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Budget Crisis refers to a condition where the executive and legislative machineries in a Presidential form of government become stagnant and incapable of passing the financial budget. Budget Crisis is a common phenomenon in Presidential system of governments across the globe, where the legislature is solely empowered to pass a financial budget. However, the executive machinery also possesses all the rights to pass a veto. This veto comprises insufficient votes in the legislature, for overruling the decision taken.
Budget Crisis: Some More Facts
In a Parliamentary form of government, the emergence of a condition like loss of supply sets off resignations and conduct fresh elections altogether. This leads to the Budgetary Crisis to assume the form of a prolonged argument and disagreement. For example, at the federal level of the United States of America, such crisis is often evaded by a persistent decision, which determines funding at similar levels, like that of the earlier budget.
Reason for the emergence of Budget Crisis:
Apart from the above-mentioned reasons, Budget Crisis also emerges when the legislative branch of the government has in possession, a suspension or dissolution date authorized by the Country's Constitution itself. The financial budget is not passed till that particular date.
Budget Crisis: The Global Scenario
A number of countries across the world have experienced Budget crisis at different times. One such nation is Puerto Rico, which has undergone similar situation very recently, in the year 2006. In fact, the budget crisis in Puerto Rico was not an economic phenomenon only; it evolved from a handful of social and political factors as well. Such crises gave birth to a condition where the government was forced to withdraw from power, immediately after it faced financial deficits towards the close of 2005-2006 financial years.
Causes responsible:
Though there are a number of long-term reasons for the emergence of budget crisis in Puerto Rico, the direct reason may be attributed to a disagreement, where the Legislature of Puerto Rico abstained from giving its approval to the budget-balance schemes and suggestions put forward by the Governor of the nation. This disapproval came because such budgetary schemes barred the central government from raising enough revenue and reducing expenses for the 2005-2006 financial budget.
Nature of the Puerto Rico Budget Crisis:
The Governor of Puerto Rico declared publicly in 2006 April, that the government was running short of sufficient cash flows, for meeting the designed operating expenditures scheduled for the months of May and June. This financial crisis however, included the salaries of the employees working in the public sectors. Following the crisis, the Puerto Rico Legislative Assembly sanctioned an emergency loan worth more than $500 million USD on the request of the Governor. This fund was required to keep the government functional and repay its debts. The crisis reached such great heights that if the loan was not approved by the Legislature, then the Governor did not have any option other than to close down the activities of the central government as well as those of the several agencies functioning within the country. In fact, on the 1st of May, 2006, as many as 45 government agencies and many public schools were either totally or partly closed down, owing to the failure of the Governor, the Senate and the House of Representatives to fulfill an agreement made. As many as 95,762 people were unemployed on a temporary basis.
The Ultimate Solution:
The budget crisis in Puerto Rico was finally solved, after a series of trial and errors, which started with the Senate's approval of a fresh budget-balancing package, which laid proposals for a 5.9% sales tax, as well as a corporation tax to be levied on the corporations only, having income of above 10 million dollars. However, commercial tax collection became effective on and from 15th November 2006, in Puerto Rico.