Explain the various canon of Public Expenditure.

Public Expenditure

Public expen refers to the expenditure incurred by the central, state or local government of a country for its administration, social welfare, as well as growth and development of the country. Growth and development aspects of public expenditure are of special significance for the countries like India where massive requirement of development expenditure cannot be left to the private entrepreneurs alone. Direct participation of the government is not only desired but almost an essential prerequisite of the planned programmes of development in less developed countries.

Canons of Public Expenditure

Economists have propounded several principles suggesting maximisation of gains of public expenditure. These principles are called canons of public expenditure. These are discussed as under –

(1) Canon of Benefit: The most important canon of public expenditure is the canon of benefit. According to Findlay Shirras, “Other things being equal, public expenditure should be inade 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.” Achievement 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, production, economic 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: According to this canon, the government should spend money only on those essential activities which promote economic and social benefit. While making public expenditure, first it should be kept in mind that extravagance is staved off; secondly, public expenditure should be made on such activities as may increase the production capacity of the country. While making public expenditure it should be kept in mind that there is the least misused public funds. In the present times, the economists apply several principles in order to check the misuse of public expenditure and to make its proper use. We have, for example, Cost-Benefit Analysis. By this analysis, assessment can be made regarding how much economy in the public expenditure on a project can be effected.

(3) Canon of Sanction: This canon implies that whatever expenditure is made, it should be made after the prior approval of the competent authority. One of its benefits is that, the importance of the amount spent is properly examined by the concerned authorities. Second benefit is that while spending the social wealth no official can act arbitrarily. After the allocation of money, every official must ensure whether the allotted amount of money is being spent efficiently and honestly on the approved projects. It is also essential to make adequate arrangement for the proper auditing of the public expenditure.

(4) Canon of Surplus : Adam Smith is of the opinion that public expenditure should not exceed income because if the government is allowed to make more expenditure than its income, it may act carelessly in future. Therefore, as far as possible, public expenditure should not be allowed to exceed income. Prof. Shirras also holds that “Canon of surplus refers to checking the public expenditure against being more than public revenue. Government, too, like the citizens, should keep its expenditure within limits.” Modern economists do not subscribe to this viewpoint. According to them, the governments of developing countries have to make more expenditure than revenue for the sake of economic development. For it, deficit financing has to be resorted to. Eminent economist, Keynes favoured the idea of deficit financing very much. But deficit budget also should be prepared only within a limit, otherwise prices begin to rise steeply.

(5) Canon of Elasticity: There should be element of elasticity in public expenditure. It implies that increasing or decreasing the expenditure as per the needs of the time should be possible.

(6) Canon of Productivity: Public expenditure should act as stimulant to productivity. According to Hansen: no nation can attain high standard of living without stimulating its productivity level in production. Therefore, public expenditure should be made in such a way that it fosters capital formation and generates employment opportunities alongwith increased levels of productivity and employment opportunities.

(7) Canon of Equitable Distribution: Public expenditure should help equitable distribution of wealth. The government should make its expenditure in such a way as to provide more benefit to the backward classes of the society. For example, arrangement should be made for free education, health and recreation facilities for the poor and backward classes, more welfare projects should be launched for them.

(8) Canon of Certainty : The areas and the part 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. A proper co-ordination among different governments in this respect will avoid dual expenditure on the same item.

(10) Miscellaneous : Some other canons should be kept in mind while making public expenditure, for example-(i) while making expenditure various works should be given priority according to their relative importance. (ii) mode of expenditure should also be kept in mind (iii) both the short period as well as long period effects of public expenditure be fully comprehended, (iv) while making public expenditure, population of the country, its area, its physical resources, etc. should also be kept in mind.