be able to cash in on the opportunity. Experts were of the idea that it will result in something positive and give the dying economy a boost.

Greece

General Government Deficit or Surplus as % of GDP: -9

2011 saw a slight improve in Greece’s financial condition; however, the country is still very far from being called financially sound. Economists in the country criticized its 2011’s budget as it failed to bring into consideration the risk factor, as per the experts.

Japan

General Government Deficit or Surplus as % of GDP: -8.9

Japan witnessed a major earthquake in 2011 that left the country devastated. With stock falling all-time low, the country had to spend extravagantly on development and welfare, resulting in the country having a deficit.

New Zealand

General Government Deficit or Surplus as % of GDP: -8

New Zealand’s budget saw a deficit, which economists believe is a good thing as most expenditure was done in the right sectors. The government spent a huge chunk of revenue on public welfare and offering new jobs. Around 170,000 new jobs are expected to open in the next few years that will help the country improve its condition.

Spain

General Government Deficit or Surplus as % of GDP: -6.2

With improved tourism and welfare services, Spain’s economy showed signs of improvement in 2011. Its budget was aimed towards improving the situation further and solving the problem of unemployment, which was a major cause of concern.

Portugal

General Government Deficit or Surplus as % of GDP: -5.9

Portugal found it difficult to improve its situation in 2011, even though the financial crises were almost ending. Like most OECD countries, it had to put in a lot of efforts to get over the damage caused by the economic meltdown.

Slovak Republic

General Government Deficit or Surplus as % of GDP: -5.9

Slovak Republic is planning to remove its budget deficit by 2015, and looking at the estimates the plan seems to be working as it has improved its situation with deficit decreasing.

France

General Government Deficit or Surplus as % of GDP: -5.7

One of the world’s strongest economies also showed signs of meltdown with falling revenues and increasing expenditures; however, the conditions were better in comparison with the previous years.

Highlighted below are ten countries with worst budgets in 2009.

Ireland

General Government Deficit or Surplus as % of GDP: -14.2

Ireland’s budget deficit almost doubled in 2009, as compared to the previous year. The country found it difficult to balance things or meet standards set by the EU as revenues started to fall with expenses continuing to go up.

Greece

General Government Deficit or Surplus as % of GDP: -15.8

Greece’s situation continued to worsen with its deficit falling to almost 16%. With growing unemployment, revenues from multiple sources continued to fall.

United States

General Government Deficit or Surplus as % of GDP: -11.6

2009 was a very bad year for the US that could not reduce its expenditure due to its position. It continued to spend heavily on defense and welfare resulting in a huge deficit.

United Kingdom

General Government Deficit or Surplus as % of GDP: -11

UK’s condition worsened as the country started looking for better options. With unemployment hitting all time low, the country started to work on law and order situation and a huge chunk of income was apportioned towards such expenses.

Iceland

General Government Deficit or Surplus as % of GDP: -10

Iceland’s trick paid off as the country improved in comparison to the previous years, falling from number one spot to number 5^th spot, even reducing the overall deficit. The exchange rate stabilized in the last quarter of 2009 helping the country strengthen its position. However, inflation reached a record 18.6%.

Portugal

General Government Deficit or Surplus as % of GDP: -10.2

2009 did not bring any good news for Portugal that found it extremely difficult to balance things and have a surplus budget. The authorities promised to improve the situation in a few years by controlling expenses and finding ways to increase revenue.

Spain

General Government Deficit or Surplus as % of GDP: -11.2

With an increased public deficit, Spain ended up having a huge budget deficit. The government took some major steps to control the alarming rate of unemployment, which resulted in falling revenues and increase expenses.

Poland

General Government Deficit or Surplus as % of GDP: -7.4

The global financial crisis put Poland in a very weak position as its economy continued to fall down in 2009.

Japan

General Government Deficit or Surplus as % of GDP: -8.7

Japan’s economy largely depends on its large-budget exports that fell largely with people not having the power to buy products like vehicles. Additionally, natural disasters that hit the country in the middle of 2009 resulted in huge expenses and the country having a budget deficit.

Slovak Republic

General Government Deficit or Surplus as % of GDP: -8

Slovak Republic did not see favorable news in 2009 as its revenues sharply fell due to the economic crisis. However, the government came up with a strong budget, even though in deficit, to control the situations and promised to even things up within a few years.

Highlighted below are ten worst budgets of 2008.

1. Iceland

General Government Deficit or Surplus as % of GDP: -13.5

In 2008 headlines like “Iceland Goes Bankrupt” were regularly doing the rounds due to the financial crisis the country was going through. The sad phase reflected in its budget as well, as the country was not able to maintain its revenues. Many companies and banks, including the Glitnir bank were nationalized during this period.

2. Greece

General Government Deficit or Surplus as % of GDP: -9.9

Greece was expecting a deficit, but not as wide as it ended up having. The country had been having trouble meeting standards set by the EU. Recession had affected social security and tax revenues resulting in lower than expected overall revenue that reflected in its budget.

3. Ireland

General Government Deficit or Surplus as % of GDP: -7.3

2008 saw Ireland’s first carbon budget. Ireland’s economy had started falling in 2007 with 2008 breaking the camel’s back, as revenues fell lower than expected. Some tax changes were made to give the economy a new lease of life; however, nothing worked as Ireland wrapped up the year with a huge deficit.

4. United States

General Government Deficit or Surplus as % of GDP: -6.6

Every kind of expenditure, from Medicare to defense to social security was increased in 2008; however, like any other year, revenues fell short that resulted in the US having a huge deficit of 6.6%. Most of its revenue was generated through tax sources including income tax and corporate tax.

5. United Kingdom

General Government Deficit or Surplus as % of GDP: -5

The UK was among the worst hit countries by the economic slump that started in 2008. UK’s 2008 budget was aimed towards balancing revenues while continuing to provide people with great services.

6. Spain

General Government Deficit or Surplus as % of GDP: -4.5

Unemployment soared in Spain resulting in less revenue in income tax and more expenditure. The situation was totally opposite in 2007, which was a better year for the country that saw one of its worst financial years in 2008.

7. Israel

General Government Deficit or Surplus as % of GDP: -3.8

The educational reform and military expenses soaked most of Israel’s budget in 2008 resulting in Israel having a huge deficit.

8. Hungary

General Government Deficit or Surplus as % of GDP: -3.7

Slow than expected growth poorly hit Hungary, like most other European countries. With falling revenues the government could not do much but have a negative budget.

9. Poland

General Government Deficit or Surplus as % of GDP: -3.7

Poland’s 2008 budget was prepared after huge surveys so that the country could prepare for the worst. A huge chunk of revenue was spent in social security, justice, education and healthcare.

10. Portugal

General Government Deficit or Surplus as % of GDP: -3.7

Portugal was warned for its budget deficit as things were not looking to change in the near future. The country prepared a budget that was planned to bring it down to 3% or lower (EU’s requirement) however, experts believed that the country could not control its expenses better and carried huge risks.

Revenues

On one side are all the revenues that the government is expected to earn in the next twelve months. There are many sources of revenues.

Generally, they are divided under two sections:

Tax Revenues

Most of government’s revenue comes from taxes of various kinds. The 2012 figures estimate the government to receive $2.45 trillion in tax revenues. This section may be further divided into different types of taxes including “direct taxes” and “indirect taxes”.

Direct taxes are the taxes that have to be paid directly by the person they fall on. Whereas, indirect taxes are the taxes the burden of which can be passed along to others, such as general sales tax, which can be forwarded to customers as high prices.

Non Tax Revenues

On the other side, there are various other non tax revenues. Government receives interest on loans it has given to institutions. It is counted as revenue and added under this heading. Additionally, revenue earned from selling goods (land etc.) is also counted.

In addition to all these, the government also provides various services to different sectors. All the revenues earned through these services are also brought into consideration while preparing a government budget.

Expenditure

All the governments try to achieve a surplus budget i.e.: expenditure lower than revenues. However, the US government always has troubles doing so due to its huge expenditure.

Some main expenditure categories include.

Defense Expenditure

The US has to spend trillions of dollars on defense expenditure, mainly due to the fact that it is not on very friendly terms with a lot of countries and has to fund its armed forces deployed in several nations fighting terrorists.

In 2011, around $950 billion were spent in defense expenditure including veteran expenses and Department of Defense.

Welfare

A government budget has a huge impact on the population. The government has to make sure that people receive basic necessities of life, such as food, shelter, and healthcare. A lot of people in the US are deprived of such basic necessities for which the US government has to spend a huge chunk of revenue.

In addition to these, there are other categories, such as Social Security, which is an insurance program that is aimed to help old age, disabled and survivors.

Growth and Development

Natural disasters, mainly hurricanes are common in America. It has to spend a huge amount of money on rebuilding the economy that is destroyed by such natural disasters. In most of the cases, these disasters are unexpected, due to which the budget is not able to take them into consideration and the government has to resort to other means to fulfill the needs.

In addition to these there are several other categories, such as (Imports minus Exports, Interest etc).

Mentioned below are ten best budgets of 2008. The list is compared seeing if the budget was in surplus or deficit.

1. Norway

General Government Deficit or Surplus as % of GDP:      19.1

The country with a huge number of international brands stands at number one with its budget leaving behind other countries’ budgets by a huge margin. The budget was cleverly made with the aim to improve living standard of the people while focusing on non oil deficit.

2. Finland

General Government Deficit or Surplus as % of GDP:      4.2

2008 saw Finland increase funding in research and development. The Finnish government readily approved the budget that was prepared to improve the people’s standard of living while concentrating on other areas as well.

3. Denmark

General Government Deficit or Surplus as % of GDP:      3.3

Denmark continued to have surplus budget in 2008 despite the beginning of a tough period. The new budget surprised many as billions were awarded to R&D. The main aim was to keep the country at the top of the globalization wave.

4. South Korea

General Government Deficit or Surplus as % of GDP:      3

South Korea has to devote a huge portion of its budget to defense expenditure due to its not-so-friendly relationship with a few countries. In 2008, it opened to foreign investment and exports during this period that helped it continue its growth.

5. Luxembourg

General Government Deficit or Surplus as % of GDP:      3

Luxembourg is a small country that mainly flourishes due to its enviable geographical location. It thrives due to highly motivated workforce and innovation. Additionally, it is able to get the right budget as it does not have to invest a lot in defense expenditure and most of the budget is aimed towards development.

6. Switzerland

General Government Deficit or Surplus as % of GDP:      2.3

In 2008, Switzerland stood at number 2 (behind Norway) in Europe. However, its budget was once again criticized by many as it failed to help the falling real income of the nation.

7. Sweden

General Government Deficit or Surplus as % of GDP:      2.2

The government set out the direction of the economic policy concentrating on the right points. Keeping with best practices, its budget was elastic that allowed changes as suggested by the parliament.

8. Australia

General Government Deficit or Surplus as % of GDP:      0.5

Australia’s 2008 budget had particular emphasis on family welfare. There were tax cuts in addition to huge amount being devoted to education and health sector. The tax plan was prepared very intelligently so that only high income earners would get affected.

9. Netherlands

General Government Deficit or Surplus as % of GDP:      0.5

Netherland suffered a blow in 2008 as recession hit in the last quarter. However, the country managed to meet its standards that were set in the budget.

10. New Zealand

General Government Deficit or Surplus as % of GDP:      0.4

Winding up the list at number ten is New Zealand, a country that almost always makes it to the top 10 list. Its 2008 budget was aimed towards improving the country’s development while concentrating on education and health.

Many experts have given some important cannons of budget that have to be remembered when preparing a budget of any kind.

Countries especially have to be very careful because too much is on the line. To understand the procedure better, given below are a few good traits of a good government budget.

Elastic

The budget should always be elastic. Understandably, there comes times when one needs to rethink strategies and change figures. If the budget does not allow any changes, it will not be a good budget.

Based on the country, the budget document has to pass several acid tests before it reaches the president for the final approval. Legislature and experts make many changes to the budget so that it suits the requirements, which is why the budget has to be elastic and easily changeable.

Sanctioned

A budget should only be made by those who are sanctioned to do so. Additionally, those sanctioned to make the budget must be competent and experienced enough to handle such a huge task.

Making a small mistake in the preparation of a budget plan can cause a heavy damage to the government and the country as a whole. Many countries have actually fallen due to poor budgeting. They end up in heavy debt and find it difficult to strive.

Equal and Rational

The budget should be planned carefully. When making a federal budget, experts have to make sure that they do not end up doing any injustice to states or sectors. The budget has to be divided carefully so that all the sectors of the economy can flourish.

Many countries make the mistake of concentrating on one pillar and neglecting others. This is a big blunder that can cost heavy. It is important that one concentrates on all the points and divide the revenues properly.

Researched

A budget should always be prepared after doing a good amount of research. Since a budget in most cases is based on expected numbers, it is important that the number (revenue and expenditure) are reached with a lot of care so that the closest possible estimates are achieved.

Surplus

One of the most important qualities of a good budget is that it should be in surplus. Unfortunately, most countries have deficit budgets these days mainly due to the poor general economy, falling revenues, and unnecessary expenditure.

Countries have to resort to various means to balance their BOP that results in them going under debt. It is important for every country to recount history’s lessons when preparing a budget and not to make the same mistake again.

In addition to the above mentioned points, all the budgets should be transparent and available to those who will be affected by it. Lastly, for a budget to be effective, it must be fully adapted and followed as closely as possible.

Overall, 2009 was a bad year for almost every country as revenues were down due to the economic slump. However, a few countries were still able to achieve surplus budget.

Highlighted below are the top ten budgets of 2009 for your understanding.

1. Norway

General Government Deficit or Surplus as % of GDP:      1.7

Inflation in the country reached 3.98% in 2009; however, Norway maintained its number one spot due to its budget standing at a surplus. Almost every country faced a financial crisis during the period, but Norway managed to escape it thanks to better planning. Additionally, being a huge oil exporter helped the country a lot.

2. Switzerland

General Government Deficit or Surplus as % of GDP:      1

The country was able to have a surplus budget due to various reasons. For starters, Switzerland does not have to spend heavy on defense unlike other countries, such as the US. Additionally, it is also often criticized for a lack of government expenditure on public welfare.

3. Luxembourg

General Government Deficit or Surplus as % of GDP:      -0.9

Luxembourg faced a 5% budget deficit in 2009. Like many other countries in Europe, Luxembourg also suffered a huge blow due to recession; however, the damage was comparatively lesser. With a $40.7 billion GDP it continued to flourish.

4. Sweden

General Government Deficit or Surplus as % of GDP:      -0.9

Sweden changed its policies to meet the changing times and had a deficit budget in 2009, which still looked better in comparison to other countries. All the changes resulted in the country making it to the list of top 10 countries with the highest GDP.

5. Estonia

General Government Deficit or Surplus as % of GDP:      -2

Estonia had several problems with its budget in 2009. The plans continued to change with an increase in VAT and other taxes. The government also cut the expenses so that BOP could be balanced. This one point helped Estonia remain in good health and make it to this list.

6. New Zealand

General Government Deficit or Surplus as % of GDP:      -2.6

The budget concentrated on a lot of good things including education, social development, and research. It was highly concentrated towards making the future brighter.

7. Finland

General Government Deficit or Surplus as % of GDP:      -2.7

Finland has an egalitarian country that pays special attention to education and development. Its 2009 budget was also a step in the same direction. That year also saw some major tax changes and more money invested in research and development.

8. Denmark

General Government Deficit or Surplus as % of GDP:      -2.8

Denmark is among the world’s strongest economies. The world saw a slump in 2009; however, Denmark’s exports remained rock steady helping the country make it to this list.

9. Germany

General Government Deficit or Surplus as % of GDP:      -3.2

Europe’s biggest economy had to approve of a deficit budget to meet standards and continue to improve. The budget was aimed towards balancing the economy and giving it a boost so that the country could once again get back on its feet.

10. Australia

General Government Deficit or Surplus as % of GDP:      -4.1

2009 turned out to be a tough year for the country with revenues falling rapidly. The government had to cut income tax in an attempt to boost the country’s status. Nevertheless, the budget continued to provide welfare to people in the form of home owner grants and increased payments to the states.

Best practices say that a budget should always be prepared with care keeping it in a surplus (revenues>expenditure).

2011 saw countries recovering after the slump that started in 2008. Many countries were able to achieve a surplus budget thanks to their faith and commitment.

Mentioned below are ten best budgets of 2011. The list is compared seeing if the budget was in surplus or deficit.

1. Norway

General Government Deficit or Surplus as % of GDP:      12.5

Norway retains the Numero-Uno position for the fact that its budget is always prepared with care. The country always rises up to the occasion balancing its budget well.

2. Hungary

General Government Deficit or Surplus as % of GDP:      4

Hungary enters the chart at number two as one of the strongest economies after the recession phase. Country’s growth is tremendous mainly due to the efforts to concentrate on development.

3. South Korea

General Government Deficit or Surplus as % of GDP:      0.8

South Korea continues to dominate the region. A huge portion of its 2011 budget went to research, education and defense.

4. Switzerland

General Government Deficit or Surplus as % of GDP:      0.8
Switzerland recorded a Government Budget surplus equal to 0.40 percent of the country’s GDP in 2011, making it one of the strongest economies in Europe.

5. Estonia

General Government Deficit or Surplus as % of GDP:      0.1

Estonia stands in the middle of the list at 0.1%. The country’s public debt totaled 6%, which is lowest in years.

6. Sweden

General Government Deficit or Surplus as % of GDP:      0.1

Sweden continues to grow after the recent slump with the country managing a positive budget after a small gap.

7. Germany

General Government Deficit or Surplus as % of GDP:      -1.2

Germany had the fourth highest budget in 2011 with 37,000 million USD deficits. Country’s exports saw a fall that made the country rethink its strategies and it came up with a strong budget for 2011 that is aimed towards making Germany strong once again.

8. Luxembourg

General Government Deficit or Surplus as % of GDP: -1.2

The country has announced its aim to return to a balanced budget by 2014. Its 2011 budget was also prepared keeping the future plans in mind. The country reduced costs on unnecessary expenditures so that it can continue to thrive and have a surplus budget.

9. Finland

General Government Deficit or Surplus as % of GDP: -2

The country continued to have the same scenario as in 2010 recording the same numbers. However, a look at 2011 shows how the country is improving, and planning to get a better hold on its revenues and expenditures by 2012. The budget was aimed towards improving the import/export situation and providing more facilities to the people.

10. Australia

General Government Deficit or Surplus as % of GDP: -3.3

Closing the chart is Australia with its budget that was purely transparent and aimed towards providing benefits to the people.

P.S: Some numbers are based on estimates

Government budgets are formed in nearly every country in the world, some lasting for a year while for others it may last two years. In accordance to best practices, budgets formed by the government are forced to go through a thorough analysis before being finalized in the parliament.

It is important that the presented budget is favorable to all the members of the house. Otherwise, revisions will take place making the process even longer than it already is. Typically, a budget formed for the monetary expenses and revenues of a government takes several months to be drafted for presentation. This time may range anywhere from six to nine or even ten months.

The reason budgets consume so much time for development is that every aspect of the budget is completely and thoroughly examined making sure there’s no room left for mistakes. The people who have been charged with the responsibility of drafting a budget have to make several calculations. One of the main calculations is the subtraction of expenses from revenues. These values are taken from the revenues and expenses taking place within the last fiscal year.

By calculating the total amounts of profits and losses occurring within the previous year, budget drafters can assess the results properly. These people will examine the areas where budget deficits have occurred and try introducing innovative cost figures. These figures will ensure that the unnecessary fiscal costs harming the economy are eliminated and a maximum number of funds are spent on areas that promise full returns.

Any projects that have been funded by previous budgets and are not yielding any benefits are going to be removed from the development list. Efforts for gathering funds can also be made if the project serves a prosperous purpose for the country’s economy.

Once a budget has been formed, it is introduced in the legislative for approval. There, different politicians and lawmakers will study the prospects and offer their content or discontent with the budget. If the budget is accepted by the majority of the legislation than it can be passed, otherwise it will have to be redrafted.