Public finance is different from private finance.
Findlay Shiraz in his
famous book 'Principles of Public Finance' has listed the following points of
difference between government finance and private finance.
(i) Adjustment of Income and expenditure.
An individual usually adjusts his expenditure to his income. But the public
authority generally adjusts its income to its expenditure. In other words, we
can say that an individual cuts his coat according to his cloth. While the
public authority first decides the size of the coat and then tries to procure
cloth according to the size of its coat. The public authority prepares an
estimate of the total expenditure to be incurred during a fiscal year and then
devises ways and means to raise the required amount. The individual, on the
other hand, tries to live within his own means. His expenditure is generally
determined by his income.
(ii) Unit of time. The public authority balances its budget during a given period which is generally a year. For an individual, there is no period of
time in the course of which the budget must be balanced. The individual
generally continues earning and spending without keeping any record-of his
budget by a particular date. The public authority, however, has to keep full
records of its income and expenditure and the accounts are to be in balance
during the financial year.
(iii) An Individual cannot borrow from
himself. If at any time an individual is
in need of money, he cannot borrow from himself. He can raise me loan from
other individuals or can utilize his past savings, but he cannot borrow
internally. The public authority, on the other hand, can borrow internally from
its own people and externally from other nations.
(iv) Issue of currency? Government has full control over the issue
in the country. No other person except the stale can print notes. If an
individual floes so, be will be put behind the bars.
(v) Provision for the future. The government has to make a solid provision
for the future. It spends large amounts of money on those projects which the
future generation is only to benefit. The individuals, on the other hand, are
not generally liberal and far sighted. They discount the future at a higher rate
and so usually make inadequate provision for the future.
(vi) Big and deliberate changes in
public finance. It, is easier for the
government to make big and deliberate changes in its income, and expenditure but
for an individual it is a very difficult affair. A few individuals may succeed
in increasing their incomes but all the persons cannot do so. The public
authority can also make deliberate decrease in its income without feeling any
difficulty. But for individuals, reduction in income is very painful as they are
used to certain standard of living.
(vii) Surplus budgeting. For an individual, excess of income over expenditure
or surplus budgeting is considered to be a virtue but for the public
authority it is not as such, it is expected from the government that it should
raise only as much revenue as it needs during a calendar year. After all what is
the fun of showing persistently surplus budgets. It is not better to give relief
to the tax-payer; than to show surplus budgets?
(viii) Mystery shrouds Individual Finance. Individual's finance is usually
shrouded in mystery. Everybody likes that his financial position should 1 remain
a closely guarded secret but this is not the case with public authorities. The
government publishes its budget and gives due publicity to it.