Note on Government Expenditure

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CONCEPTOF GOVERNMENT EXPENDITURE

The expenditure to be used by a government for the sake of public welfare is known as government expenditure or public expenditure. Government performs varieties of function for the maintenance welfare functions. For such maintenance, government needs to spend money in different sectors. Such expenses incurred by the government are known as government expenditure.

TYPESOF GOVERNMENT EXPENDITURE

The government expenditure can be classified into the following types;

  1. Current Expenditure

It is a recurring expense. Such types of expenses are used in the terms of providing goods and services. It includes wage, salaries and so on. It is also called regular expenditure.

  1. Capital Expenditure

It is the expenditure in the assets such as in the purchase of items that last for the long period. For example, building hospitals, constructing roads, etc.

  1. Transfer Payments

A transfer payment is a payment done for no goods and services. It includes the things like pensions, allowance, benefits, lottery payments, etc.

  1. Repayment of Debts

Government has to pay the principal and interest of the debt borrowed from the internal and external sources. In developing countries, a significant proportion of public expenditure goes to repayment of debts.

IMPORTANCEOF GOVERNMENT EXPENDITURE

The major importance of government expenditure are as follows:

  1. To maintain law and order

Maintaining law and order is the main function of government. Without law and order, government are misplaced with their activities. To maintain the law and order, government needs a huge amount of budget every year.

  1. To invest on social and economic overheads

For economical progress, firstly, there must be the development of socio-economic infrastructure like road, electricity, transportation, school, hospital, etc. It is possible with the public expenditure because to develop such infrastructures, there should be a huge amount of capital.

  1. Utilization of Natural resources

Natural resources are the essential for the economic development of a country which needs a huge amount of capital. This is not possible by the private sector. So, public expenditure helps to explore and utilize the natural resources for the development of a country.

  1. Development of Agriculture and Industrial Sector

For the development of agricultural sector such as irrigation and power, seed farms, fertilizer factories, warehouses, etc. the government has to incur a lot of expenditure. To establish a larger industry, it requires a huge amount of capital. This is possible through government expenditure.

  1. Redistribution of income

Government expenditure provides subsides, free education and healthcare facilities to the poor people. So, government expenditure is used as a powerful fiscal instrument to bring about an equitable distribution of income and wealth.

  1. Provide administrative service

The government needs to allocate its budget to carry out administrative service of different agencies, department, ministries and concerned offices. The government provides various types of services to its citizens.

CLASSIFICATIONOF GOVERNMENT EXPENDITURE

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Government expenditure can be classified under the budget document of the government. The budget document includes tax and tables about the tax and expenditure policies of the government. Theoretically, government expenditure can be classified under three methods. All three classifications are described below in brief:

  • Agencies/Object Classification
  • Functional Classification
  • Economic Classification

  • Agencies/Object Classification

Such classification is found in the government’s budget document. Under the agencies classification, the total expenditure is classified by the spending agencies policies, such as personal services, travel, and transportation of goods, printing and policing, equipment and supplies. This classification tells little about the government activities and government policies.

  • Functional Classification

Functional classification of expenditure is based on various functions of the government. This has been used in Nepalese budget document. It is classified into two categories:

  1. Regular or Administrative Expenditure

Such type of expenditure is related to day to day activities. It constitutes the expenditure made on the following government organization:

  1. Constitutional Organs
    It constitutes expenditures of the government on constitutional organs like Supreme court, Auditor General Office, Election Commission, public Service Commission, Attorney general Office, Council of Ministers and Parliamentary Secretariat.

  2. General Administration
    It includes expenditure of Council of Ministers, Various Ministers, District Administration Office, Police Force, Jail Administration, etc.

  3. Revenue Administration
    It consists of expenditure made on a collection of land revenue, custom office, inland tax department etc.

  4. Economic Administration and Planning
    It consists the expenditure of the National Planning Commission, Central Bureau of Statistics and Department of Metric Measurement, etc.

  5. Judicial Administration
    It comprises the expenditure of Court and Judicial commission.

  6. Defense
    It consists the expenditure on defense through national security organizations. The cost of the Nepal Army also comes under regular expenditure heading.

  7. Social Service
    It includes the expenditure on education, drinking water, health local development and other social services.

  8. Economic Services
    It includes the expenditure on agriculture, irrigation, land reform, forest, industry, mining, communication, transport, electricity, etc.

  9. Loans and Investment
    It includes the expenditure on loans and investments.

  10. Loan Repayment and Interest
    It includes expenditure on payment of principle and interest on loan borrowed from a different organization, like public organization, international organization, etc.

  11. Miscellaneous
    It includes the expenditure on travelling expenses of dignitaries and government delegation, hospitality, pension, allowance, etc.

  1. Development or Capital Expenditure

It is related to the expenditure on development activities of the government. It consists of the following heads:

  1. Constitutional Organs
    It includes the expenditure on infrastructure development of constitutional organs like Supreme Court, Election Commission, Public Service Commission, etc.

  2. General Administration
    It includes expenditure on administration reform of government organizations such as police department.

  3. Economic Administration and Planning
    It includes the expenditure on planning and statistics of the nation.

  4. Economic Services
    It includes the expenditure on the development of agriculture, irrigation, land reform, forest, industry, mining and other economic services.

  5. Social Services
    It includes the expenditure on development of education, drinking water, health local development and other social services.

  6. Miscellaneous
    It includes the expenditure in miscellaneous and contingency expenses of the nation.

  • Economic Classification

Economic classification shows the economic character of expenditure. This classification distinguishes between:

  1. Current and capital expenditure
  2. Purchase of goods services and transfer payments

Current expenditure comprises the following items:

  • Consumption expenses
  • Office operation and services expenses
  • Grant and subsidies
  • Production expenses
  • Contingency expenses
  • Principle payment
  • Interest payment
  • Refunds

Capital Expenditure comprises the following items:

  • Capital transfer
  • Capital formation
  • Investment
  • Capital grants

(Jha, Bhusal and Bista)(Karna, Khanal and Chaulagain)(Khanal, Khatiwada and Thapa)

Bibliography

Jha, P.K., et al. Economics II. Kalimati, Kathmandu: Dreamland Publication, 2011.

Karna, Dr.Surendra Labh, Bhawani Prasad Khanal and Neelam Prasad Chaulagain. Economics. Kathmandu: Jupiter Publisher and Distributors Pvt. Ltd, 2070.

Khanal, Dr. Rajesh Keshar, et al. Economics II. Kathmandu: Januka Publication Pvt. Ltd., 2013.

Classification of Government expenditure

  1. Current Expenditure
  2. Capital Expenditure
  3. Transfer Payments
  4. Repayment of Debts

Importance of Government Expenditure

  1. To maintain law and order
  2. To invest social and economic overheads
  3. Utilization of Natural resources
  4. Development of Agriculture and Industrial Sector
  5. Redistribution of income
  6. Provide administrative service

Classification of Government Expenditure

  1. Agencies/Object Classification
  2. Functional Classification
  3. Economic Classification

 

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