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PUBLIC FINANCE PART 2: GOVERNMENT MANDATE

By DARLINGTON CHILUBA

THErelevance of the finance function at government level has both practical and philosophical reasons. The philosophical reasons acknowledge the power of finance and the need for government to exercise authority over the economy through policy or political structures for positive social or socio-economic impact.  

This philosophical debate involves resource distribution: that is, which sectors qualify as lead sectors and which qualify as support sectors and in need of welfare or subsidies; secondly, which channels should government use to allocate resources: in other words, does government dispense resources?

Does the private sector, or can a mix of both deliver better? In summary, the main question is whether government adopts a centralised or command system of distribution over a deregulated or liberalised mode of resource allocation?    

In most countries, the Ministry of Finance or its equivalent, is the deliberate manifestation of law which puts into practice the ideological beliefs of that government. This is to say, the law dictates the mode of resource distribution adopted by government.

Thus, the law intends to achieve two things: firstly, to provide protection for national resources and therefore give government ownership of those resources so that government has the right to either own, sell or share ownership of any valuable resources found on its territory.  

Secondly, in addition to creating regulatory authority over finance, the function must provide clear procedure on the legal possession and disposal of public resources.

This is partly why the Ministry of Finance here in Zambia has a myriad of intersecting laws to speak to its many interwoven and far-reaching actions and functions.

For example, and interestingly, the finance ministry in Zambia has a law that establishes and enforces the office of the Minister. It is called the Minister of Finance (Incorporation) Act Chapter 349 and reads in part

that:

The Minister of Finance shall be a corporation sole by that name, with perpetual succession and an official seal, and with power to acquire and hold in that name lands, Government securities, shares in any company, securities for money, and real and personal property of every description, to sue and be sued, to execute deeds, to enter into…agreements… in respect of the above matters or any of them.’    

This law refers directly to the practical mandate of the finance function to own and dispose of national assets in an open and traceable manner across all sectors of the country.

It does not make the Minister unaccountable, on the contrary, it gives the minister judicial authority to act in national interest with full protection of the law according to the vision of government.

For instance, in a command economy, such regulation would mandate the government to nationalise resources and appoint itself as the distributor of those resources to its people.

In economics, this is called trickle down. In other words, the ability to realise the actual benefits of policies so that citizens can tangibly enjoy them.  

In a liberalised economy, that same legislative mandate would permit the ministry to allow the inclusion of private sector in owning national resources of value. It would position the finance ministry to either commercialise some public entities that have national and security value but could be better managed with private sector partnerships.

Liberalisation potentially has better distributive qualities because citizens actively and legally participate in the affairs of the economy. The downside is that some citizens will inevitably be left stranded by the overwhelming pursuit of profit and this is where government intervention becomes necessary in an open economy.  

This middle ground, where the intersection of public and private finance coincide is loosely referred to as social democracy or neoliberal institutionalism in political economy. This centre, or middle ground is a structure that most progressive nations have adopted. China, perhaps being the peculiar exception of sort. 

Ultimately, no conversation on public finance is complete without the mention of taxation. Even the most developed nations have not escaped this finance function to raise income from citizens both individual and institutional to secure and provide for the same citizens.

It is here that governments genuinely assert their authority and qualify the notion of public finance. The consequences of tax evasion or (deliberate) avoidance are known and punishable.  

Incidentally, this is also where most governments lag behind either by failing to expand their revenue base or borrowing unevenly against limited revenue. One of the benefits of liberalisation in Zambia is that the revenue base was expanded by creating the Zambia Revenue Authority in its current form in 1994 while simultaneously lobbying to have debt cancelled.

All this was done while increasing citizen participation in economic affairs so that the idea of public finance is genuinely a combination of public and private partnership. This partnership can make or break the case for debt cancellation as will be discussed in part 3.  

Debt cancellation becomes complex because the nation borrowed using policy and with the same policies they return as if to suggest an error in their earlier commitment to borrow and repay. Public finance, then, in conclusion, is a consequence of government and citizens interaction to expand their respective incomes for their mutual benefit.

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