N5 – Module 4
Once again, the analogy of a family is helpful here: imagine having four or five children that constantly demand attention and the purchase of new material objects such as toys, clothing and electronic equipment, for instance. Just as in a family, the parents need to determine the real needs of each member, so here the first step in the distribution process is to determine the financial needs of the community.
Added, or in addition to this, are the following factors which influence the needs and demands of a community:
1. Inflation: Te Effect on Capital and Operational Costs If interest rates increase, this increases the cost of capital. Also an increase in operational costs means an increase in the cost of labour and the cost of using equipment and material in order to supply the service required. This simply means that projects cost much more when borrowing – the authority needs to carefully determine the benefits to the community. This is why the ministry of finance in SA has been so determined to have an inflation target of less than 6%. If inflation were much higher it could have a very negative affect on the country.
2. Technological Development All new technological development places an increased load on public finance – we need to compete with other countries that we trade with and in order to do this we need to be able to match them technologically. The capital as well as the operational costs of such development rise rapidly. The event of transportation has meant higher volumes of traffic which means greater wear and tear of roads, etc. – this leads to greater demand for funds. This alone usually means increased air pollution resulting in increased spending in an attempt to lessen the effects – more traffic officers are needed to control the increased number of vehicles, and more roads are needed to cope with increased traffic flow. Computer technology may mean an increased demand by educational institutions and other departments for funding to buy expensive equipment. Can you think of your own examples...?
3. Political and Social Instability An unstable country does not grow. Less growth means less revenue for the government. Less revenue means fewer services. Also the cost of policing, order and protection will automatically increase, costing the state more. Should a government not be able to provide law and order this could lead to even more internal instability – a vicious circle seen clearly in SA over the last twenty years.
Sometimes there might not be instability stemming from a political need or desire, but instead it may stem from what may be termed social instability – this is when people are not happy about social conditions such as a lack of services. The high crime rate in many parts of South Africa, and the lack of adequate policing and prosecution of criminals creates anxiety within a community and people’s daily lives are severely affected causing a loss of confidence economically as well as socially. We are well aware of the high number of crime related deaths in SA. According to BBC News (Monday, 17 May 2010), approx. 18 000 are murdered every year in SA, and in addition there are another 18 000 attempted murders. In contrast, in a more stable country such as Japan, only 65 people die each year from gun-related deaths. In 2008/9 it was reported that 18 148 people were murdered. In the same year in England (UK), with approx. 15 million more people, only 662 were murdered. Every death costs the state money, and because the state receives its income from the taxpayer, this means that any kind of instability or loss of confidence means money out of your pockets.
Road Fatalities per 100 000 of population:
Australia Canada
Germany Japan
England
6.5 7.5 5.2 5 5
New Zealand 10 Sweden America
4.89 13.5
South Africa 29 70
Whether there is political instability or social discontent, not only is the government forced to spend more money, but foreign investors
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