The main principles or canons which should govern public expenditure as follows:
1. The principle of Maximum Social Advantage: The government expenditure should be incurred in such a way that it should give benefit to the community as a whole. The aim of the public expenditure is the provision of maximum social advantage. If one section of the society or one particular group receives benefit of the public expenditure at the expense of the society as a whole, then that expenditure cannot be justified in any way, because it does not result in the greatest good to the public in general. So we can say that the public expenditure should secure the maximum social advantage.
2. The Principle of Economy: The principle of economy requires that government should spend money in such a manner that all wasteful expenditure is avoided. Economy does not mean miserliness or niggardliness. By economy we mean that public expenditure should be increased without any extravagance and duplication. If the hard earned money of the people, collected through taxes, is thoughtlessly spent the public expenditure will not confirm to the canon of economy.
3. Principe of Sanction: According to the principle all public expenditure should be incurred by getting prior sanction from the competent authority. The sanction is necessary because it helps in a voiding waste, extravagance, and overlapping of public money. Moreover, prior approval of the public expenditure makes it easy for the audit department to scrutinize the different items of expenditure and see whether the money has not been overspent or misappropriated.
4. Principle of Balanced Budgets: Every government must try to keep its budgets well balanced. There should be neither ever recurring surpluses nor deficits in the budgets. Ever recurring surpluses are not desired because it shows that people are unnecessarily heavily taxed. If expenditure exceeds revenue every year, then that too is not a healthy sign because this is considered to be the sign of financial weakness of the country. The government therefore must try to live with in its own means.
5. The Principle of Elasticity: The principle of elasticity requires that public expenditure should not in any way be rigidly fixed for all times. It should be rather fairly elastic. The public authorities should be in a position to vary the expenditure as the situation demands. During the period of depression, it should be possible for the government to increase the expenditure so that economy is lifted from low level of employment. During boom period, the state should be in a position to curtail the expenditure without causing any distress to the people.
6. No Unhealthy Effect on Production and Distribution: The public expenditure should be arranged in such a way that it should not have adverse effect on production or distribution in the country. Public expenditure should aim at stimulating production and reducing inequalities of wealth distribution. If due to unwise public spending wealth gets concentrated in a few hands, then its purpose is not served. The money really goes waste then.
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