An Analysis of Government Revenue and Expenditure in ... - TARA

137
expenditure on fixed assets such as buildings and equipment is part
of national expenditure.
It is sometimes suggested that government services to enterprises
such as advisory services or part of the expenditure on fire services
or on roads should be regarded as an intermediate expenditure and,
therefore, should be excluded from government final expenditure.
This treatment, however, raises difficulties and in the national
accounts all government expenditure on goods and services is
treated as final expenditure.
From the foregoing considerations it is evident that government
expenditure should be divided into expenditure on goods and
services (which forms part of final national expenditure) and
transfer payments which include interest, subsidies, grants and
loans to other sectors, in respect of which the government does not
receive any corresponding service from the public.
Current and Capital Expenditure
Eeference has been made to " current " and " capital " expenditure
and it is necessary to define these terms in relation to national
income concepts. Current expenditure is expenditure on goods and
services which are regarded as consumed at the time of purchase
while capital expenditure results in the acquisition of assets which
are consumed gradually over a period of years. In the case of
transfer payments they are regarded as current or capital according
as the final expenditure in the enterprise or household sector i?
current or capital in nature. Difficulties arise in deciding whether
certain expenditures are current or capital and the allocation of
certain items to capital expenditure by the government must be to
some extent arbitrary. In national income accounts fixed asset
formation is considered as an addition to national wealth but it is
not necessary that the expenditure should yield a satisfactory
monetary return for such expenditure to be classified as capital
expenditure. For instance new works of construction on roads are
included with fixed asset formation but it is not possible to measure
a monetary return for such expenditure. The Exchequer certainly
derives no direct financial return from this expenditure.
The goods included in fixed asset formation are goods with an
expected average lifetime of more than one year purchased by
enterprises or the government and also dwellings purchased by
households. In practice it is convenient to exclude from asset
formation certain small items such as hand tools and tyres, irrespective
of their lifetime. Part of the capital expenditure by the government
is on the purchase of fixed assets owned by the government
but a considerable part of the expenditure relates to capital transfers
to other sectors of the economy which then purchase fixed
assets. Included with capital expenditure are all government transactions
in financial assets and liabilities such as loans to other
sectors and redemption of securities.
It is apparent that the concept of capital expenditure in national
accounts is different from the business accounting concept and the
concept used in budgetary accounting. It is to be expected, therefore,
that the balance on current account of the government sector