Public Finance Notes PDF

NOTES: PUBLIC FINANCE instrastructure, parks, beach, roads, public schools, public hospitals, fire departments, police services, EFFECT OF INTEREST RATE: emergency services like ndrrmc and...

NOTES: PUBLIC FINANCE instrastructure, parks, beach, roads, public schools, public hospitals, fire departments, police services, EFFECT OF INTEREST RATE: emergency services like ndrrmc and different public goods. - LESS KITA WALA TAX DEDUCTION PAG - Economic development WALA TAX DEDUCTION MAY AFFECT SA GOVERNMENT 17 UNSTG INFLATION What good or resource does the Philippines have? - is the rate of increase in prices over a - man power given period of time. - mineral resources - Less supply may affect supply and - tourism (natural attractions and cultural heritage) demand. - agricultural products > 17 sustainable development goals. > The more investors the more jobs. PUBLIC FINANCE FDI > INTEREST RATE Where does the money come from and how does OBJECTIVE OF PUBLIC FINANCE: the government spend it? A simple increase and decrease in interest rate set 1. MANAGE PUBLIC GOODS FOR PUBLIC by the BSP will affect the economy. NEED: When the BSP (Bangko Sentral ng - EDUCATION Pilipinas) sets a high interest rate, banks prefer to - PUBLIC HOSPITAL keep their money with the BSP rather than give out - PUBLIC LIBRARIES AND MUSEUM loans. Without loans, businesses can't get the - FREE SERVICES (AMBULANCE, POLICE money they need to grow or start up, which means CARS, FIRE) fewer job opportunities. If people don't have jobs, - NDRRMC they have no income, and without income, they have no purchasing power. When people aren't 2. ECONOMIC DEVELOPMENT buying, businesses make less money or even go - PAGLAGO NG ECONOMY out of business. PHILIPPINES : REMITTANCES OF PEOPLE (OFW) The business will also have less demand for their products. A chain reaction of less income, 3. REMOVE INEQUALITY less deduction for taxation. If there is less taxes, it - To be aware of inequalities that are will affect the governments since it is the source of happening to the country. their revenue. How will the money circulate in circulation? 4. MAINTAINING THE SERVICES If there is no or less demand for products, there is no demand for money to circulate. ANO ANG MARAMI SA ATIN: Foreign Direct Investment ABUNDANT GOODS/RESOURCES OF PHILIPPINES: The more investors in a country, the more job opportunities. > MAN POWER (SERVIVE) (REMITTANCES) > MINERAL (NICKEL, GOLD) Example: Grace corporation (foreign company) put > TOURISM up a business in the Philippines, it will create job opportunities, availability of goods or services PUBLIC FINANCE rendered. Objective why study public finance - Management of the public needs in terms of health, education, What are the different public needs? makikinabang sa public goods equally like Objectives of Public Finance (Why do we study public finance?) 1. Management of the public needs - What do people need in terms of health, education, and infrastructure? - Different public goods: roads, public schools, public hospitals, scientific research funded by the government, public library, museum, services of public servants, NDRRMC. 2. Economic Development - product development, remittances, or something that a country can be rendered to other countries. To promote citizen welfare and consumer welfare. The tariffs are low so that the citizens can 3. Removes inequalities buy the the product in lower price - To be aware of inequalities that are happening to the country. What does the government do when the - Mareklamong henerasyon money/income is not enough to cover the - Vocal into telling the wrongdoings revenue? of being opinionated. - Loans/borrowings to international - What it should be done. organizations. 4. Maintaining the prices The Philippine budget was mandated after the - Maintaining the service provider. SONA. The Philippines has a deficit in budget. Example: You proposed a budget of 1 billion but the government has only 800 million in their budget. Abundant resources in the Philippines The government will borrow money. - Manpower - Mineral resource such as nickel, gold The budget goes with a lot of deliberation. Knowing - Tourism the purpose, itemization, level of the benefits, etc. - Cuisine After deliberation, it will be signed/approved by the congress>> department of budget>> commision on audit >> up to the Philippine President. Lastly is the distribution of funds. In the middle of the year, there is a MID-TERM BUDGET policy. This is where the adjustment of the budget comes in. The citizens of the country are responsible to know where the budget goes. To know: - Watching budget hearing - Media coverage - Website of the departments (FS) - COA What do the audit, congress, any sectors, discuss on a budget? - The level of benefits - Projects - Detailed itemize If you want to audit, to know the transparency, where should you go or visit? - Commission on Audit PPT: PUBLIC FINANCE The task of economic stabilization requires keeping the economy from straying too far above or below the path of steady high employment. One way lies inflation, and the other lies recession. Flexible and vigilant fiscal and monetary policy will allow us to hold the narrow middle course.” (US president John F. Kennedy 1962) Public Revenue: Different sources of government The Concept Of Public Finance revenue with major focus on tax revenue. Public finance is a study of income and expenditure of the government at the central, state, and local levels. Government has to perform certain functions in a country such as to supply certain public or collective goods which individuals cannot or do not singly perform. And this is the responsibility of the government to provide those goods for which it needs revenue. In the narrow sense, public finance is defined only as the study of income and expenditure of the Public Debt: Often public revenue falls short of government. expenditure and government has to borrow from But the broader view is that public finance does internal and external sources. not deal only with the income and expenditure of the government but also the sources of income and the way of expenditure of various government corporations, public companies, and quasi governmental ventures. Public financial administration: As Walter Bagehot remarks money cannot manage itself, an efficient, energetic and scientific management is required to look after the public expenditure, public revenue and public debt. What are the authorities, institutions, agencies to look after the Public finance is composed of the following management, control, and scrutinizing work constituents: created by government? How do they keep check on the use and misuse of fund? Answer to all these Public Expenditure: wages and salaries; subsidies questions relate public financial administration. and transfers; expenditure on goods and services such as infrastructures like road, electricity, telecom, and human capital accumulation like health and education; interest expenditure etc.  Representative political systems In the absence of the government intervention, high rates of unemployment can persist for long periods Economic stabilization and economic growth: Maintaining stability and promoting balanced Markets may tolerate equilibrium output (Y) less sustainable growth through the functions than full employment output (YF) mentioned above is another constituent of public policy. How Does Government Work? With policy: Macroeconomic policy Fiscal policy Monetary policy Infrastructure investment Microeconomic policy Social investment and labour policy Industrial policy Competition policy Government Budgeting > Derived from Latin word „Bague‟ and French word „Bougette‟ which means small leather bag. > Budget provision initially introduced in the UK. In 1733, the then Chancellor of Exchequer > Walpole came with the leather bag in the parliament to present the annual statement of income and expenditure, and when he opened bag people used the term he is opening the budget. Thus, the term budget became popular. > Budget is a financial statement of the government comprising expenditures and revenues for a year. It is both economic as well as political document. It is a mirror to look into development activities undertaken by the government, which sets a framework for policy formulation and Role Of The Government implementation. Budget document is a good source Promotion of human capital accumulation of public information on past activities, current Provision of essential public goods decisions, and future prospects. Decentralization Facilitating and regulating the private sector for promoting industries, financial institutions, and building infrastructures. Protections of individual liberties Private rights to land and capital Good courts and legal systems  Functional classification is comprised of expenditures On general public services and economic services. The general public services include: expenditure on defense, education, health, social security and welfare, housing and community amenities, and other community and social services. Likewise, economic services consist of expenditures on agriculture, mining, manufacturing, electricity roads, water transport, railways, communications, interest on the public debt and so on. Economic classification consists of: (a ) current expenditures, A good budget document contains: (b) capital expenditure, and (a) overall development policy, (c) principal repayment. (b) size and composition of revenue and The current expenditures include expenditures expenditure, and policy, on goods and services such as wages and (c) size and composition of external and salaries, other purchases of goods, interest internal borrowings, and policy, payments, subsidies and other current transfers. (d) whether budget is deficit or surplus Capital expenditures include acquisition of new and and how is deficit covered and surplus existing fixed assets, purchase of stocks disposed of ? (inventories), purchase of land and intangible (e) actual of the previous year, revised assets, and capital transfers. estimates of the current year and estimates for the next fiscal year. Revenues are classified into: tax and non-tax revenues: The main components of budget are government expenditures and government revenues. The Tax revenues constitute both direct and indirect expenditures are classified into: taxes. The premier direct taxes are on net income, (a) object classification, property, and capital gains. Major indirect taxes (b) functional classification include taxes on goods and services (VAT, excise (c) economic classification. etc), taxes on international trade and transactions The object classification includes expenditure on (export and import duties). personal compensation and benefits; travel and transportation of persons and things; Non tax revenues constitute income from public communication, utilities and rent; printing and enterprises, sales of government property, reproduction; supplies, and materials; equipment; administrative fees, fines, penalties and royalties grant subsidies and contributions; insurance claims etc. and indemnities, and reimbursable etc. Element of budget: Components Of Budget 1. Close to reality: despite being an estimate, it Revenue Receipts should be based on reality primarily on the basis of Capital receipts the experience of the previous year. Revenue expenditure 2. Simple and obvious: Since this is a public Capital expenditure document, all who are interested should easily get Thus A Budget Has Two Main Components the required information after looking on it. [A] Receipts , 3. Flexibility: Not only income and expenditure [B] Expenditure. estimates are there but also the policies and programs of the government. Thus, should have the quality of flexibility. 4. Single fund: A single fund of the government should be established there for all revenues and expenditures. 5. Extensive: Should be in detail about each item of revenue and expenditure. 6. Publicity: it is made public and all the stakeholders are free to comment on this. 7. Annularity: Prepared for one fiscal year. Principles of budget: 1. Balanced budget principle: Classical economists opine that government budget should be balanced that means expenditure (G) should be equal to revenue (T). If not followed, either government has to borrow internally or externally or has to increase the tax. Supporters of balanced budget argue that unbalanced budget creates disturbances in economy. 2. Principle Of Unbalanced Budget: A budget deficit is incurred when expenditures exceed taxes and other revenues for a year. And a budget surplus occurs when all taxes and other revenues exceed expenditures for a year. Though unbalanced means both surplus or deficit budget, a number of economists refer to deficit budget as unbalanced budget. Keynes has supported this principle arguing that along with the higher government expenditure, there will be multiplier effect in the economy.