Public finance, govt functions

A government gets its revenue through taxes, fees and borrowing. The money is used to perform a number of functions.

Every citizen needs to know what these functions are because they affect their rights and duties.

A government establishes rights to private property and enforces contracts. Where rights to property are neither recognised nor enforced, there cannot be economic or social development.

Before businesspeople start businesses in foreign countries, they look at what laws of those countries say on property ownership.

 They ask whether the laws recognise rights of people to own property.

If there is lawlessness in a country, the would-be investors go elsewhere lest their properties fall into the hands of brigands.

Government controls how people use their property rights. Actions that are harmful to others are forbidden.

For example, a large corporation may use its power to prevent small businesses from entering the market or several companies may form a cartel to keep prices above the cost of production.

This is done at the expense of the public. Therefore, a government may intervene and break up the cartel.

At times, this is not easy as some companies and individuals force government to implement their interests as if they were the interests of the public.

Governments use their powers to provide goods and services. To do this, they require such inputs as manpower, machines and land. They can acquire these inputs or factors of production by purchasing them on the market, contracting their use with owners or by compulsory.

Though goods and services are sold on the market, government distribute them without charge.

Public or government goods and services are not made available to people in accordance with their ability to pay.

Redistribution of income and wealth

Government powers are used to distribute incomes and wealth from richer members of society to poorer ones.

Public schools and hospitals are supported by taxes paid by corporations and better paid individuals.

Those who benefit most from these services are poor members of society.

In developed countries, government taxes workers out of which old age pensions and sickness benefits are paid.

Stabilisation

This is government’s role which most Malawians have become aware of recently. It is about the macro-economics, national employment or unemployment, general level of prices and growth of the economy.

The capitalist or free enterprise economy suffers from fluctuations in employment, prices and growth.

In five years or so, opportunities for employment may be on the increase.  Then comes the business cycle when businesses experience poor sales, close factories or get bankruptcy.

Currently, prices continually rise while wages and salaries lag behind. Four or five years ago, Malawi used to boast of growth rates only second to Qatar. No more! Governments try to protect citizens from these fluctuations using police, public finance, fiscal and monetary policies.

Regulation of private action

Governments establish new rights to protect citizens from the hazards of industrial growth.

It passes laws concerning clean air and water.

Factory owners are required not to pollute the air or rivers. Climate change has become a matter of international concern.

No amount of prudence taken by one government is enough to protect lives of its citizens if countries are care free about environmental hazards.

Sometimes government allows monopolies to exist, but under certain restraining conditions. Monopolies may not increase prices of their services except by government approval, they may not engage in large-scale retrenchment without prior government approval.

Burdens of taxation

The principal source of government finance is taxation. In collecting taxes, care should be taken to see that taxes do not dampen the incentive to work in case of income taxes or deter companies to invest in the economy in case of corporation taxes.

Economic Recovery Programme

Incidentally, a lot of wrangling is going on as to whether President Joyce Banda said Malawi’s economy will be accomplished within 18 months.

Economic forecasting is not an easy game. Whether you say the recovery will take place in 18 months’ time or eight years or you are saying ceteris paribus, all factors being equal.

During the 18 months or eight years, will all conditions that affect an economy be favourable?

Nobody knows! What is important is that both the public and private sectors get busy doing the right things now instead of quarrelling about what is dimly visible at a distance.