Public Expenditure, Meaning & Nature, Canons of public expenditure/Principles of Public Expenditure
Public Expenditure, Meaning & Nature, Canons of public expenditure/Principles of Public Expenditure
Meaning
Public expenditure is spending made by the government of a country on collective needs and wants such as pension, provision, infrastructure, etc. Throughout the 19th Century, most governments followed laissez faire economic policies & their functions were only restricted to defending aggression & maintaining law & order. The size of pubic expenditure was very small.But now the expenditure of governments all over has significantly increased. In developing countries, public expenditure policy not only accelerates economic growth & promotes employment opportunities but also plays a useful role in reducing poverty and inequalities in income distribution.
Definition
“Public expenditure refers to the expenditure incurred by the central,state or local government of a country for its own administration,social welfare,economic development and for providing help to other countries.”
Nature of Public Expenditure
The nature of public expenditure differs from country to country as per the needs and requirements of the country.In developing country,like India,government has a unique role to play with a vision of socio-economic makeover and attainment of higher rate of growth with social justice. Public spending in developed countries is basically undertaken to check the fluctuation in effective demand.In developing countries public expenditure has the objective of socio-economic transformation and positioning a leading big emerging economy in the global setting in a developed country status.Public expenditure has multiplier effect on level of output and employment.As the public expenditure is made by the government for public goods,it also raises the real income and quality of life.But on one hand it has potential to raise the standard of living at the same time it also has the tendency to push up the price by injecting the purchasing power.So cost of living also increases.
Canons of public expenditure/Principles of Public Expenditure
There are several principles suggesting maximization of gains of public expenditure.These principles are called canons of public expenditure.
1.Canon of Benefit
Findly Shirras states “ Other things being equal,public expenditure should be made in such a way that society gets major benefits which, in turn,may increase production,protect against external aggressions maintain the internal order,and may possibly reduce the economic inequalities. “
Acheivement of these objectives can be possible only when public expenditure is made not for an individual or a class,but for the whole society.By studying the effect of public expenditure on the distribution of income and wealth productioneconomic development etc. assessment can be made regarding their benefits.A major canon of public expenditure is the canon of maximum social benefit.
2. Canon of Economy
It implies that public expenditure should be incurred carefully and economically. Economy here means avoidance of extravagance and wastages in public spending. Public expenditure must be productive and efficient.
Hence, it must be incurred only on very essential items of common benefit, without duplication, in a way that involves minimum cost. An efficient system of financial administration is, therefore, very essential in any country.
3.Canon of Sanction
Another important principle of public expenditure is that before it is actually incurred, it should be sanctioned by a competent authority. Unauthorised spending is bound to lead to extravagance and over-spending. It also means that the amount must be spent on the purpose for which it was sanctioned. As a rule, therefore, money must be spent on the purpose for which it is sanctioned by the highest authority and accounts be properly audited.
4. Canon of Surplus
Findly Shirras states “ Other things being equal,public expenditure should be made in such a way that society gets major benefits which, in turn,may increase production,protect against external aggressions maintain the internal order,and may possibly reduce the economic inequalities.”
This canon suggests that saving is a virtue even for the government, so an ideal budget is one which contains an element of surplus by keeping public expenditure below public revenue. In other words, it means that the government should avoid deficit budgeting in the interest of its own creditworthiness.
5. Canon of elasticity
Another same principle of public expenditure is that it should be fairly elastic. It should be possible for public authorities to vary the expenditure according to the needs. A rigid level of expenditure may prove a source of trouble and embarrassment in bad times. Alteration in the upward direction is not difficult. But elasticity is needed most in the downward direction. It is not so easy to cut down expenditure. When the economy axe is applied, it is a very painful process. Retrenchment of a widespread character creates serious social discontent. Perfect elasticity is out of question. But a fair degree of elasticity is essential if financial breakdown is to be avoided at the time of shrinking revenue.
6.Canon of Productivity
Public expenditure should stimulate productivity.Public expenditure should be made in such a way that it fosters capital formation and generated employment opportunities alongwith increases levels of productivity and employment opportunities.
7. Canon of Equitable Distribution
Public expenditure should help equitable distribution of wealth.The government should make expenditure so as to provide more benefit to the backward section of the society.
8. Canon of Certainty
The areas in which public expenditure is to be made should be certain so that the development works may be carried out properly.The government should determine with certainty the allocation of public expenditure to various uses.
9. Canon of Co-ordination
The items and amounts on which public expenditure is to be made by central,state and local self governments should be clearly demarcated.Their should be proper co-ordination among different governments so that dual expenditure on same item can be avoided.
10. Miscellaneous
Some other canons are:
i. While making expenditure various works should be given priority according to their relative importance.
ii. Mode of expenditure should alos be kept in mind
iii. Both short term and long term effects of public expenditure should be kept in mind
iv. While making public expenditure,population of the country,its area,its physical resources etc. should be kept in mind.
