For instance, Government expenditure on defence and civil administration police, jail and judiciary is said to be unproductive for it does not apparently add to the volume of production of the economy. In developed economies, usually balanced budget is pursued when the economy is free from inflation and deflation, and price stability is achieved. Keynes emphasized the importance of public expenditure. Benefits from public expenditure may be identified with achieve ment of proper allocation of economic resources, proper distribution of income and wealth in society and stability of price level and growth of economy. The federal government is responsible for defence, foreign affairs, currency and certain supervisiory and coordinating functions. For example while in 2002-2003, the Central, Government expenditure on subsidies was of the order of Rs. Canon of flexibility means that the entire tax system should be flexible enough that the taxes can easily be increased or lowered, in accordance with the government needs.
Public expenditure should aim at toning down the inequalities of wealth distribution. It may be noted that at present benefits of these subsidies are enjoyed not only by the poor but all those who are relatively well off. Public expenditure should be always directed towards enhancing the productive capacity of the economy. That is, this canon accentuates to eradicate inequalities and other social burdens in between different locations, uses of economic resources, benefits of each sectors etc. Every government allocates particular amount every year in the budget to develop these areas.
Public expenditure must be productive and efficient. However there is no single yardstick, for determining and measuring the performance standards. Under this system, the Government has first to define poverty income standard for families of different sizes. Therefore preparation of the budget by the executive is more desirable in the interest of the public. Control Tool — as budget represents constrains restrictions thus, govt.
In this connection, the Government should see that the expenditure should not produce , any adverse effect on production and on the will and the power of the people to sue. In the developing countries also, the role of public expenditure is highly significant. Account 5: Changes in Financial Liabilities: Capital Account of government Administration and Departmental Commercial undertakings. Under zero based budgeting each department ministry is required to justify its budget request from the bottom up, evaluating alternative programme proposal and prioritizing them so as to select the best alternative on need base. Once this is done, the analyst can proceed to enumerate the costs incurred and the benefits generated over the life of the project. However very few departments took it seriously.
Now, need for active intervention of the Government has been increasingly felt. Estimating the quality of physical resources like personnel materials, services etc. The occasional appraisal of the utilization of funds and devices of request for grant of fresh fund will help to ensure efficiency in the functioning of budget. As for ii the will to work and save, much depends on the character of public expenditure and the policy governing it. Through public expenditure the Government redistributes income in favour of the poor.
Without its approval, the Government department cannot incur any expenditure or any expenditure beyond the specified limit. Natural resource and environment, 8. Expenditures are broken down by functions in the combined budget. A closer examination of the budget document helps an average citizen to realize the integrated form of fiscal policy in an economy but as far as the legislator is concerned this fiscal device is a complex procedure to legislate. Expenditure on Social Infrastructure: Public expenditure by the Government on social infrastructure such as education, health care of the people, housing for the poor also tend to reduce income inequalities.
The appropriation of funds, if possible should be made to broadly defined functions of the department. It is clear that, public expenditure has certain definite objectives. It is widely accepted that to fight depression and to achieve price stability and economic growth, deficit financing is imperative. The government by taxing the rich people at progressive rates reduces their high incomes. In the former case it is called surplus budget and in the latter case defect budget.
For achieving this canon, public expenditure should be planned according to specific programmes and prioritized as per the availability of funds. Though Wanger based his law on the historical evidence drawn from economic growth of Germany, this applies equally to other countries, both developed and developing ones. The government has to undertake schemes of exploration and development of essential minerals, e. This revenue expenditure is of recurrent type which is incurred year after year. Cash budget shows the actual picture of the role of government in the flow of funds in the economy. The word budget is defined to mean many things.