Public Expenditure: Definition, Objectives & it’s Principles

Public expenditure is defined as expenses made by the government of a country on collective needs and wants such as pension provisions, infrastructure etc. It is also seen as expenditure made by government, ministries and department on goods and services.

Government expenditure is the total in cash form, of the federal, state and local government spending plus financial transfer to the parastatals at the levels of government. Public expenditure management is an instrument of government policy to evaluate the financial management by the actors in the system.

Objectives of Public Expenditure

  • To accomplish financial discipline of a government.
  • To prioritize government expenditure.
  • To make functional application of the expenditure.

Principles of Public Expenditure

Principles of Economy: the idea of this principle is that extravagances and wastes should be avoided. Public expenditure requires careful planning and also discipline to abide by the plan.

Principles of Maximum Social Benefits: this principle advocate that public expenditure should be made in a way that the welfare of the society should be maximized, for this reason, government expenditure which promote greater welfare should be preferred to anything that brings about less welfare. Under this context, welfare implies condition of having comfortable living, a conducive and enabling environment for personal endeavors and good health.

Principle of Balanced Budget: every government must try to keep budget well balanced. This principle is adherent to a situation whereby all levels of government should confine themselves to the limit of expenditure in the approved estimate. It advocate for a balanced budget as an important cornerstone of budget discipline. It requires that aggregate expenditure should be equal or preferably less than prudently determined aggregate revenue.

Here, every recurring surplus is not desired because it shows that people are heavily taxed. If expenditure exceeds revenue every year, then is not a healthy sign because this is considered to be the sign of financial weakness of the country. The government therefore must try to live within its own means.

Canon of Elasticity: this principle is not talking about perfect elasticity but a fair degree of elasticity which is essential if financial breakdown is to be avoided at the time of shrinking revenue.

Avoidance of Unhealthy Effects on Production or Distribution: it is necessary to see that public expenditure exercise a healthy influence both on production and distribution of wealth in the community. It should stimulate productive activity so that the volume of production in the economy my increase and it may be possible also to raise the standard of living. Public expenditure should aim at tuning down the inequalities in wealth distribution.

Effects of Public Expenditure

Effects on Production: it is believed that expenditure to engage military on war is very unproductive, without knowing that a successful war can bring so much of economic gain to the country.

Effects of Distribution: government expenditure can be of great help in balancing the inequalities of income and wealth distribution of the country. Government taxes the rich people at progressive rates reducing their high income. The money generated is spent for the benefits of the needy class of the society. Government uses it to provide free education, free medical care, low cost housing and other necessities of life.

Effects of Employment: it is a fact that government expenditure on public works bring about an increase in the level of employment and in the economy. Government uses this means to remove widespread unemployment during period of depression through liberal public expenditure on public works, by establishing programmes like National Directorate of Employment (N.D.E) to be in charge of employment in the country.

Classification of Government Expenditure

Current Expenditure: the main source of financing current expenditure is the current revenue of the government, which consist of taxes. Current revenue and current expenditure appear in the revenue budget of the government. Such expenses are increased on a day-to-day function of the government machineries like police, judiciary, on education and agriculture.

Capital Expenditure: the expenditure in the capital budget is incurred on building asset of a lasting character like the construction of dams, water storage, roads, railways lines etc. expenditures of such magnitude are not possible to be accomplished from current revenues. It is mostly financed by raising loans from both internal and external.