Public Expenditure in Welfare State

Public expenditure is spending made by the government of a country on collective needs, welfare and wants etc. In the 17th and the 18th centuries public expenditure was made with traditional functions of spending on defence and maintaining law and order. Until the 19th century, public expenditure was limited as laissez faire philosophies believed that money left in private hands could bring better returns. In the 20th century, John Maynard Keynes argued the role of public expenditure in determining levels of income and distribution in the economy. Since then government expenditures has shown an increasing trend.  The main thrust area of public expenditure are Social Welfare and Social Security Schemes like Pensions, Agricultural Subsidies, Health and Job, Socio-Economic Schemes, Education, Public Health, Public Infrastructure, Skill Development Programmes, Security etc. which cumulatively have share of 35% (approx) to the Governments Expenditure.  

Public expenditure in welfare states needs resources to be generated to increase public revenue. Government with less revenue may not be able to made expenditure for public welfare. So, the pre-conditions for public expenditure in welfare states are Taxation (Government Revenue) and Government Expenditure. These are two tools which determine the expenditure capacity of the Government. 

Todays, societies are so complex and it is not easy to collect data and analyse it on exact income and level of living of general masses. Before the public expenditure, Government should knew about the requirement of the funds to be expend on the public welfare.  It is because low expenditure may coupled the problem of poor people and excess expenditure may leads inflation and loss of workmanship. Dalton proposed the principle of Maximum Social Advantage as a tool for public expenditure in welfare state. According to him, maximum satisfaction should be yield by striking a balance between public revenue and expenditure by the government. Economic welfare is achieved when marginal utility of expenditure is equal to marginal disutility of taxation. He explains this principle with reference to Maximum Social Benefit (MSB) and Maximum Social Sacrifice (MSS).

Public expenditure has been grown constantly in nearly all democratic countries.  It is prime duty of the democratic government that it should look after its people. Government also made expenditure on private sector to save them from shutdown. For example, Governement of India gave bailout package to banks in 2008-09 and 2016-17 so that they may handle their inflating Non Performing Assets and prevented from shutdown. 

In a welfare state, Government has also fiscal responsibilities towards the maximization of social welfare through the allocation of public expenditure for the production or provision of socio-economic infrastructure that is the creation of social overhead capital. It explains three stages, (a) efficient allocation of resources between the public sector and the private sector in a mixed economy given the resource constraint, (b) determination of the optimum size of the budget based on the principle of Maximum Social Advantage, and (c) fixation of priority on different public goods and services for its production or provision considering public choice through the translation of individual preferences in terms of collective choice.  Alongwith it, Government also perform Distributive Role, Stabilization Role and Regulatory Role to increase the welfare of states. 

The public expenditure by Government insufficient/ineffective due to following reason. 

·        Defense expenditure has been constantly increases due to modernization of defense equipment used by navy, army and air force to prepare them for hitech security. 8% to total Governments expenditure is made on defence sector to prepare them for future war or tussles.  In case of peace time, this expenditure becomes useless as the aged arsenal and defence stores are useless and it requires to be replaced with advanced and new one. If Government may able to make this expenditure in other area like health, education, nutrition etc, and then it may uplift the living standards of general public.

·        Population growth results in increases of the public expenditure towards specific area of public welfare, like health, education, skill development, guaranteed work/job, assured old age pension, agricultural subsidies etc.  Though the public expenditure has been constantly increases in social welfare, yet the effect of public expenditure is invisible due to high rate of population growth. Economy is not expanding in the rate that may absorb the side effects of high population growth. 

• Welfare activities like provision of public and utility to raise the standard of living of the people, controlling of price and inflation, are also carried out alongwith the public expenditure.  If inflation increases with higher rate than the rate of increase of public expenditure, then welfare of public remains immaterialized.

Commerce, trade and industries are insufficiently equipped with for absorption of the work force generated every year. Nearly, 1.2 Crores new workforce added in India each year. When this extra workforce do not get appropriate job, it seeks Government’s support for their livelihood. Ultimately, Governments revenue is used in life support of this workforce rather than creation of jobs.