Budget

 By Kusha CSE

Budget

Introduction

George Osborne presented his third Budget on Wednesday 21 March 2012.

The Chancellor started by reaffirming the need for stability in the UK economy and finished in Churchillian style with phrases such as:

‘No people will strive as the British will strive.’
‘No country will adapt as the British will adapt.’
‘This country borrowed its way into trouble. Now we’re going to earn our way out.’

Towards the end of last year the Government issued the majority of the clauses, in draft, of Finance Bill 2012 together with updates on consultations. The publication of the draft Finance Bill clauses is part of the Government’s improvements in the way tax policy is developed, communicated and legislated. The Budget updates some of these previous announcements and also proposes further measures. Some of these changes apply from April 2012 and some take effect at a later date, so the timing needs to be carefully considered.

Our summary focuses on the issues likely to affect you, your family and your business. To help you decipher what was said we have included our own comments.

Main Budget proposals

• A further increase in the personal allowance but with a reduction in the basic rate band from April 2013.
• An additional 1% cut in the main rate of corporation tax to 24% from April 2012.
• A reduction in the additional rate of income tax from 50% to 45% from April 2013.
• Details of how Child Benefit will be taxed on those with income in excess of £50,000.
• Proposals for tax simplification for smaller businesses.
• Consultation on the introduction of a general anti-abuse rule.
• Increased Stamp Duty Land Tax on high value residential properties.

Previous announcements

Some of the changes detailed in this summary have been the subject of earlier announcements. Here is a reminder of some of the more important ones:

• The introduction of a Statutory Residence Test
• Changes for non-domiciled individuals
• Reduced rates of inheritance tax for charitable individuals
• Introduction of the Seed Enterprise Investment Scheme
• Reduction of the Annual Investment Allowance from April 2011.

·         Budget History Tables

Education Department Budget History Table: FY 1980—FY 2012 President's Budget

·         The Education Department Budget History Table shows President's budget requests and enacted appropriations for major Education Department programs. This table breaks out Department budget totals by discretionary and mandatory spending. Spending for discretionary programs is decided in the annual appropriations process. In contrast, spending for mandatory programs is usually a function of the authorizing statutes creating the programs, and generally is not affected by appropriations laws. To learn more about discretionary and mandatory spending in the Education Department, please see Budget Process and Calendar. Please note: the FY 2006 and FY 2007 appropriations shown on this table include the one-time emergency supplemental funds appropriated for recovery from Hurricanes Katrina and Rita.

·         BUDGET MECHANISM - TOTAL

MECHANISM	FY 2010 Actual		FY 2011 CR		FY 2012 PB		Change vs. FY 2010
	No.	Amount	No.	Amount	No.	Amount	No.	Amount
Research Grants
Research Projects
Noncompeting	2,873	$1,034,101	2,722	$996,929	2,777	$1,033,155	(96)	($946)
Administrative Supplements	(173)	13,678	(226)	17,878	(226)	18,057	(53)	4,379
Competing
Renewal	442	178,004	487	200,495	474	197,083	32	19,079
New	447	157,986	456	163,251	436	157,433	(11)	(553)
Supplements	2	239	1	122	1	123	(1)	(116)
Subtotal, Competing	891	$336,229	944	$363,868	911	$354,639	20	$18,410
Subtotal, RPGs	3,764	$1,384,008	3,666	$1,378,675	3,688	$1,405,851	(76)	$21,843
SBIR/STTR	140	$48,839	136	$47,317	139	$48,533	(1)	($306)
Research Project Grants	3,904	$1,432,847	3,802	$1,425,992	3,827	$1,454,384	(77)	$21,537
Research Centers
Specialized/ Comprehensive	50	$167,903	52	$167,893	52	$169,576	2	$1,673
Clinical Research	0	0	0	0	0	0	0	0
Biotechnology	0	1,000	0	1,000	0	1,000	0	0
Comparative Medicine	0	309	0	319	0	328	0	19
Research Centers in Minority Institutions	0	0	0	0	0	0	0	0
Research, Centers	50	$169,212	52	$169,212	52	$170,904	2	$1,692
Other Research
Research Careers	98	$21,436	104	$21,436	105	$21,650	7	$214
Cancer Education	0	0	0	0	0	0	0	0
Cooperative Clinical Research	0	0	0	0	0	0	0	0
Biomedical Research Support	0	0	0	0	0	0	0	0
Minority Biomedical Research Support	353	100,878	353	100,878	357	101,887	4	1,009
Other	133	34,209	145	34,209	145	34,551	12	342
Other Research	584	$156,523	602	$156,523	607	$158,088	23	$1,565
Total Research Grants	4,538	$1,758,582	4,456	$1,751,727	4,486	$1,783,376	(52)	$24,794
Research Training	FTTPs		FTTPs		FTTPs
Individual Awards	456	$20,388	456	$20,717	456	$21,131	0	$743
Institutional Awards	3,885	177,169	3,885	178,816	3,885	182,392	0	5,223
Total Research Training	4,341	$197,557	4,341	$199,533	4,341	$203,523	0	$5,966
Research & Development Contracts	27	$33,089	27	$35,839	27	$51,818	0	$18,729
(SBIR/STTR)	0	($96)	0	($96)	0	($96)	(0)	$0
	FTEs		FTEs		FTEs		FTEs
Intramural Research	9	$2,816	9	$2,816	9	$2,844	0	$28
Research Management and Support	133	58,537	133	60,138	133	60,739	0	2,202
Construction		0		0		0		0
Buildings and Facilities		0		0		0		0
Total, NIGMS	142	$2,050,581	142	$2,050,053	142	$2,102,300	0	$51,719

·          

·         Conclusion

·         Budget 2012 will be about sticking to the plan the Government has set out for the next three years.

·         The global economic environment remains uncertain and this makes it even more important to maintain clear and credible fiscal settings.

·         The Government is committed to returning the operating balance to surplus in 2014/15 and reducing net debt as a proportion of GDP. That will help to take pressure off interest rates and the exchange rate and is crucially important for New Zealand's credibility with international financial markets.

·         At the same time, the Government is continuing to address New Zealand's significant economic challenges, including a sustained rebalancing of the economy towards the internationally competitive sectors of the economy. A broad range of targeted microeconomic reforms will help to lift productivity and competitiveness in the economy.

·         Budget 2012 will also contribute to the Government's priorities of delivering better public services and of rebuilding Christchurch.

Pennsylvania State Budget Background & 2012 Preview

The FY 2011-12 total operating budget of $63.4 billion, which included $27.1 billion in General Fund spending, represented the first year-to-year reduction in state spending in at least 40 years. However, as the economy continues to struggle out of a recession and with increasing costs in public welfare, corrections, pensions, and debt, the FY 2012-13 budget will require even more difficult decisions by the General Assembly and Governor Corbett to put Pennsylvania on a path to prosperity.

Spending has Dramatically Outpaced Inflation in PA

• Pennsylvania's budgetary challenges stem from spending that has outpaced taxpayers' ability to pay.
• From 1970 to 2012, state government spending increased from $4 billion to $63 billion, an inflation-adjusted increase of $11,800 per family of four (or $2,950 more per resident).
• If state government had limited its spending growth to inflation plus population since 2000, taxpayers would be saving more than $10 billion dollars this year, or $3,412 per family of four (or savings of $853 per resident).

Pennsylvania State Budget Basics

While the General Fund Budget is the primary focus of both legislative discussions and public attention, it represents only about 43% of the commonwealth's Total Operating Budget.

• Total Operating Budget (enacted, June 2011) = $63.4 billion
• General Fund Budget (enacted, June 2011) = $27.1 billion
• Federal Funds (estimated) = $22.1 billion
• Special Funds (estimated) = $4.3 billion
• Other Funds (estimated)  = $9.8 billion

• General Fund spending increased by $7.2 billion (35%) from FY 2002-03 to 2011-2012.
• K-12 Education, Public Welfare, Corrections, and Treasury (debt payments) represent 84% of the General Fund Budget; but these four areas represent 100% of the growth.
• K-12 Education, Public Welfare, Corrections, and Treasury grew by $7.6 billion.
• All other programs and departments were reduced by $426 million.

Budget Threats to Pennsylvania's Fiscal House

• The FY 2011-12 General Fund budget, as enacted, spends $578 million more than expected revenue.
• Total revenue collections through January 2012 were $497 million behind forecasts.
• Combined, this creates a budget gap of more than $1 billion dollars.

• The Pennsylvania Independent Fiscal Office's report on long-term trends suggests General Fund revenue growth will average only 1.6% annually for 2011-14.
• Projected growth in major spending areas between 2011 and 2014, absent reform, far outpace expected revenue growth.
• Public Welfare spending - the single largest area of the state budget - is projected to grow 8% per year.
• A correction spending is expected to grow 6.9% per year.
• Pension contributions will increase by 40% per year.
• Debt payments are forecast to grow by 7.3% annually.

Debt, Taxes, and Economic Growth

• From 2002 to 2010, Pennsylvania state debt increased 89%, from $23.65 billion to $44.7 billion. 
• Today, Pennsylvanians owe $120 billion in combined state and local government debt—almost $10,000 for every man, woman, and child.
• Pennsylvania has the 10^th highest state and local tax burden out of the 50 states, up from 24^th in 1990, according to the Tax Foundation.
• Pennsylvania taxpayers pay $4,190 per capita in state and local taxes, 10.1% of their income.
• From 1991-2011, Pennsylvania ranks:
• 41^st in Job Growth
• 46^th in Population Growth
• 48^th in Personal Income Growth
• Pennsylvania's private sector lost 116,400 jobs, while government jobs grew by 30,800 between 2000 and 2010.
• However, 2011 saw the largest one-year growth in private sector jobs in Pennsylvania since 1999, according to Bureau of Labor Statistics data.
• While government jobs declined by 20,200, private-sector jobs grew by 79,000.
• Manufacturing job growth in Pennsylvania was higher than any year since 1990.

Principles for Sound Budgeting

• No new taxes.  A fiscally sound budget will not increase, and will set the framework for reducing taxes on hard-working citizens of the commonwealth.
• Government must live within its means.  Spending must not exceed revenues.  Spending growth should be limited to the cost of providing government services.
• Policy Recommendation: Constitutionally limit spending growth to inflation plus population.
• Prioritize every dollar.  Politicians should avoid the "Washington Monument ploy" of threatening to cut popular programs while retaining gratuitous projects.
• Policy Recommendation: Eliminate the Redevelopment Assistance Capital Program.  State borrowing should be for roads and bridges, not corporate welfare.
• Fund results, not programs.  Traditional budgeting provides increased funding for existing programs, even those that aren't producing results.  Reality-based budgeting calls for establishing goals, measuring outcomes, and only funding programs that work. .
• Policy Recommendation: Adopt public welfare policies that reduce dependence on government, increase true charity care, and foster personal responsibility.
• Eliminate unnecessary spending.  Government has no money of its own; it has only that which it first removes from the productive sector of society.  Unnecessary spending means there are fewer dollars in the private sector which would be better spent, saved, or invested in the economy.
• Policy Recommendation:  Privatize "yellow pages government:" If a services can be found in the yellow pages of a phone book government should consider buying it rather than producing it.

Urban Relevance of the New Budget

On March 16, 2012, Finance Minister Pranab Mukherjee unveiled the new budget for fiscal year 2012-2013. Expectations were high: India has seen its growth rate slow, and analysts predict that this slowdown may last over the next two-to-three years. Indian businesses were clearly anxious to understand the government’s plans, but so were everyday citizens: what was being put in place to help them ride the wave of potential economic hardship?

The 2012-2013 budget prioritizes fiscal consolidation. The current Indian deficit is approximately US$20bn, and general consensus is that it needs to be brought under control. The budget identifies five key areas of focus over the next year. With these areas in mind, the government aims to:

• Focus on demand-driven growth recovery;
• Promote rapid revival of high-growth private investment;
• Find solutions for supply bottlenecks in the agriculture, energy and transportation sectors;
• Address the country’s malnutrition problem, especially in 200 high-burden districts; and
• Tackle corruption.

Political and public reactions to the new budget have been mixed. Though the governing Congress Party maintains that the budget is appropriate and balanced, private sector response has been lukewarm, and there is a greater feeling that more could have been done. Ravi Shankar Prasad, spokesperson for the BJP political party, noted: “It is a status-quo budget, it is a survival budget.” With inflation making necessities, like food, expensive for the average Indian, the new budget has very little relief to offer. The Chief Minister of Punjab has gone so far as to call the budget “anti-poor.”

Historically, when a government favors fiscal consolidation, public programs are the first to see their allocations shrink. The 2012-2013 budget effectively decreases social sector spending by 8%, so that its share of GDP remains at 2.2%. This is even more disappointing when compared to the increase in defense spending by 17%. Programs that fall under the social sector budget allocation include, for example, rural development, water and sanitation, urban and rural housing, poverty alleviation, woman and child welfare, nutrition schemes and employment generation. Lower overall funding to the social sector means that the government redistributed allocations to social programs. Spending on the country’s key rural development program, the Mahatma Gandhi National Rural Employment Guarantee Scheme, has been cut by INR7,000 crore (~US$1.38bn). The funds taken from rural development have been rechanneled towards healthcare and education spending, which respectively see a 14% and 18% increase.

The health sector has seen its budget allocation increase by 29.7% compared to its 2011-2012 allocation. Tackling malnutrition has a prominent place in the new budget with larger allocations towards schemes on healthcare, water and sanitation. India has seen tremendous success with its polio eradication efforts, and the government wants to invest more in national vaccine security by setting up vaccine units across the country. There is increased spending on the National Rural Health Mission, and soon the National Urban Health Mission will be launched to target the urban poor.

The BSP political party has declared the new budget “urban-oriented” because it will not be as focused on the millions of people who live below the poverty line. The position of this political party is unsurprising: since the majority of India is rural-based, most programs target rural areas. But with rapid urbanization expanding city boundaries and needs, the challenges of urban India are quickly growing. More national attention needs to be given to these challenges and to pragmatic solutions. The national government has stayed out of local decision-making regarding cities, but with traditional definitions of the modern city evolving, there may be a role for it to play yet. The Government of India needs to start including an urban focus to its budget; the new health initiative is just a start.

Municipal governments are left in-charge of urban problems. But as the not-for-profit Janaagraha points out: “City councils and municipal corporations in India have shown far lesser propensity for responsible financial governance than not just the [national] government, but even their respective state governments.” This lack of fiscal discipline and ensuing snowball effect of urban problems may demand assistance from higher tiers of government, but that intervention is not guaranteed. Janaagraha says: “…urban allocations in the [national] budget itself have a bearing on the infrastructure and quality of life in cities, but do not receive the same attention as tax proposals.” The national budget has made room for poverty alleviation on its docket, but the unique problems arising from urban poverty are untouched. Has the national budget neglected the urban poor?

The Ministry of Urban Development has measured the quality of civic services across India’s cities, and has found that the average coverage of sewage networks in India’s top 11 cities is 68%; the average household coverage of solid waste management is 61%; and the average coverage of storm water drains is 52%. These numbers indicate the proportion of household and commercial properties that have access to basic civic services. In an analysis of data, it was found that India’s largest cities do not meet standard levels for civic services in 88% of cases. Yet, cities like Mumbai and Pune claim 100% efficiency in solid waste collection, for instance, while Jaipur claims 114% efficiency. These numbers do not add up; local urban bodies need to be held as accountable for the reportage of their progress as the national government.