Last night we talked about state budget and how it is estimated.
It was said that the pattern of growth rate of expenditure ceiling for operational costs - the ones measured within a year - is calculated based on the average of personal income growth over the last three fiscal years.
The same rationale - but with different percentage - is applied for debt limits, which caps capital costs - expenses on long-term investments.
In other words, both operational and capital costs, which are parts of public budget, are based on past expenses, that is, past shaping future to mitigate risks.
In terms of strategic planning, this methodology of linear projections is inefficient to accelerate economic development. It does not take into account future gains, thereby misses the opportunities to make complete use of resource allocation by not fully investing, for instance, on capital improvement projects.
Oppositionists to this approach claim that budgeting based on future revenues skyrockets risks. This issue is addressed by imposing greater rates and legal enforcement mechanisms for Rainy Day Funds.
Indeed, lessons are learned from the past, but should not constrain the future.
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