Fundamental Principles of Public Finance
When we consider someone as an elected representative, we are usually concerned with only one aspect of his/her election – what they will do for our community. And this means asking them – what will you spend our taxes on; how will you provide services, and what services do you consider to be important? If they do not satisfy your own personal goals, you have the right to vote for someone else.
Goals and Objectives of Governments
All governments, in whichever country we may find them and at whatever level we may encounter them i.e. local, regional and central, are striving towards the realisation of goals. These goals stem from, or originate in their manifesto which is a statement of intent as to what and how they intend to govern and provide services to their voters. This manifesto has its origin in a way of thinking, or an ideology, which is discussed further on.
These goals are embodied (expressed or found) in specific objectives and concrete targets, which are clearly outlined in their annual operational/capital budgets (find out exactly what a budget is). Governments and public officials will usually take the following into account: • The needs of the community which usually consists of its voters/taxpayers; • The goals of government; • The functions (duties) by which they strive to realise their goals; • The nature of public services rendered in order to fulfil their functions; • The sources of income from which public services could be financed; • The administration and control of such income.
Example The government might decide, for example, that its people need to be uplifted (goal); it might then sit down and decide that education and housing would be a good means, avenue or method; after this it will decide to build low-cost housing and to provide free education up to a certain age (the nature or type of service). Once this has been decided it will have to find money – they might, for instance, decide to impose an education or school tax such as in America (this is then the source of income). Their decision to do the above becomes, then, their function in our community.
As I mentioned in the first paragraph every elected official and every government has a certain idea of how a community should function – they have a plan of action. In political terms this is called an ideology (a belief or conviction). This ideology will then determine the style of government. And this brings us to the following two factors that play a vital role in the formulation of the financial policies of a government: politics and practical ideology. Different political ideologies may form part of fundamental principles of public financial management and administration. In other words how a government thinks/feels about matters will determine how it acts and fulfils its goals.
There are four main ideologies: • Laissez-faire (pure Capitalism); • Socialism (or Communism); • Social welfare state (as a branch of Socialism); • Economic welfare state (a democracy with Capitalism).
Ideology 1. The body of ideas reflecting the social needs and aspirations of an individual, a group, a class, or a culture.
2. A set of doctrines or beliefs that form the basis of a political, economic, or other system. 3
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