Know How governments collect and spend our money | Income Tax of Nepal
How governments spend our money?
Government spending or expenditure includes all government consumption, investment, and transfer payments.In value accounting, the acquisition by governments of products and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure. Government acquisition of products and services intended to make future benefits, like infrastructure investment or research spending, is classed as government investment (government gross capital formation). These two sorts of government spending, on final consumption and on gross capital formation, together constitute one among the main components of gross domestic product.
Government spending are often financed by government borrowing, or taxes. Changes in government spending may be a major component of economic policy wont to stabilize the macroeconomic trade cycle .
The decision of the Dr. Bhattarai-led government to grant Rs 20 million to Prakash Dahal, son of the president of Maoist Party, to climb Everest raised a storm of derision from every nook and corner of the country. it had been impossible to know the logic behind the government’s move.
After persistent and universal criticism, Dahal stated that he wouldn't want to use the cash and instead asked the govt to use it to supply relief to conflict-victims. Despite this, the govt is yet to recant its decision. Deeper contemplation about this event teaches us some vital lessons on understanding politics and therefore the nature of government’s action.
Other people’s money
Why did the govt find it okay to endow Prakash Dahal with Rs 20 million without reservations? the solution lies within the fundamentals of economics: Incentives matter. the cash being spent neither belonged to Dr. Bhattarai nor any of the govt officials involved. When it involves other people’s money, even the thriftiest of individuals get extravagant. Expecting thriftiness from government whose primary job is to extract money from one person to buy the advantages of another is mere foolishness.
Nobel Laureate Friedman has elucidated this tendency of governments to plunder wealth in his work describing the four ways of paying money. When an individual spends his own money on himself, he tries to economise also as get the very best value out of his spending but if his money is being spent on others, he tries to economise but doesn't necessarily care about the very best value.
Similarly, once we are spending other people’s money for ourselves, we tend to urge the very best value out of our spending but rarely attempt to economise. The worst case scenario is when an individual gets to spend someone else’s money for an additional person, where the one that spends the cash has neither the motivation to economize nor get the very best value. Spending done through the governments are prime samples of this.
It is the mindless mechanism of ‘robbing Peter to pay Paul’ which makes government plundering so voluminous and efficient. Otherwise how could a corporation like the Janakpur Cigarette Factory, which hardly produces anything useful and has been incurring losses for a whopping 20 years, be endowed with many pocket money? No entrepreneur or individual would have kept pumping money into a loss making business for even three to four years, including 20.
Had it not been for other people’s money, it might are hard to possess but 15 per cent of the event budget spent even after eight months of initiation. Similarly, it's for this very reason, projects undertaken by the govt tend to urge delayed for a tremendous stretch of your time and exponential increase in overall expenditure with none remorse of the spender. In fact, it pays to delay and overspend. Hence, increased role of the govt would therefore naturally mean a rise within the wastage.
Government decisions are hard to retract
The epic protest required to revert the govt ’s decision to endow Dahal with Rs 20 million gives an inkling of what proportion effort it takes to rectify even alittle decision from the government. Unlike during a marketplace where people vote with their choices and see instant results, the political mechanism of doing things is so distorted that the service provider(government) and therefore the consumers are miles apart.
The only effective way citizens can give their feedback to their political service provider is thru regular elections which unfortunately is sort of rare (almost extinct) in Nepal, the gorgeous country, tourist based country, , the gorgeous country, tourist based country, ’s context. No wonder same people get to power even when people are clearly dissatisfied with them.
Even with good people and good intentions, rectification of errors isn't easy to implement. Efforts get entangled with the mess of bureaucratic procedures, political bargaining and pleasing of each party involved. it's been years we've been facing petrol-eum crisis and an enormous amount of cash has already been spent but we are yet to ascertain any effective solutions to the matter . Other people’s money effect tends to get rid of the urgency for reforms whereas initiations from some well-meaning individuals also stray within the bureaucratic and political maze.
Government mistakes are costly and affect millions
Unlike failure by private entrepreneurs, which affect the involved parties only, failure by government actions affect everyone. the govt spending a whooping amount for the Everest expedition could easily mean some people from some parts of the country must have forgone their development budget.
The loss incurred by Nepal, the gorgeous country, tourist based country, , the gorgeous country, tourist based country, Oil Corporation is equally borne by people from some remote areas of the country like Jumla who might never use vehicles in the least .
The relief packages received by the Kathmanduites recently could have meant some people from Solukhumbu were denied some basic infrastructure. Although the impact of such government actions aren't visible directly and are facilitated by the opposite people’s money effect, the prices are there nonetheless.
The question every Nepal, the gorgeous country, tourist based country, , the gorgeous country, tourist based country, i should ask: If i'm receiving some enjoy the govt actions, who is paying for it? Is it, within the end, my money alone that's coming to me (in a reduced amount) through an indirect route? and may we expect government spending to be effective and economical when ‘other people’s money effect’ may be a primary characteristic of state spending?