Government Expenditure - Importance and Classification

Concept of Government Expenditure

Government expenditure means the nature and the quantum of expenses incurred by the public authorities. In other words, government expenditure is related to the expenses of public authorities. It is a subject in which we study the principle and the classification of government expenditure. 

It also includes the problems and the process of formulation, implementation, and follow-up of the budget of the government. The main objective of government expenditure is to maintain peace and security in the country and promote the social and economic welfare of the people.

Importance of Government Expenditure

The importance or role of government expenditure is steadily increasing due to the growing responsibilities of public authorities. Its role is greater in developing countries than in developed countries. The major objective of public expenditure in developing countries is to achieve high economic growth and establish economic stability. 

Its importance is described as follows:

1. Maintain law and order: The primary function of the government is to maintain law and order in the country. It is necessary to make an arrangement of police, army, weapons, administrative and judicial machinery, etc. in the country. In order to carry out this task, the government allocates a large amount of budget every year.

2. Investment in social and economic overheads: Lack of necessary infrastructures is the main problem of a developing country. Economic overheads like power, irrigation, means of transport and communication, roads, railways, ropeways, etc. are essential for rapid economic development. Similarly, social overheads like hospitals, schools, colleges, training centers, etc. are also essential. A large amount of expenditure is necessary for the construction of such means, which should be incurred by the government.

3. Utilization of natural resources: Natural resources of the country like minerals, forests, water, etc. are the basis of economic development. A lot of capital should be invested in the exploration and utilization of such natural resources. It can be fulfilled only by government expenditure.

4. Development of agriculture and industry: Government should invest a large amount of capital for the arrangement of irrigation facilities, power supply, warehouses, seeds, and fertilizers which are necessary for the development of agriculture. Similarly large and key industries, which require a lot of capital, can be established and developed only by the state enterprises.

5. Subsidies and grants: Government should provide subsidies or facilities to the private sectors to mobilize them in productive activities. Similarly, local bodies require fund for their development works, which is provided by the central government in terms of grants. These expenses are also very important for the social and economic development of a country.

6. Provide administration services: Government has to provide various types of administrative services to the people. It should allocate some portion of its budget to carry out administrative functions of different ministries' departments and concerned offices.

7. Balanced growth: For the regional balance of economic growth of a country, special attention should be given to the backward areas. To these areas, various facilities should be provided, which require a lot of capital. This requirement can be fulfilled only by government expenditure.

8. Other expenses: Lastly, there are other expenses of the government to provide various services to the people. The expenses of pension and allowances provided to the old and disabled persons, the facility of public sanitation and public parks, environment, and natural resource conservation, etc. should be borne by the government.

Classification of government expenditure with reference to Nepal

The estimated expenditure of the government of Nepal for the fiscal year 2021/2022 is Rs. 16475.76 crores. It consists of three types of expenditures which are as follows:

• Recurrent expenditure
• Capital expenditure
• Financing

1. Recurrent Expenditure

Recurrent expenditure is related to the expenditure of the government on regular expenditure activities of the country like the payment of salaries, pensions, interest on internal and external loans, etc. It is also known as the regular or administrative expenditure. The estimated recurrent expenditure of the Government of Nepal for the fiscal year 2021/22 is Rs. 90303.26 crore which is 54.80 percent of the total estimated expenditure. Recurrent expenditure has been classified into various headings which are as follows:

• Constitutional organs: It covers the expenditure on State Council, Parliament Secretariat, Supreme Court, Election Commission, Auditor General Office, Law Council, Office of Attorney General, etc.
• General administration: Council of ministers, district administration, police, jail, and other regular works are included in general administration.
• Revenue Administration: Land revenue, customs, excise, and other expenses come under the revenue administration.
• Economic administration and planning: Planning, statistics, office of auditor-controller, metric measurements, etc. are included in the economic administration and planning.
• Judicial administration: It includes court and Court for Prevention of Misuse of Authority.
• Foreign services: It includes expenditure on foreign services such as Embassy, Consulates, etc.
• Defense: It includes expenditure on management and running of defense-related offices.
• Social services: Social services include the expenditure on general management of social sectors such as health, education, drinking water, local development, and social services.
• Economic services: The expenditure on economic services is divided into agriculture, irrigation, land reform, forest, topography, industry and mines, transport, communication, electricity, etc.
• Loans and investment: It includes the expenditure on loan repayment and investment done by the government.
• Miscellaneous: Traveling expenses of dignitaries and government delegation, pension, allowance, hospitality, emergency fund, donation, and reward, and others are included in the expenditure on miscellaneous.

2. Capital Expenditure

Capital expenditure is related to the expenditure of the government on economic development activities of the country which are linked with the expansion of capital formation of the country. It is related to the long-term expenditure programs. It is also known as the development expenditure. The estimated capital expenditure of the Government of Nepal for the fiscal year 2021/22 is Rs. 61637.31 crore which is 37.40 percent of the total estimated expenditure. The capital expenditure has been classified into different headings which are as follows:

• Constitutional organs: It includes the expenditure on infrastructure development of the Supreme Court, Election Commission, Department of Auditor General, and Public Service Commission.
• General administration: It includes the expenditure made on administrative reform of government organizations.
• Economic administration and planning: It includes the expenditure made on planning and statistics of the nation.
• Social services: It includes the development expenditure made on health, education, drinking water, and local development.
• Economic services: It includes the development expenditure made on agriculture, forestry, industry, communication, transportation, and electricity.
• Miscellaneous: It includes the expenditure made on miscellaneous and contingency issues.

3. Financing

Financing includes government expenditure on repayment of government debts, loan investment to the public enterprises, purchase of internal and external shares, etc. The total estimated financing of the Government of Nepal for the fiscal year 2021/22 is Rs. 12817.10 crore which is 7.80 percent of the total estimated expenditure.