Master in Public Management

PUBLIC FISCAL ADMINISTRATION

WHY DO WE HAVE TO STUDY PUBLIC
BUDGETING AND FINANCE?
We must make choices about how resources are
utilized, and working through finances gives a
good start in organizing the options.
We operate in the PUBLIC TRUST and need to be
able to control the use of public resources. We are
using other peoples money and those people get
MAD when they money disappears
We need to make sure they do not run out of
money before they run out of need for the service
being provided with money
 We need to make a case for the resources
appropriate to provide services to our
constituents and clients, to legislative and
executive bodies
We need to understand the case being made
by other managers
We do not want to go to jail for misuse of
resources that belong to the public or their
organization
 The people in any organization who actually
understand what the organization is doing are the
people who understand the finances of the
organization
Non-profit organizations frequently have abysmal
financial management in place
Government crises, regardless of whether the
government is national, state or local, often have
budget underpinnings that could have been
avoided with better budget systems and
mechanisms for finance
 It is simply fun to understand what is going on
in public organizations, and understanding
finance is the most important single step in
gaining that understanding
PUBLIC FINANCE VS. BUSINESS FINANCE
PUBLIC FINANCE
Uses the same tools as business finance
to allocate and control finances but
differ in terms of resource constraints,
ownership and objectives
Government may tax to enlarge their
resources
Ownership of the government is not clear
because many stakeholders share a
legitimate interest in government
decisions
Value of government services is neither
easy to quantify or reflected in a single
measure
BUSINESS FINANCE
Increase the value of the firm to its
owners by judicious allocation and
control of resources
Operates by generating an income
stream from the sale of goods and
services on the market
Owners and stakeholders are easily
identified
Businesses output can be measured by
sales or profits
PUBLIC FINANCE VS. BUSINESS FINANCE
PUBLIC FINANCE
The value of government is collective, for
the community as a whole
Generally, not for profit
BUSINESS FINANCE
Value received by individual through
purchases of business services
Profit-driven
WHAT IS PUBLIC FISCAL ADMISTRATION?

Generally refers to the FORMULATION,

IMPLEMENTATION and EVALUATION of policies
and decisions on taxation and revenue
administration; resource allocation, budgeting
and public expenditure; public borrowing and
debt management; and accounting and
auditing
 Viewed as a system, it includes the
environment, structures, systems, processes
and personalities involved in fiscal
administration
FISCAL POLICY

Refers to the mix of policies on taxation,

expenditures and borrowings for the
achievement of government objectives
PUBLIC SECTOR VS. PRIVATE SECTOR

These are sectors involved in a mixed economy

Market mechanism is allowed to operate freely in
the operation of the price system
Even then, government intervention is important in
running the economy
Mixed economy therefore is a combination of a
market system tempered by government regulation
Also referred to as, capitalist
Centralized-state planning = socialist
DEVELOPMENT OF PUBLIC FINANCE
INSTITUTIONS
ANCIENT: SLAVE SOCIETIES
Development of settled agriculture and rudimentary
advances in the production of goods led to the
great slave empires of Asia
Beginnings of public finance started from the
creation of the state
ANCIENT: SLAVE SOCIETIES
EXPENDITURES Largely for defense and aggression;
narrower scope of public finance
FUNCTIONS:
-Protection of the people, territory and
sovereignty
-Preservation of internal peace, order and
security and the administration of justice
-Maintenance of state religion
-Maintenance of the monarch and
household
-Public works/construction
- Others i.e. limited goods and services,
public recreation and physical education
REVENUES -Lootings and tributes from conquered
people
-War chest
-Fines
-Direct taxes imposed on non-citiens
-Others i.e. donations or gifts
ANCIENT: SLAVE SOCIETIES
BUDGETING No distinction between the public and the
monarchs private expenditures
BORROWINGS Practically none
AUDITING -Principle of Accountability
-Maintenance and inspection of financial
records
DEVELOPMENT OF PUBLIC FINANCE
INSTITUTIONS
MEDIEVAL: FEUDALISM
Characterized by changes in the political structure
Feudalism essentially the system of economic
relationship based upon land tenure, among the
king, the lord and the vassals
Land-based
MEDIEVAL: FEUDALISM
EXPENDITURES -Public functions of central government
usually confined to national wars and
administration of the royal domain
-Feudal lords take care of the needs of
their fiefs
REVENUES -Collected taxes from serfs
-License fees from merchants and traders
who passed by the manor
-Collected gross produce taxes, inheritance
tax, marriage fees
-Tolls on rivers, bridges or roads
-Aids
BUDGETING Fiefs budget was the lords personal
budget
AUDITING No central accounting system and record
keeping
BORROWINGS Personal transaction between the monarch
as borrower and the lender ordinarily, a
wealthy trader
DEVELOPMENT OF PUBLIC FINANCE
INSTITUTIONS
BEGINNINGS OF CAPITALISM
Began from the breakdown of feudalism
Period of expansion and rationalization of national
finances