Thursday, September 4, 2014

Public Expenditure

LETS MAKE IT SIMPLE At the end of every month, employed people get salary deposited in their bank accounts.
For the government, paying salary to its employees, the civil servants, is a public expenditure.  This type of public expenditure is called current expenditure.
The other type, capital expenditure includes investments on tangible infrastructure like roads, bridges and hospitals.
Bhutan spends around Nu 38B (38,000,000,000) in one year to build public infrastructures like schools, hospitals, roads and bridges and to provide salary to civil servants.
As explained in the previous write up, the government finances these expenditures through loan and grants or tax money.
Public expenditure is important because it provides the necessary infrastructures to its people. Imagine a country without roads, bridges, hospitals and schools.
With limited income, private individuals would not be able to build infrastructures of such huge scale and even if they did, those using these infrastructures will have to pay them a lot of money to compensate for the huge investment.
Therefore, in a developing economy where majority of the people are in the lower and middle income rung, the government must play the bigger role in building such infrastructures. This area is naturally the biggest spender.
At most times, Bhutan uses its grants and borrowings to build such infrastructures. Since Bhutan is still a poor country, there are many countries and institutions in the world that are willing to provide low interest loans and grants for such activities.
Current expenditure, also called recurrent expenditure, is money spent in providing salary and maintaining and repairing infrastructures that are already built.
For such expenditures, the government is not allowed to use its borrowings and grants. The Constitution of Bhutan mandates all recurrent expenditure must be financed from its domestic resources, which are mostly taxes.
If the government uses its borrowings to provide salary, it will be a Constitutional violation. In such cases the opposition party can take the government to court.
Therefore, it is important for the government to ensure that its tax money is always enough to provide salary as well as repair and maintain existing infrastructures.
While planning its total expenditure, each sector of the economy, depending on requirements, receive their own share of money.
Sectors that receive biggest shares are usually health and education. These two sectors are regarded important by many governments, especially in a developing country like ours.
In advanced economies like United States, huge amounts of government money is not just spent on health and education but on space exploration, defense, scientific research and entertainment.
USA’s total spending last year was around USD 6.3 trillion or Nu 398 trillion (Nu 398,000,000,000,000).
Should Bhutan continue spending Nu 38B, every year, It would take roughly ten thousand years to reach that figure.

Nidup Gyeltshen 


1 comment:

  1. While one cannot exactly say whether government has met current expenditure from its capital budget at certain point of time but we can surely say if internal revenue for the year is less than actual current expenditure for the year. Thanks.