Public expenses
Definition of overhead
It is the sum of what the state spends with its various bodies and organizations in order to obtain the resources necessary to carry out services that satisfy public needs in accordance with the laws and limits it sets. Or it is a monetary amount spent by a public person with the intent of achieving a public benefit.
Elements of public expense
In pursuit of meeting the general needs of individuals and achieving the maximum possible collective benefit, and with the development of the role of the state and its public needs, the theory of public expenditures develops permanently and continuously in terms of its concept, the multiplicity of its types and its various divisions, and the rules governing it, as it clearly shows the economic and social effects of it...
It is clear from the definition that the public expenditure includes the following elements:
Public expenditure is intended to achieve a public benefit
Public alimony is carried out by a public figure
Overhead is a cash amount
What is a public expense?
Achieving a public benefit:
The purpose of public expenditure is to satisfy public needs and achieve public benefit
Public expenditures must achieve equality between individuals by satisfying the needs of society in general and not specific groups
It is often difficult to differentiate between a public and a private need
The definition of public expenditure is up to the sovereign authorities
public legal personality
1- Legal Standard:
This criterion differentiates between public and private expenditures according to the legal nature of the person performing the expenditure.
Public expenditure is carried out by a body representing the state and from which the public authority is derived.
Expenditures incurred by a natural person (individual) or legal entity (company) are not considered a public expenditure, even if it is aimed at achieving a public benefit. Example: hospitals, mosques, wedding halls.
2- Functional Standard:
This criterion differentiates between public and private alimony according to the nature of the job for which the alimony is issued. Not all expenditures issued by public institutions are considered public expenditures, but only those undertaken by the state in its sovereign capacity.
What the state spends on an economic activity similar to that of individuals through participation in the ownership of private productive enterprises, is not considered public spending. Example: State ownership of a share in the capital of a private company.
3- Cash amount:
A cash sum is paid by the state as a price for goods and services for the running of public utilities and for the productive capital needed by public projects, as well as for granting various aids and subsidies...
Non-monetary means (such as benefits in kind such as free housing, exemption from taxes, honorary benefits such as decorations...) are not considered public expenditures, which helps to achieve efficiency, effectiveness, justice, equality, and tight control over public expenditures.
Determinants of the size of overheads
1- The role of the state: public expenditures have become one of the tools of economic and social policy. In the capitalist system, the role of the state is limited to carrying out administration and control. In the socialist system, the state intervenes in all activities.
2- Financial ability: the ability of the state to bear the financial burdens of public expenditures and the ability of the national income to bear the tax burdens. It is also concerned with the productive capacity and size of the private activity compared to the public activity and the purchasing power of the monetary currency.
3- Economic conditions: public expenditures affect the state's economic policy, and the level of public expenditures is inversely compatible with the level of economic activity. Expenditures rise in recessionary periods through increased subsidies and economic stimulus and fall in boom periods to reduce aggregate demand and reduce inflation.
4- Public benefit: Public expenditure is subject to the principle of the greatest benefit at the lowest cost, and one of its conditions is a necessity
Achieving public services at the lowest possible cost, i.e. the principle of saving in spending, and the necessity of equal benefits
Public with the effects of expenses caused by any principle of equal benefit. Public expenditure can be justified by the size of its benefits, which can be determined by the size of the relative income, that is, the share of each individual in the national income and the method of distributing the national income to individuals. Improving production and productivity
Oversight of public expenditures
Administrative control: It is a previous control exercised by the Ministry of Finance and does not allow the disbursement of any amount unless it is stipulated in the budget. The Ministry of Finance sets systems, regulations, and circulars to control expenditures.
Accounting control: It is generally a subsequent control exercised by the Audit Bureau, which follows up on government agencies to ensure that spending is carried out in accordance with the budget law and the financial rules followed.
Legislative oversight: It is represented in the legislative authority (the Shura Council) controlling expenditures through Forming a financial committee and Directing an inquiry or interrogation of every violator of the law.
Internal control: carried out by the organization internally to ensure the safety of financial operations from expenses or revenues.
The phenomenon of increasing public expenditures
1- Wagner’s theory: It states “there is a natural trend for the increase in the size and importance of public spending over time.” Wagner asserts that there is a dependency relationship between economic growth and the growth of public expenditures, which grow at a greater rate. Wagner attributed this growth in public expenditures to the expansion of traditional state functions, the expansion of the scope of government intervention, and the increase in demand for public goods.
Disadvantages of Wagner's theory: neglecting the effects of increasing government spending in terms of its work directly or indirectly on increasing national income, as it focuses on economic factors only in explaining the phenomenon of increasing public spending and neglects other considerations, especially political and military.
2- Peacock and Weisman theory: The Peacock-Weismann theory asserts that the level of taxation represents a constraint on the growth of public expenditures, but in exceptional times such as crises and disasters, individuals may accept to pay higher tax rates, thus increasing public spending at a rate higher than the rate of increase in national income. Public spending remains high due to the financial obligations of the state in the post-public period
Disadvantages of Peacock-Weizmann analysis: The analysis confirms the occurrence of exceptional circumstances in order to increase public spending, which contradicts the practical reality that has witnessed a regular increase in public spending with economic growth. There is also no justification for assuming that individuals are more interested in the level of taxes than in the level of spending, except in exceptional cases.
Reasons for the increase in public expenditures
1- Formal or apparent reasons:
1- Urban expansion and population growth: the increase in the population and the establishment of new areas is accompanied by an increase in public expenditures, so the increase is nominal for the population because it does not entail an increase in the real value of the public benefit.
2- Deterioration of the value of money: the increase in the volume of expenditures does not reflect an increase in the real benefit of public services. This increase is usually due to the depreciation of the currency and the deterioration of its purchasing power, as it requires greater spending to obtain the same level of goods and services.
3- The difference in the financial method: the difference in the method of preparing the budget leads to an apparent increase in public expenditures, and this occurs in the case of following the total budget after following the net budget.
2- The main reasons:
Economic reasons: means increasing the burden on the state and increasing its interference in economic life, such as expanding the establishment of economic projects and fighting economic stagnation by increasing public spending and providing economic subsidies.
Social reasons: The increase in migration to cities causes the creation of poor neighborhoods in need of government assistance, and the increase in social awareness led to the development of public services.
Developmental reasons: The development of the state's role has led to a multiplicity of its functions and the provision of basic services in order to achieve sustainable development and raise growth rates.
Financial reasons: The ease of borrowing led to countries resorting to public loans to finance public spending, and the existence of surpluses in public budgets led to an increase in spending on unnecessary matters.
Administrative reasons: inflation in the functional apparatus of the state and the expansion of the provision of administrative services.
Types of overhead
1- Wages and salaries
Employee salaries: It represents the state’s payment for individuals’ services according to the cost of living and the nature of work based on the academic and professional qualifications available in it. The state must also take into account the competition of the private sector to it and take into account the prevailing wages so as not to lead to the emigration of experts.
Pension salaries: It is the monetary amount that the state provides monthly to employees who have previously deducted a certain amount of their monthly salary during service to enjoy retirement. This authority may develop its resources by investing these accumulated amounts.
2- State purchases of goods and services
Authority over procurement: according to the type of procurement, which does not require experience or study, it is left to the decentralized authority. As for public works contracts and investments, they are carried out by the central authority. The state obtains purchases by purchasing needs directly or by relying on specialized suppliers.
Obtaining specialized suppliers: It is through bidding or through practice, that is, entering into an agreement with a specific supplier without announcing in advance the nature of the work that you want to carry out when you want to keep confidentiality for a specific project such as military and security projects.
3- Aids and Grants
Subsidies and grants are a kind of expenditure paid by the state to certain social groups or public and private bodies without compensation. Here we can differentiate between external subsidies and internal subsidies.
External Aids: Foreign aid represents the amounts that the state pays to other countries if there is a surplus for political or humanitarian reasons, such as the aid provided by Arab countries to the State of Palestine, due to the presence of participation in thought, opinion and belief among these countries.
Aids and Grants -4 Aids and Grants
Internal Aids:
Administrative subsidies: the subsidies provided by the state to public organizations to help them perform their duties by bearing the state part of its expenditures or filling the financial deficit in the budget...
Economic subsidies: the aid paid by the state to encourage national industries to achieve stability at the price level, ensure the continuity of some economic activities, achieve a financial balance for products of public interest, and support national exports in the face of foreign competition. It should not be spent misplaced and thus wasted, or provide protection for unsuccessful institutions.
Internal Aids:
Social benefits: amounts provided by the state to organizations, bodies and individuals for the purpose of achieving social goals such as subsidies allocated to the unemployed, care for the homes of the elderly and orphans...
Political subsidies: the aid provided by the state to organizations and institutions that are linked to the state through a political bond at the level of thought, action and opinion.
4- Public debt installments and interests
Public loans represent a heavy burden on the state’s general budget, as it requires them to bear the annual interest, as well as to pay the principal amount borrowed at the end of the time period specified in the conditions for issuing the public loan. By allocating financial resources to pay off the public debt and its accrued interests, the state will establish a so-called principal and interest fund.
The economic effects of public expenditures
1- On the nature of public expenditures.
Impact on economic indicators such as consumption, savings, investment, prices and national income.
Increasing public expenditures and weak productivity cause a rise in the rate of inflation.
Increasing awareness of the importance and necessity of rationalizing and controlling expenditures.
2- On the nature of the revenues needed to finance them.
Through the amounts paid in exchange for the provision of a good or service.
Through taxes that are considered a mandatory contribution to financing
overhead.
The need to find new sources of revenue.
3- On the prevailing economic situation
Public expenditures have become a major tool for dealing with economic fluctuations, as they rise to stimulate the economy in recessions and fall in cases of recovery to prevent inflation.
4- Impact of Social Expenditures
Expenditures were devoted to the production of goods and services, including public utilities such as health, education, and housing. It aims to build human capital, and this directly contributes to increasing national output. Expenditures allocated to social benefits and given to the poor classes in cases of sickness, old age, or unemployment, such as social insurance, indirectly affect the increase in national output.
Final decisions on public expenditures
Completely canceling the program and not allocating funds to it and directing it to new projects in case the return is low or not feasible.
Reducing the appropriations allocated to the program when its feasibility declines.
Maintaining the program and allocating credits for it in the next year is equal to the credits of the current year when it adheres to the level of feasibility.
Increasing the funds allocated to the program in case of improvement in feasibility.