Fundamental Principles of Public Finance
They are: 1. Collective or Public Services; 2. Particular Services; 3. Quasi-Public Services
Whether a service is classified as a collective or a particular service, depends entirely on the manner in which it is to be financed. The maintenance of roads was always considered a collective service because the funding came directly from tax.
Case Study In 2011, the South African National Roads Agency Limited (SANRAL), a state-owned enterprise tasked with the maintenance of South African roads, tried to implement toll roads in Gauteng and the Western Cape. It has met with stiff opposition from opposition political parties, trade unions and the general public. The City of Cape Town has gone as far as applying for a court interdict to stop the construction of the N1-N2 Winelands highway toll project. The toll roads are meeting with resistance, because citizens feel that they are very costly, and argue that they are already paying for road maintenance in the form of fuel levies.
1. Collective or Public Services This type of service can only be financed from taxation and by government bodies such as a local town councillor or a central government.
Examples are roads (which include highways, robots, etc.), libraries, public parks, museums, archives, etc. No entrepreneur would be interested in supplying this type of service because it is almost impossible to charge people for their usage: it would be very difficult to charge people to visit libraries and read books, and the little money that people are charged to enter a museum does not cover the costs of keeping it open. Of course, it is impossible to charge people to enter and sit in a park. It is therefore said that the service itself cannot be divided into consumptive units and cannot therefore be supplied by these units. People should be able to enjoy the facilities of public parks without having to pay for them; of course people in the park “pay” in the sense that the upkeep of their park is paid for by the local authority through taxation.
Collective services can be explained in terms of the following characteristics: • Non-apportionable (not able to be divided) – like a park, these cannot be divided into consumptive units; and therefore cannot be supplied per unit according to free market principle of supply and demand.
• Non-excludability – this means people cannot be excluded from using these, whether they are paying for them or not – one cannot prevent people from using a public park for example.
• Inexhaustibility – they are not depleted (used up) with use; as long as they are maintained they are always available.
• No direct quid pro quo (from Latin – something for something) – authorities do not charge to enter the library or the public park. Taxpayers, therefore, have to pay for them whether they use them or not – all have the same access to these services, including those people who pay no tax. This also means that not all value of this type of service – some people never enter parks.
• They have a monopolistic nature – there is no competition except, perhaps, between difference levels of government – regional/national/local.
One may also think of a lighthouse as a very good example – the builders cannot exclude people from benefiting from it. In fact it is built precisely so that all may benefit. It is, therefore, for the public good. This term public good is used extensively in public finance, especially by American authorities. It is, perhaps, a good term to use, because “goods” may refer to a commodity such as a service and public good may also mean, the common benefit of all. It is interesting to note that something like honesty is also considered a public good – the whole society benefits from honesty; there is therefore a very positive spill-over effect.
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