Expenditure Budget

Publication Date :

04 Jan, 2025

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Table Of Contents

What Is An Expenditure Budget?

An expenditure budget is a systematic allocation of funds orchestrated by a government to different sectors, ministries, regions and departments for a particular financial year. It is an essential part of the annual federal budget based on plan and non-plan estimations. It is also an indicator of a government's fiscal discipline.

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It is a detailed analysis and proposal of how the revenue collected by the government, along with other funds, is to be utilized, where, how and all the types of expenditures. Investors, market makers and economists follow the expenditure budget to understand the future dynamics of financial markets and the economy.

Key Takeaways

A working capital requirement is a specific sum that a business requires to meet its short-term financial obligations.
It is obtained by finding the difference between current assets and liabilities. A positive figure indicates healthy liquidity and vice versa.
However, businesses must ensure that excessive cash is not idle, as this may be a sign of the underutilization of funds.
The ability to forecast the WCR figure not only ensures timely payments to employees, landlords, suppliers, and the government but also gives management the time to prepare themselves for their immediate financial requirements.

Expenditure Budget Explained

An expenditure budget is a crucial part of the federal budget, with detailed planning of fund allocation in different ministries, sectors and economic and social development areas. Every year, the government creates an annual budget offering an extensive planned roadmap on how the funds will be allocated in different sectors, such as IT, agriculture, healthcare, education, and defense, along with its mission and vision for the set financial year. Every country has its expenditure budget format and process. In the United States, the US Constitution allows Congress to create an annual federal budget to be approved by the President.

The federal budget encompasses the expenditure profile, which is the compilation of all the relevant data and information on the government's general performance. The US budget has three main parts: mandatory spending, discretionary spending and debt interest. From a finance perspective, investors, traders, market makers, analysts and other participants closely follow the operating expenditure budget to understand the future projects, prospects and potential of different sectors, along with forecasting the shift in the stock market and other financial markets.

Every country plans and executes actions based on its expenditure budget created on the basis of plan and non-plan estimation. A good expenditure budget represents a healthy and booming economy and vice versa. Every government strives to create a good balance between different parts of the expenditure budget. It often receives criticism from different communities and individuals belonging to different sectors for lacking focus on their issues and not allocating sufficient resources and funds.

Components/Parts

The main components of the expenditure budget are -

Capital expenditure: It is a non-recurring expenditure as it is not permanent or keeps on coming. Through capital expenditure, the government focuses on asset creation and reducing its liabilities. Capital expenditure helps the government increase productivity and building schemes, invests in public welfare programs, and tends to long-term infrastructural development such as ports, highways, bridges, and rail networks, ultimately adding value to the national economy.
Revenue expenditure: It is the complete opposite of capital expenditure because, firstly, it is recurring because it includes salaries, interest payments, pension funds, administrative expenses, and allocation of funds in sectors such as agriculture, health, defense, and other public services and utilities. Revenue expenditure does not assist the government in planning or building assets or reducing debt or liabilities.

Example

Here are two examples of expenditure budgets:

Example #1

Suppose a fictional country recently announced its union budget for the financial year 2024-2025. This budget includes all the information about the planning, strategy, vision and other aspects of the fund's utilization by the government. As a part of the union budget, the expenditure budget denotes the fund allocation distributed among different sectors, ministries and areas of growth and infrastructure.

Based on this plan and non-plan estimation, the whole funds will get distributed as per the budget allocation. The fictional country will follow this fiscal year 2024-2025 budget. After this, another expenditure budget will be proposed based on the situation, political objectives, and growth perspective. These sectors are agriculture, healthcare, defense, IT, and industrialization.

Example #2

For the second example as per a 2022 Business Standard article, the global military expenditure crossed $2 trillion for the first time in which the US topped the list. The Stockholm International Peace Research Institute announced that global military expenditure hiked by 0.7% compared to 2021. The top four countries with the most expenditure after the United States were China, India, the UK and Russia.

This report shows that many countries prioritize defense and military sectors. The US and UK are constantly trying to spend more and more to get the best defense and military facilities for themselves. This has been consecutively the seventh time that the expenditure on the defense sector has increased globally.

Expenditure Budget vs Capital Expenditure Budget

The key differences between expenditure budget and capital expenditure budget are -

Expenditure budget represents the fund allocation by a government in different sectors, departments and areas of economic growth. In contrast, a capital expenditure budget is a formal proposal of timing and amount of expenditure on fixed assets.
The government makes the expenditure budget. In comparison, the capital expenditure budget is prepared by a comp.
The duration of an expenditure budget is typically for a specific financial year. Still, a capital expenditure budget can be longer than an annual budget as some fixed assets acquisition and purchase demand time.