The word ‘budget’ comes from the French word for bag, bougette. In the UK Parliament, the budget papers used to arrive in a leather pouch, and the chancellor of the exchequer (the UK Treasurer) would “open the budget”.
The budget shows the overall financial position of the government, being either a surplus or deficit. It also lists all changes in how government will spend money in the next 12 months, including all cuts and new expenditures. Finally, it lists all the changes to how it will raise money, such as changes to taxes.
The first national budget, in 1901, saw the Commonwealth disperse 10.3 million pounds. The most recent budget was for $413 billion – 21,000 times bigger (not adjusted for inflation).
Budget night, when the Treasurer presents the papers to Parliament, is the final step in a very long process. Work has been going on – in secret – for nearly a year. First, all government departments develop proposals. These classified documents are sent to the Expenditure Review Committee, which is a sub-committee of Cabinet. The committee is chaired by the Treasurer or Prime Minister and its decisions shape the Federal Budget.
The budget covers the next financial year, which will start on July 1 and finish on June 30 of the year after. It also contains estimates for the “forward estimates” which are the budget year and the three years after that.
Australia’s national budget comes out on the second Tuesday in May, released at 7.30pm. This has been tradition since 1994 with the only exception in 1996 when an election was held in March, forcing the budget to August.
The budget has important legal standing. The budget includes a bill that goes to Parliament, like any other bill to make a new law. It is the primary way for the government to access money to spend. The budget bill is called an appropriation bill. It is mentioned in the constitution – the appropriation bill is not allowed to deal with anything other than appropriating money, and the Senate is not permitted to amend it.
The budget is intended to force the government to make all spending and revenue decisions at one time, so priorities are clear and expenses are covered. The budget should therefore reveal the government’s priorities. Of course, governments often make decisions outside this official process.
Jason Murphy is an economist and journalist who has worked at Federal Treasury and the Australian Financial Review. His twitter handle is @jasemurphy and he blogs about economics at Thomas The Think Engine