Coming up with an appropriate revenue allocation formula and budgeting technique in the public sector has been challenging for several local governments. Public sector budgeting techniques have to be in line with the country’s economic policies and consider the available financial resources and the expenditures and revenues. Morgan et al. (2017) suggest that zero-based budgeting is the way to enhance transparency in how public funds are managed and utilized. Zero-based budgeting also ensures that the incremental limitation that most budgeting techniques face is managed. The new budget can either be lower or higher than the previous budget. Critics, however, say that this method of budgeting drains resources and is also prone to manipulations. Zero-based budgeting is also not suitable for developing countries as it does not conform to their economic policies.
Zero-based budgeting has been considered a suitable alternative to other budgeting techniques in the public sector domain. One of the reasons provided is that this budgeting mode requires the government to justify its expenditure, both new and existing (Morgan et al., 2017). This requirement ensures that funds are released, knowing where to be used and expecting no waste and misappropriation. Additionally, the budget starts from zero as the baseline; it is a whole new setup. This means that if there were any pending projects from the previous budget, they require to be allocated funds afresh. It, therefore, forces those responsible for public sector funds to complete projects on time and not carry it forward to the next financial year. Therefore, the public sector has to embrace this form of budgeting without further ado to enable transparency and accountability and help eliminate funds’ misappropriation.
Zero-based budgeting has several implications that have been researched before. The first is that everything is put under the microscope; all the expenses are justified new irrespective of how the last went down. The end game is first to review the previous and the current budget, justify what is included in the current budget or omitted in the previous one, and then control the allocation to the necessary expenditure (Alamry et al., 2020). The budget also impacts the people, the civil servants, and the public in general. Using a zero-based budget increases the public’s confidence in the government; the public is assured that allocation is made based on the priority of needs and not because the funds are available (Hildreth & Miller, 2021). The public will also be happy with the budget’s scrutiny to deter any form of corruption, embezzlement, and misappropriation.
However, the criticism of this budgeting method arises from its allocation and where it can be used. Zero-based budgeting can be used in almost any economic sector, which cannot be said for developing countries with unpredictable revenue models. Unreliable sources of income make it difficult to ignore the traditional budgeting system (Ibrahim, 2019). There is, therefore, emphasis on using zero-based budgeting in the public sector of developed countries with a known revenue model and predictable incomes. When choosing zero-based budgeting, the government wants to avoid being in debt or accruing more debts by sticking to the available funding. However, rigidity is involved when the funds run out for some reason. Opting for a debt financing method would be more tempting than it is a challenge. Therefore, the little rigidity of the budgeting method is one reason why some public sector giants want to shy away from it.
The public sector primarily bases its budgets and spending on needs and not wants. However, some activities are difficult to classify as needs or wants, hence including them in the budget increases costs, which is not the objective of a zero-based budget. This, therefore, points to the fact that whatever need or want is included in the calendar year budget is for the short-term, since it does not cover the subsequent financial years. Would it be wrong to say that most public sector administrations focus on the long-term? There is no doubt that; this discourages the adoption of zero-based budgets. If a government wants to start long-term projects that cover ten years, this budget is not the way to go. If it has already been adopted, the budget controller should either revert to the previous budgeting method or look for a new one.
In conclusion, zero-based budgets offer many solutions to the public’s outcry that their taxes are embezzled, misappropriated, and corruption carries the day. The need to justify expenses, control inflation and regulation of obsolete processes is reason enough for it to be adopted in the public sector instead of the traditional budgets. However, if there are unreliable sources of revenue, then the budgeting method should not be adopted. Another reason the public sector can change from a zero-based budget is to have a long-term strategic plan that spreads over two years. The limitation is that zero-based budgets cover one financial year, and the following year would require a new one. To sum up, zero-based budgets are essential when transparency is required, but not necessary for poor revenue streams.
Alamry, S. M., Abbas, H., Al-Attar, A., & Mashkour, S. C. (2020). Zero-Based Budget System and its active role in choosing the best alternative to rationalise government Spending. International Journal of Innovation, Creativity and Change, 13(9), 244-265. Web.
Hildreth, W. B., & Miller, G. J. (2021). Handbook of public administration. Routledge.
Ibrahim, M. (2019). Designing zero-based budgeting for public organizations. Problems and Perspectives in Management, 17(2), 323-333. Web.
Morgan, D., Robinson, K. S., Strachota, D., & Hough, J. A. (2017). Budgeting for local governments and communities. Routledge.