PUBLIC FINANCE

PUBLIC FINANCE

          Public finance can be classified into three categories i.e. Government Expenditure, Government Revenue and Government Debt and its management.

          Government expenditures are the expenditure, incurred by the government for development of the country and also on non-development objectives in view. Government revenue comes from taxation i.e. direct taxation and indirect taxation. Government debt is obtained from internal and external sources. Loans from internal sources are obtained by selling Government securities to the people whereas external sources are those such as the World Bank, IMF etc.

        Public finance is for the benefit of the people in general unlike private financing which is confined to particular purpose i.e. family matters only. We shall now take up the difference between the two.

DIFFERENCE BETWEEN PUBLIC FINANCE & PRIVATE FINANCE:

1.      BALANCING INCOME AND EXPENDITURE: The basic difference between public and private financing is that an individual adjusts his expenditure in accordance with the given income. On the other hand, the Government relatively speaking, adjusts its income in accordance with its expenditure.

       Thus, the individual is only able to spend so much but the government may spend as much as it likes and then takes care of the income. Relatively speaking the Government prepares its expenditure first or rather it estimates expenditure, and only then devises ways and means to obtain the amount required. However, sometimes the individual also does the same thing as the Government and vice versa i.e. when the Government realizes a surplus budget it would increase expenditure in specific areas and when the public revenue is declining the Government brings about a corresponding reduction in its expenditure through a policy of retrenchment.

2.      TIME-SPAN: In the case of public finance the government declares its expenditure for a certain period usually one year and meets the required limit within the stipulated time. However, the individual is not bound to such a requirement. He may plan his expenditure for a day, week or even for a month. Short private finance is flexible and, depends entirely upon the individual.

3.      ACQUISTION OF LOANS: Methods for obtaining financial resources differ between the two parties particularly when both parties are facing a tight situation.

         When such a situation arises the government may obtain resources internally and externally i.e. from foreign bodies e.g. World Bank, IMF etc, and internally by selling Government securities to the people. However, the individual will not be as fortunate, rather the only visual possibility of him obtaining resources in such a period is from state welfare department and this also is only possible in developed countries, otherwise they would have to turn to the streets!

4.      EXTRAORDINARY CHANGES: Public finance to a great extent depends upon the type of government. A socialist government would presumably increase expenditure for welfare purpose to a great extent, but a Capital Government is less spend thrift and tends to reduce expenditure in various sectors. An individual has no choice, whether he is a socialist or capitalist, he can still only spend within this limit.

5.      FUTURE PLANNING: Generally speaking, a government as the representative of the people in general will do this its utmost best to ensure that the future to come will be a prosperous one for those to live. In government planning such as the five year plan for commercial or agricultural products or even planning for future industrial changes in the society, the return is not the concern of the government as it may take some time until profits are realized. On the other hand individual are more optimistic and would only invest when immediate returns are likely.

6.      SURPLUS BUDGET: A Government surplus budget reflects a bad image on itself to the people in general. It creates the impression that the government is purposely increasing taxes and thus if there were to be such a surplus budget the government devises ways to increase expenditure in certain areas. However, a surplus budget for the individual is better in the sense that surplus money income can be used for purposes e.g. holidays etc.

7.      ISSUE OF CURRENCY: As a result of deficit financing the government can print more money. Usually the government prints more money when it feels that the nation has been over burdened with tax and that they (the nation) are starting to be pessimistic about the government of the day. An individual cannot do so as it is crime and would result in him going serving a sentence.

8.      PUBLIC OF FINANCE: The annual budget or rather public finance is made known, to all. It is declared by the minister of finance through the media. Such a mean strengthens rather than weakens the public credit. On the other hand, individuals are generally more secretive about their budget. The situation is generally that they either want to create an impression that they are not so fortune or may be even otherwise, but the answer lies between God and himself?

9.      RECORD OF FINANCE: The government usually keeps records of its budgets i.e. of previous years. This would provide the incoming government to ensure that the money spent is put to good use and that these records will serve as a guidance to prevent misgivings. However, the individual is less likely to do so and would spend at his own with regardless to what has happened or what may even happen.

10.  GRANTS AND FOREIGN AID: As mentioned earlier, the government may obtain external loans from the World Bank, IMF etc. the individual on the other hand is not as fortunate as such. Generally, developed countries lend a helping hand through grants and foreign aid e.g. for countries like Bangladesh, etc.