The budget is the single most important policy document a government produces — it is where every promise meets a number, and where priorities are revealed rather than stated. Public financial management (PFM) is the system that turns the budget from a wish-list into delivered services. This course covers that system; the module begins with what a budget is actually for.
Schick's three objectives
What a PFM system must achieve
Allen Schick's enduring framework sets three objectives, in order of priority: • Aggregate fiscal discipline — total spending is controlled and sustainable; the budget adds up and the deficit and debt stay within means. (Without this, nothing else matters — you cannot allocate or deliver from a budget that doesn't balance.) • Allocative efficiency — money goes to the right priorities; resources are allocated to the programmes with the highest value, and shifted as priorities change. • Operational efficiency — services are delivered at least cost; the money allocated actually buys the intended output efficiently. The order matters: discipline first (or the macro economy breaks), then allocation, then operational efficiency. A PFM reform that improves operational efficiency while aggregate discipline collapses has failed.
Three faces of the budget
- The budget as a plan — a statement of what the government intends to do next year, expressed in money. It translates policy into resources.
- The budget as control — an authorisation: the legislature grants the executive permission to spend specified amounts on specified purposes, and no more. The budget is law (the Appropriation Act), and spending outside it is illegal. This control function is the historical origin of budgeting — parliaments using the power of the purse to constrain the crown.
- The budget as a contract — an agreement about performance: in modern budgeting, the money comes with expected results, making the budget a (loose) contract between those who fund and those who deliver.
Inputs, outputs, outcomes
A recurring distinction runs through the whole course. Inputs are what money buys (teachers' salaries, textbooks, classrooms). Outputs are what the system produces (pupils taught, classes held). Outcomes are what society actually wants (children who can read). Traditional budgeting controls inputs (it is easy to count salaries); the reform agenda pushes toward outputs and outcomes (what did the money achieve?). The difficulty — which returns in the performance-budgeting module — is that outcomes are what matter but inputs are what can be controlled, and the link between them is uncertain and often weak.
The budget is political
Finally, a budget is never merely technical. It is the arena where the distributive conflicts of the whole society are fought out — every shilling to one programme is a shilling not to another, and the choices reflect power, not just need (the public-choice logic of the Political Economy & Governance area: the fiscal commons, logrolling, the deficit bias). A good PFM system does not abolish this politics; it channels it — making the trade-offs visible, the totals disciplined, and the results accountable. Treat the budget as a political document with a technical surface, and both halves of this course make sense.
Exercise
A country exhibits three symptoms: (a) it consistently overspends its budget and debt is rising fast; (b) it spends heavily on fuel subsidies and prestige projects while primary health and education are underfunded; and (c) the money that does reach schools buys little learning because of waste and absenteeism. (1) Map each symptom to one of Schick's three objectives. (2) Explain why fixing (c) without fixing (a) would be a failure, and why the order of the objectives matters. (3) For symptom (b), explain whose interests the misallocation likely serves, linking to the public-choice area. (4) Which face of the budget — plan, control, or contract — is most relevant to diagnosing each symptom?