Public Finance
The traditional concept of public finance
Public finance is defined according to this concept as: “The science that investigates the means that the state obtains from public revenues to cover public expenditures, and the distribution of the resulting burden on individuals.”
This narrow concept of public finance is linked to the functions of the state and to the prevailing political philosophy in that era, when the functions of the state were specific and limited to external defense, internal security, the administration of justice and some public works, which is known as the guard state.
The emergence of public finance in antiquity
In the era of the Greeks, the writings of Plato and Aristotle included some general economic ideas and financial issues, which had a major role in the development of financial thought in the modern era. In the era of the Roman Empire, the development of financial thought was mainly linked to the rule of individualism that contributed to the emergence of capitalism.
In the Middle Ages, the church had a major role in economic and social life, so the state almost disappeared and with it the financial system and financial thought.
Public finance appeared in many of the writings of Islamic jurisprudence of Ibn Malik in the book “Zakat” and Ibn Yusuf Al-Ansari in his famous book “Al-Kharaj” and Ibn Rajab Al-Hanbali “Extraction for Ahkam Al-Kharaj” and Ibn Khaldun in his famous introduction…
The modern concept of public finance
The science that examines how to use financial tools such as public expenditures, public revenues and the general budget in order to achieve the goals and directions of the state stemming from its political, economic and social philosophy... The study of public finance includes several basic elements, including:
Determining the size of the general needs to be satisfied.
Determine the means and resources to satisfy the needs of the community.
Determine the impact of this activity on the state.
The role of public finance
Achieving economic and social balance: The goal of public finance is no longer limited to achieving financial balance. Therefore, the general budget is called the economic budget, as it aims to reduce and eliminate economic and social problems.
Public finances reflect the state's trends: Public finances have become a mirror of the role entrusted to the state and the nature of its function.
Fighting recession: Countries resort to increasing their public expenditures in times of depression to bring about an increase in actual aggregate demand to bring the national economy to the level of full employment. This policy, although it is valid in developed countries, is not valid in developing countries.
public financial tools
1- Overhead
Public activity through the public sector determines the public needs, and the public sector cannot meet these needs unless the necessary goods and services are available. Public needs are divided into two types:
Indivisible public needs: They are the needs whose satisfaction cannot be divided and the benefits generated by them for individuals or groups cannot be divided and it is impossible to exclude any individual or group from enjoying these general needs. Such as internal security, external defense and justice...
Due needs: Needs that can be divided, and can be separated from each other, and they are needs that can be carried out by private activity as well as a public activity if there is a collective benefit greater than the individual benefit such as education, health, transportation, transportation, water, electricity, gas...
Overhead concept
The most important observation is the evolution of the concept of public expenditure on a permanent and continuous basis.
Public expenditures are the sums spent by the state in its various bodies and organizations with the aim of obtaining the resources necessary to carry out services that satisfy public needs in accordance with the laws and limits it sets.
Public expenditures are monetary amounts spent by a public figure with the intent of achieving a public benefit.
It is clear from the definition that public expenditure includes the following elements:
Overhead is a cash amount.
Public alimony is carried out by a public figure.
Public expenditure aims to achieve a public benefit.
Overhead Terms
The purpose of public expenditures is to satisfy public needs and achieve public benefit.
Public expenditures must achieve justice among individuals by satisfying the needs of society in general.
It is often difficult to differentiate between public and private needs.
The definition and determination of public expenditures is up to the sovereign authorities.
public legal personality
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.
Expenses incurred by a natural person (individual) or legal entity (company) are not considered a public expenditure, even if they aim to achieve a public benefit, such as hospitals, mosques, and wedding halls.
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.
cash :
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.
Types of overhead
One of the basis for classifying expenses is to divide expenses according to their nature into real and transfer expenses:
Real expenditures: are those incurred in exchange for services, goods or
Those that are invested as productive capital result in countries receiving revenues for services rendered to the public.
Transfer expenditures: are expenditures that are spent without obtaining a return for them (no services or goods) and transfer expenditures are merely transferring a portion of the national income through the state to some groups of society, such as the poor and the needy, through social security subsidies. The aim is to distribute the national income among community members in some countries.
2- General revenue
Public revenues are defined as the financial resources that the state obtains from various sources and that it needs to finance the necessary expenditures and to perform its functions.
Public revenues are defined as “the economic resources that the state obtains in the form of cash flows in order to cover public expenditures with the aim of satisfying public needs and is considered an important and complementary part of financing public expenditures. The state obtains the financial resources necessary to cover public expenditures mainly from the national income within the limits of ability.” The state’s financial resources or from abroad when these resources are not sufficient to meet the requirements of public spending.
Types of public revenue
State property
fees
taxes
Penal fines
Donations and gifts
cash issue
public loans
Public property of the state
Public state property (public domain)
These are revenues that the state obtains as a result of its ownership of a group of public assets, including museums, public parks, zoos...
Mostly the state does not get money from the beneficiaries of its public property, but this does not prevent the state from imposing some fees to visit museums, and highways...
Private state property (private domain)
They are state property and are subject to the provisions of private law.
Real Estate The state seeks to sell or rent its property. It includes agricultural land, real estate, residential complexes...
Industrial and commercial activities (minerals, energy sources, factories...) through direct management, franchising, mixed management...
Income from financial activities (shares, bonds, interest on loans).
Sovereign Public Revenue
Fees:
The fee is the consideration that an individual pays to the public interests for a specific service that you perform for him upon his request. The fee is usually less than the cost of providing the service, and the difference is paid from the state's public treasury.
Fees help finance government organizations to satisfy public needs in all areas.
The executive authority decided to limit, cancel or raise the price of the fee, subject to the approval of the legislative authority.
The fees ease the burden on the state so that it does not incur additional expenses or search for new resources.
Fee types
Judicial Fees: Fees to be paid in the event of disputes between individuals and groups, which the judiciary considers before the judge.
Administrative fees: license to bear arms, birth certificate, real estate registration certificate ...
Economic fees: postage, telephone, markets and public places.
Penal fines:
Financial penalties are imposed by the authority on violators of regulations and laws intended to deter people (traffic offense fines, residence fines).
Grants and grants:
External subsidies - what countries receive from other friendly countries.
Internal subsidies - the central authority of the local authority.
Gifts - what is offered as a choice by individuals to the state.
taxes
tax characteristics
Mandatory contributions to the state of the citizen.
The government has the right to use these taxes for the public benefit.
The tax is not imposed on a particular person.
There is no relationship between the tax and the cost of services provided by the government.
The tax collection process is a legal matter.
Tax types:
direct taxes
Direct taxes are imposed by the government on individuals and institutions and paid directly without an intermediary.
Direct tax is levied on income, assets and profits.
The individual is obligated to pay the tax to the state and there is no way to evade it or transfer it to another person.
indirect taxes
An indirect tax is that which is collected for the benefit of the government through an intermediary.
This tax is imposed on spending or consumption and sales.
This tax is calculated as a percentage of the total amount spent.
This tax does not take into account individuals' income or social level.
Examples of this tax are the so-called sales tax and value-added tax, which are fully borne by the consumer.
Comparison between Direct and Indirect Taxes:
indirect taxes
direct taxes
Compare
The actual taxpayer shall bear its burden and pay it indirectly to government agencies.
The legal taxpayer pays it directly to government agencies
By definition
The lists are not used or documented by the tax department because they are related to consumption.
Lists and records are used to document their values and the date they were paid
From an administrative point of view
It is not characterized by stability and stability because it is related to price fluctuations and the volume of spending
It is characterized by stability and relative stability because it is known ratio
In terms of stability
It does not take into account the financial ability of the taxpayer, but everyone is equal in bearing its burdens.
Take into account the financial capacity of the taxpayer.
In terms of financial capacity
It increases income inequality due to its inflationary effects.
It is used as a tool to reduce income inequality
Achieving justice
general credit revenue
Cash version:
One of the sources of revenue that the state may resort to in the event of a decrease in its revenues to finance its expenditures
Through the monetary issue, the state exchanges what it has of foreign currencies in exchange for a money instrument whose metal value is less than its face value (inflation financing).
This may cause undesirable economic effects because the amount of money that is put into the market would lead to higher prices and a decrease in the purchasing value of money (the United States during the era of its president
Johnson) and for the reasons of the war with Vietnam, I resorted to this source.
general loans:
The cash amounts borrowed by the state or any public legal person from third parties such as individuals, banks, private and public bodies and other countries with an undertaking to return them and pay interest on them in accordance with the terms of the loan contract.
Internal and external loans:
Internal loan: If it is subscribed by individuals or entities within the borrowing country, and this requires the availability of national savings, exceeding the investment need of the local market, in an amount equal to the value of the loan.
External loan: It is subscribed by individuals or entities outside the borrowing country when the national savings are not sufficient to cover the value of the loan.
Optional loans and compulsory loans:
Voluntary loan: Individuals are free to subscribe to loan bonds according to financial and economic considerations and to compare them with the investment opportunities available to them. In general, public loans are optional.
Compulsory loan: The state obliges individuals to subscribe to loan bonds, or extend the maturity of existing loans. The state resorts to coercion in cases of inflation (the deterioration of the value of money) in order to withdraw part of the liquidity in the economy.
Term loans and temporary loans:
Permanent or permanent loan:
The loan is permanent if the state does not commit to repaying it within a specific period, but with its obligation to pay its interest.
It is characterized by leaving the state free to choose the appropriate time for its settlement without objection from creditors.
One of the dangers of not obligating the state to pay in a specific time is that it is tempted not to settle it, which leads to the accumulation of its interests and the increase in the state’s burdens and to the deterioration of its financial conditions.
Temporary or Amortized Loan:
The state is obligated to fulfill it at a specific time and in accordance with the rules agreed upon in the issuance law.
It is characterized by giving the state the freedom to choose the most convenient time to repay the loan between the two specified dates.
3- General budget
It is a financial plan that transmits a detailed report of the state's expenditures and revenues and is issued annually after approval by the legislative body. The function of the budget was not limited to confirming the control of the people’s authorities over public accounts only, but rather transcended them to represent a tool to achieve full employment and economic stability. The volume of public expenditures and public revenues, their types, and the importance given to each type...
general budget rules
Principle of annual budget:
An annual budget means preparing estimates related to state revenues and expenditures for projects, programs and services adopted by the government for a period of one year, and obtaining the approval of the legislative authority on these estimates annually.
Budget Unit Principle
This rule means that there should be one budget in the state that includes all revenues and expenditures related to it, instead of having several budgets in the state, ...
Which achieves the use of the same criteria in evaluating the various government expenditures and government revenues, and this is useful in the statement of the country's financial position. And come out on this rule supplementary and independent budgets.
The principle of generality or comprehensiveness of the budget
Meaning that the general budget shows all the estimated revenues and expenditures without making a clearing between them, which is useful in giving an integrated picture of the financial position of the state and providing those interested in the general budget with all the facts necessary to form correct opinions about the budget and its economic effects.
The inclusion of the budget is the best method for deciding sound economic policies and taking appropriate decisions regarding the role of the public sector in directing economic activities, which prevents trends related to extravagance due to the fact that no part of public funds is hidden and therefore not subject to oversight.
Balancing accuracy principle
In the sense that budget estimates of revenues and expenditures are accurate and realistic, inaccuracy and realism may lead to an imbalance in the budget.
The principle of non-assignment
This rule is based on the necessity that all public revenues flow into the state treasury, regardless of their sources and the entities that collected them. Then, these revenues are directed to cover all expenses according to their importance, without allocating a specific revenue to specific expenditures or to certain facilities, such as allocating car licensing fees for road maintenance, for example.
Steps for preparing the general budget.
Issuing the constitutional circular on preparing the general budget:
After conducting a deep study of the economic and financial conditions of the state in the coming year, mostly the ministries of finance, economy and planning participate in it. The Ministry of Finance issues a general annual circular for all ministries and government agencies five months before the beginning of the fiscal year and includes the foundations, instructions and guidelines to be followed when preparing budget estimates, with the need to take into account the necessary accuracy when preparing these estimates.
Preparation in the Ministry of Finance:
The Ministry of Finance plays a key role in preparing the state's general budget, as it undertakes the preparation of its draft budget.
It prepares estimates of public revenues for the next fiscal year in cooperation with the relevant authorities.
Receiving government departments' budget projects, then studying, analyzing and discussing them.
Accreditation steps
The Ministry of Finance submits the draft general budget for the next year to the Council of Ministers for study and approval.
The draft general budget is referred to the Finance Committee for study.
The Finance Committee is composed of a number of ministers with knowledge of economic and financial affairs in the country.
The Finance Committee prepares a study on the draft budget and places its observations in a report that it submits to the Council of Ministers
The Shura Council votes on the general budget chapter by chapter, that is, on the ministry’s draft budget as a whole, and transfers may be made between its items according to the provisions of the general budget system.
The draft budget is submitted to His Highness the Emir for approval, and it is issued by an Emiri decree.