what is government expenditure? Government expenditure refers to total expenses incurred by public authorities at all levels of administration (local, state and federal) in the country. It includes recurrent expenses and capital expenses.
Government expenditure refers to the spending by the government on goods, services, and investments to fulfil its various functions and responsibilities. Government expenditures can be broadly categorized into two main types:
Current Expenditure: This includes day-to-day expenses incurred by the government in providing public services and maintaining the functioning of the government machinery. Current expenditures typically include:
a. Personnel Costs: Salaries, wages, and benefits of government employees, including civil servants, teachers, police officers, healthcare workers, and military personnel
b. Operation and Maintenance Costs: Expenses related to the operation, maintenance, and upkeep of government facilities such as schools, hospitals, roads, public transportation systems, administrative buildings, and other infrastructure.
c. Subsidies and Transfers: Payments made by the government to individuals, households, or businesses to support specific activities or address economic or social challenges. This can include subsidies for food, housing, education, healthcare, energy, agriculture, and welfare programs.
d. Debt Servicing: Payments of interest and principal on government debt.
e. Other Current Expenses: Miscellaneous expenses, such as office supplies, utilities, travel costs, research, and development.
Capital Expenditure: This involves investments made by the government in long-term assets or infrastructure projects that are expected to provide benefits over an extended period. Capital expenditures typically include:
a. Infrastructure Development: Investments in the construction, expansion, and maintenance of infrastructure, such as roads, bridges, railways, airports, ports, water supply systems, and power plants.
b. Public Facilities: Construction and improvement of public buildings, schools, hospitals, parks, libraries, community centres, and other public amenities.
c. Equipment and Machinery: Purchase or upgrade of equipment, machinery, and technology required for government operations, defence, healthcare, education, and other sectors.
d. Research and Development: Funding for scientific research, innovation, and development of new technologies.
e. Other Capital Expenses: Investments in sectors such as agriculture, manufacturing, tourism, and energy, aimed at stimulating economic growth and development.
Classification of government expenditure
Government expenditure can be classified in the following ways
- Capital expenditure: Capital expenditure is expensed on projects which are permanent in nature. They include money spent by the government on buildings roads, schools, bridges, hospitals, industries and other permanent investments.
- Recurrent expenditure: Recurrent expenditures are those expenses which are repeated on yearly or regular basis. In this case, they are not permanent. Such expenditure includes money spent on salaries, electricity bills and maintenance of infrastructures.
Objective or Main Aims of Government Expenditure
There are several objectives or aims that the government wants to achieve by spending money on different items. These items which governments spend money on include:
- General administration: Government spends money in maintaining
- The civil service
- Various government departments
- Political appointees
- The armed forces and the police
- The legislature
- The judiciary
- The embassies outside the country
- The executive
Economic service: These include expenditure on:
- Agriculture
- Trade
- Industry
- Mining
- Power stations
- Communication
- Forestry, etc
- Social services: The government of every country usually allocates large sums of money for the provision of social amenities to the people. Money sent on social amenities includes:
- Infrastructural facilities, e.g. roads, airports and seaports, electricity, pipe–borne water and communication services.
- Education
- Healthcare delivery
- Market
- Recreational facilities
- Environmental sanitation.
- Transfer services: Government also spends money on items like:
- Servicing of public debts
- Granting of loans to local authorities
- Payment of pensions
- Loans lent to friendly nations
FACTORS CONTRIBUTING TO THE INCREASE IN GOVERNMENT EXPENDITURE
Government expenditure has continued to increase in recent times due to the following reasons or factors:
- Population growth: As the population of a country grows, so will its public expenditure continue to increase.
Inflation: Inflation can contribute to a rise in government expenditures as the government spends more on projects and services.
Unemployment: Attempt by the government to combat unemployment usually increases government expenditure.
Poverty: Attempt by the government to alleviate poverty leads to an increase in government expenditure.
Financing of democratic institutions: The financing of democratic institutions like political parties, electoral bodies and electioneering campaigns has led to an increase in government expenditure. Social security payment: Rising social security payment has led to an increase in government expenditures
Rise in national debt: Repayment or servicing of huge accumulated debts has increased government expenditure.
- Economic development: The government’s effort to keep pace with development in the country increases its expenditure, e.g. expenditure on research and development of nuclear weapons
- Expenditure on was: Expenditure on war and other social dislocations during wars increase government expenditure.
- Cost of administration: A rise in the cost of general administration such as an increase in the salaries of civil servants consequently increases government expenditure.
- Defence/security expenses: A rise in defence or security expenses also increase government expenditure, e.g. payment of salaries to armed forces and police acquisition of ammunition and raining of armed forces personnel.
EFFECTS OF PUBLIC EXPENDITURE
THE EFFECTS OF PUBLIC EXPENDITURE CAN BE SEEN IN THE FOLLOWING MANNER
- Affects distribution of wealth: Some government expenditure help to redistribute income or wealth of the people. For example, the provision of free education, free medical care and low cost housing will benefit the poor masses and by so doing help in alleviating poverty and redistributing wealth.
- Effects on employment: Government expenditures in the establishment of industries and setting up of employment agencies would go a long way in generating employment opportunities for the people.
- Effects on production: Government expenditures in the establishment of industries and increase in wages and salaries will provide an increase in income to individuals, which enable them to have a higher purchasing power. This will lead to increased demand, which will influence producers to increase production.
- Even distribution or allocation of resources: Government expenditure also helps to allocate certain resources which are in abundance in certain areas to other areas where they are in short supply.
- Effect of price level: When the government increases its expenditures without a corresponding increase in output, this leads to a high volume of money in circulation. This in turn may eventually lead to higher prices and inflation.
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