Econ-ity » November 6, 2016

Daily Archives: November 6, 2016

The unseen cost of Public Expenditure

It is now a commonplace in Nepal that the public services are in state of despair – the roads are dilapidated, public education & health services are well below par, the civil service is infuriating, and the State-Owned Enterprises are at a sorry state to say the least. And yet, every successive government is obsessed with collecting more and more tax from the people against their hollow over-promising claim of fixing things. This is straight unjust; and very few people have any expectations from the government. If you are any concerned at all, it only provokes you – the taxpayer – to disregard the government entirely.

The cause of this frustration is not just the bad public service we are receiving – the public service that does not acknowledge the sacrifice of the taxpayers’ fruits labour. There actually is a larger unseen economic loss that each of us is facing. Government generally has to bear a huge administrative cost before it can deliver whatever level of services or public goods it is “supposed to”, and, this inefficiency is even more severe in case of our own government that has to spend as much as 80% of what we pay as tax in order to only fulfill its administrative (to run different administrative units that collect taxes, plan where to send that money, then channel the disbursement of that money, etc. – assuming there is nil corruption) and financing expenses. Thus, it only leaves mere 20% as residue to actually finance its promises of public welfare and services. It is a huge opportunity cost that we are all bearing with. Imagine in how many different ways you could have put the NRs. 100 (say) you pay as tax to use if only you were able to use it as per your own preferences. That NRs. 100 could have been used to serve your own needs and the needs of those others whom you’d have dispersed your wealth across in case you could choose freely where your tax money could be spent.

But then the government has a justification to that as well. It generally uses the false claim of having generated so much employment (directly and indirectly) through public sector as a pretext to keep its clutches on the wide varieties of services and sectors it is taking charge of. Read the Yellow Book (annual performance review of the state-owned enterprises) produced by the Finance Ministry annually to see how the government often cherishes employment generation as one of the major successes through State-Owned Enterprises despite their sorry state. But in all this fanfare, very less of us realize that genuine employment would be generated anyway in letting the free choice of the taxpayers take hold. After all, Government is simply holding up Human Resources in grossly unproductive sectors that could be mobilized in other industries able to generate output that market values. So, it ultimately means that the effect of doing away with some of the unnecessary service responsibilities undertaken by the state is not plain unemployment, but it is the transition from the kind of employment generated for the sake of generating employment to the kind of employment generated for the sake of generating wealth and employment essential for economic progress. However, it is also obvious that the laid-off employees of the public sector have to get around with self-enrichment if they have to shuffle to industries outside of their former industry.

Allowing free choice to individuals in terms of how their fruits of labour are consumed has more to offer compared to entrusting the government to fix all our problems, even more so in case of our own country. One of the possible ways to obtain this advantage of free choice would be to reconsider the role of our government, i.e. what services does the government provide to the people If the government has lesser things to do, then it only needs to collect lesser tax, and thus, lesser waste of resources in the form of administrative costs to sustain its structure. This could be a double bonus for Nepal given the government’s weak capacities – it frees up more resources to be spent on other areas, and the government can solely focus on the limited number of jobs that it has to deliver.

Prience Shrestha

About Prience Shrestha

Prience works in the research department at Samriddhi Foundation. And, he attempts to specialize in the field of Development Economics

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