Budget sequestering is revenue cuts. Features and Causes of Sequestering
All taxes and fees form a country's budget. With normal redistribution of funds, this money is enough for various government social programs, restocking, increasing defense capability, developing various innovations, managing, and implementing various economic transformations. But what to do when government spending exceeds budget revenues? One of the most effective mechanisms for reducing the expenditure side of a country's balance sheet is budget sequestering.
Budget sequestering is a term that came to us from Western economics studies. The word comes from the Latin sequestrum, which means "storage". The word is used in the banking, judicial sphere, for example, to arrest money in accounts.But lately it is most often heard in the context of state economic programs. And this concept is applied in the context of cutting back, reducing any financial resources.
Why budget cuts
The budget deficit can be covered in different ways. Before reconsidering the financing of current projects, the state is looking for the possibility of attracting third-party funds. These can be “long-term” state loans, which are secured by the property of the state itself, attraction of foreign investments, sale or long-term lease of state enterprises, and so on.
If access to external sources of financing is closed, it is possible to issue domestic loan bonds that anyone can buy. If the attracted funds are few, current plans and programs are revised, processes are called in to balance the budget. One of them is budget sequestration. This is an extremely unpopular measure of spending cuts, but without it, the state can be declared bankrupt.
It is necessary to take into account that the budget deficit is considered quite acceptable if the expenditure items exceed the income by 5-10%. If this range is in the range of 10–20%, “soft” cost saving modes are activated.And only with a deficit of more than 20%, the cost-saving measures are tightened up to the use of unpopular, but extremely effective, cost-cutting measures.
How is sequestered
It’s just not possible to allocate funds for the development of a program. We need good reasons for this. The decision to cut funding is taken at the level of the supervisory authorities - whoever controls the project, he considers the change in the amount of funds for its implementation.
The sequestering mechanism is introduced in relation to the budget, if the revenues received are not enough to fulfill the primary tasks. The profile committee in the supervisory authorities determines the proportion of shortages and cuts all current programs with this percentage.
In the general case, the sequestering mechanism is introduced in respect of the lower budget, for which funds are allocated. This line allows you to administer expenses vertically, top to bottom. However, the sequestering mechanism does not apply to the higher budget. Its result should be the alignment of expenditure and income to stabilize the macroeconomic situation in the country.A balanced budget will increase the economic reputation of the state - and therefore make it more attractive to potential investors.
The list of projects, financing of which is not subject to cuts, is approved by the Ministry of Finance of the country in coordination with the Cabinet of Ministers. This may be spending on defense or on the implementation of programs of federal significance.
As you can see, budget sequestration is quite an effective way to resolve the deficit. But, unfortunately, in the first place such a measure is reflected in ordinary citizens. The costs of medical care and education are reduced, the number of repaired roads and the erected objects of municipal and state importance are reduced. All planned programs are reduced by 5-10%, depending on the deficit found.
The reduction of funding is carried out simultaneously and proportionately. At the same time, some projects are not subject to sequestering, for example, servicing the external economic debt of the state.