What priorities would you set for government expenditure?
These priorities will vary enormously according to the circumstances and the state of development of the country concerned. Assuming that the country is politically independent, but that a reasonable level of defense has to be kept for the sake of parity with potentially hostile neighbors, a large slice of the national cake is already accounted for in terms of defense salaries and equipment. Could that slice be reduced in size. In terms both of nuclear and conventional arms, the current unfreezing of relations between East and West is partly based on internal pressures for economies in favor of more positive priorities.
Similarly, all countries have labor-intensive annual commitments where the main services are nationally funded or subsidized; the civil service, the police and customs forces, the health service, education, roads, railways and airlines. All have the potential for rationalization, perhaps privatization, with consequent economies.
Basic policy must therefore be considered. If a country follows the socialist line, then all these, and many others, including housing and a comprehensive social security system, are the government’s responsibility. If not, as many as possible of these services will be hived off to the private sector. For the purposes of this essay, let us assume that the country concerned is democratic, and that it encourages free enterprise, self-help and a business-like efficiency, and that it means to hold its own in the modern world.
To do so, it will need to achieve the following; economic development and the full exploitation of natural resources; a favorable balance of trade with, consequently, a strong currency; high interest rates if overseas money is to be attracted but if possible without prejudice to exports; the reduction or abolition of inflation implying some kind of wages policy in both public and private sectors, together with legislative control over the power of the trades unions. Given such an ideal and promising situation, we can now look at the national cake.
Any government’s financial leeway consists of revenue less unavoidable expenditure, and both can he regulated within certain limits. Income normally comes from direct and indirect taxation, such as value added tax or purchase tax. Taxation covers personal income, business, profits made on resource exploitation, and of course levies on consumer durables and perishables among other areas. The total net income can be raised or lowered at the will of government, although such changes are usually marginal. In a democracy, wild changes may lead to the overthrow of government. Also, such changes have to be made with a strict eye to inflation, which cancels out improvements. Thirdly, any great increase in borrowing erodes stability.
Any chancellor will regard his expendable surplus as a cake to be divided into slices, after setting aside funds to service and reduce national debts. It will then be for the cabinet to press claims for the various departments represented, until agreement or compromise has been reached. So a budget is reached.
The press and the public may well have set their own priorities. Pressure groups will have drawn attention to social defects, and the opposition will certainly have done so.
Let us take an imaginary country which fulfils all the above conditions. The chancellor has a usable surplus of $2 billion. It has been decided that the country’s outstanding short-term needs lie in the categories of housing, roads and railways, health, education, sport and the arts. The long-term needs include the modernization of the Armed Forces equipment, the exploitation of natural resources, and the establishment of centers for research and development, science and technology. At the risk of becoming unpopular the chancellor will have to balance these conflicting claims.
He selects the following short-term priorities; housing, health and education, and out of the long-term needs, the exploitation of natural resources. Roads, railways, sports and the arts will simply be maintained at the old levels, allowing for inflation. The sooner natural resources are developed the better, because this will guarantee greatly increased revenue.
A labor-intensive re-housing program will help to bring down unemployment. He allocates $330 million. Equal sums are allocated to the establishment of a subsidized health service, which he hopes will ultimately become non-contributory, and to the improvement of the national education service, to be shared from primary to university level. And since his hopes for a larger national cake in the future depend on resource exploitation, $1 billion must be allocated to that purpose.
