Fundamental Principles of Public Finance


A true economic welfare state attempts to maintain and promote a democratic, free-enterprise politico-economic system. It holds as its value system: a representative government; freedoms of thought, speech, the press and all communication media; private property rights for land and the production factors (opposite to socialism), and freedom of trade. This system holds as a pre- requisite that any government should intervene in the economic activities of the individual as little as possible; that a market system of supply and demand should be allowed to operate unhindered, and any intervention should be kept to an absolute minimum.


Government Functions and Public Services


We have already said that all governments have specific goals. In order to realise their goals, governments have to execute a number of duties (functions). These have changed over the centuries. Centuries ago kings offered legal and religious protection to knights who fought for them – when they were particularly faithful the king awarded them land or a title. These aristocrats were expected to look after the lesser people or peasants who worked on their land. They were expected to provide basic services and protection.


Today governments often have to make a choice as to the type of service they wish to offer and also the extent (how much) of the service they are willing to give – this will be determined by their ideology which was discussed at the beginning of this chapter. Generally these functions are classified as: • Line functions – vertical programme subdivisions, and • Staff functions – horizontal supporting services.


Both of these are explained in Module 4. By line function it is meant that a policy (plan of action, or approach) must be decided by the highest authorities such as a minister in Parliament after a debate; s/ he then communicates this policy to their Director-General, often also called the Accounting Officer.


This policy, of course, arises from a basic ideology as was discussed at the beginning of this chapter. This policy is then implemented downwards within a department until the service or benefit reaches the ordinary citizen. These terms originated in military history and depict the command, from the top down, on the battlefield. Staff functions are seen as a supporting mechanism. Other authorities call these line and staff services or functional activities.


You can probably see why we also call this a vertical function, because it starts at the top and is sent down to the citizen. In order to do this the department must have backup or support – this is called an auxiliary (help) or staff function. These services are provided at various levels to assist the public servant implement the policy properly and they are seen as working horizontally, or across within one department or across various departments. Of course it is often difficult to clearly pinpoint these lines that we are talking about; because a policy is often sent downwards from one or more sources to various departments and then spread outwards also. The following is adapted from Gildenhuys (1993:25) who clearly outlines the nature and division of these functions:


Line Functions: Vertical Most authorities recognise the following three Types of Line Services:


1 Order and Protection Police and Defence


2 Social or National Welfare Health, education, pensions, etc. 3 Economic Welfare


See www.PublicFinance4SA.info Module 3 for more on this... 9


Stimulation of the economy using fiscal (tax) and monetary control (interest rates).


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