Introduction of Public Fiscal Administration [PDF]

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Lesson 1 FUNDAMENTAL CONCEPTS OF PUBLIC ADMINISTRATION



Governments perform multifarious functions like maintaining peace and order, defence, quality education for the citizens, health, diplomatic relations, etc. Added to these is its vital role in macro and microeconomics like fighting economic depression, inflation, stagflation and unemployment, as well as poverty alleviation. Fiscal systems are primarily focused on generating revenues and handling expenditures of political agencies. But the inside-out of environments of these systems are in constant state of flux. As the needs for funds become more urgent, as more demands are put on government operations, concentration on sources of revenue gets more urgent. Its relevance and value has gained the long over- due consideration. Amidst these developments, students of public administration, administrators and administrations must seriously understand the operation of public fiscal administration. The need for economic growth and change in the quality of life makes government plan of action unavoidable. ▪



Public Fiscal Administration has to focus on meeting demands of constitue nts and to parallel the same with efficient efforts in putting up money resources in its delivery systems. Fiscal administration depends largely upon the general political organization. The type of administration and ideology vary from country to country, thus financial administration would somehow be affected. But the demand for sound finance management is compiled within every country, no matter what the form of government is.



The primary issue remains whether the revenues and expenditures are properly handled. The citizens have a right to demand the most capable management of public funds. Government expenditures are eventually people’s burdens. The more the funds are squandered, the greater are the burdens upon the citizens. Graft and misappropriation of funds in government demand a stricter account of the services performed by officials. The requirement to keep watch on revenues and expenditures through the skilled accountants and auditors becomes a must. Proper accounting and audit of government resources are prime methods of safeguarding public funds. A budget system that finally implements the plan of government operation offers the public a better opportunity to know what and how it is used. A sound public finance creates sound government. A sound government operates sound finance.



Science and Art of Public Finance Science is the systematic study that looks into causal relationship between event s and facts. On this basis, public finance may be considered a science when it adopts the following features: · ▪ scientific methods of investigation are applied



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principles are objective and measurable · its facts and principles are orderly arranged · a certain class of economics and political phenomena are foreseen and explained · human knowledge is definite and limited



➢ The study of public finance is a positive science. It offers information about the problems of government revenues and expenditures, the composition of budget, and the incidence of fiscal operations. The study of public finance tells the kinds of taxes, constant rise in government expenditure, increase of public debt, etc. All these are facts and knowledge. But such study prescribes standards and norms like the standards on the different kinds of tax. ➢ Public Finance becomes an art when the output is learned and applied, or when common sense and practicability are put into use whenever public resources are generated, allocated and spent.



Public Fiscal Administration Relationship with Other Sciences a. Economics is the science which deals with the management of scarce resources to satisfy human wants. Public Fiscal Administration is the science which deals with satisfying the needs of the citizens. The same economic laws that govern the problem of the distribution of wealth affect the principles of Public Fiscal Administration in dealing with government ‘s generation of revenues and expending the same. b. Ethics deals with good and bad behaviour of individuals. This is also observed in fiscal principles. c. History provides lessons of the past. It also provides facts, figures, and illustrations of what and how problems in the government were treated which maybe essential in the formulation of new fiscal policies. d. Jurisprudence and Law the fundamental law of the country is the basis of taxes imposed and funds allocated. Rights and obligations of people are defined by laws. These have direct bearing on how fiscal decisions may be made. e. Political Science revenues are secured to carry out government objectives. Officials are concerned about the exaction and use of funds since the public will always visualize with disfavour any misuse of public funds. f. Psychology most of the problems of public finance are human problems which is the subject matter of psychology. For example, increase in the tax on the individual ‘s income will adversely affect the spirit of risk taking and makes individual investments suffer. g. Sociology is concerned with the results of government activities and compares these results with what has been accomplished in terms of outcome on the



society. The problems of social reform and the issues of Public Fiscal Administration are inseparably related. h. Statistics information on income, expenditure, debt, financial health of the public finances is prepared in the form of statistical data. Public Fiscal Statistics. Information on income, expenditure, debt, financial health of the public finances is prepared in the form of statistical data. Public Fiscal.



Public Finance and Public Fiscal Administration these terms are usually interchangeable. Public finance is traditionally considered a branch of the field of economics with specific reference to legal and constitutional aspect of revenue sharing arrangements among spending government units. Public Fiscal Administration is a sub-field of Public Administration where issues are examined not only from the point of view of economics but from politics and administration as well. Public Finance is a much older label than Public Fiscal Administration in the practice of government and the academics. But the focus has not changed, it is still on government delivering public goods and services to the people with the use of money collected as taxes or borrowed from legal sources either domestic or international.



Distinction between Public Finance and Private Finance public finance is the study of income, expenditure, borrowing and financial policy and administration of the government. On the other hand, private finance investigates income, expenditure, borrowing and financial management of individuals or private corporations.



Public Finance Adjustment of income to Expenditure Popular control Elastic resources Resource mobilisation through coercive power Tendency towards deficit Direction of expenditure towards public service



Private Finance Adjustment of expenditure to income Corporate control Limited resources No such power Tendency towards balanced Budgets Towards profit maximisation



Nature of Financial Administration a. Traditional View Advocates of this view conceive financial administration as a total of activities undertaken in pursuit of generation, regulation and distribution of monetary resources needed for the sustenance and growth of public organisations. They emphasise upon that set of administrative functions in a public organisation which relate to an arrangement of flow of funds as well as to regulating mechanisms and processes which ensure proper and productive utilisation of



these funds. When one looks at this view from systems perspective, it represents an integral sub-system of supportive system. A financial administrator shoulders responsibility for ensuring adequate financial backing for running public organisation in the most efficient manner. His job is to plan, programme, organise and direct all financial activities in public organisations to achieve efficient implementation of public policy b. Modem view The modem view considers financial administration as integral part of the overall management process of public organisations rather than one of raising and disbursing public funds. It includes all the activities of all persons engaged in public administration, for quite obviously almost every public official takes decisions which are bound to have some direct or indirect consequences of financial nature. Further, it rejects the value-neutral stand of the traditional theory. It combines three prominent theories of public finance, viz., the sociopolitical theory as expounded by Wagner, Edgeworth and Pigou, the functional theory of Keynesian perspective and activating view of modem public finance theorists. According to this view financial administration has the following roles. ▪ ▪



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Equalising Role: Under this role financial administration seeks to demolish the inequalities of wealth. It seeks, through fiscal policies, to transfer income from the affluent to the poor. Functional Role: Under normal circumstances the economy cannot function on its own. Under this role, financial administration seeks to ensure, through taxation, public expenditure and public debt, and proper functioning of the economy. It evolves policy instruments to maintain high economic growth and full employment. Activating Role: Under this role financial administration involves the study of such steps that will facilitate a smooth and rapid flow of investment and its optimal allocation to increase the volume of national income. Stabilising Role: Under this role, the objective of financial administration is the stabilisation of price level and inflationary trends through fiscal as well as monetary policies. Participatory Role: According to this view, financial administration involves formulation and execution of policies for making the state a producer of both public and private goods with the objective of maximising social welfare of the community. It also seeks to promote economic development through direct and indirect participation of the State.



ACTIVITY: Answer questions 1. Why is the study of Public Fiscal Administration important? Show examples 2. Why is Public Finance considered both a science and an art? Show example 3. In own perspective, what is accountability? Next topic: ▪ Public Fiscal Administration history and evolution as a study ▪ Government Function ▪ Development of Public Fiscal Administration in the Philippines