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Maktab Sains Paduka Seri Begawan Sultan Economics Form 5 Government Spending ‘The pattern of Government spending (public expenditure): It can be broken down into a number of different categories. One method is to distinguish between current expenditure and capital expenditure. Current expenditure is on public sector workers’ salaries, benefits paid to the unemployed, the sick and pensioners, and spending on consumable goods, like medicines in the health services and all other materials that can be used up. It can be thought of simply as the day-to-day running expenses of the public sector. Capital expenditure refers to the Government's investment in new roads, school buildings, hospital building, weapons, etc. Examples of current and capital expenditure ‘On health ‘On education Current Capital Current Nurses" Heart monitors Teachers" Another way to distinguish between that public spending in return for goods and services, and that, which is not. Much of this spending constitutes payments made to people who are not productive in the economic sense. These payments are known as transfer payments. In the UK, many millions pounds of spending included in the total public spending are not really spent by the Government at all. Instead, the Government gives the money to ‘the people in the form of pensions, unemployment and social security benefits and other Payments. The people who receive these payments may then spend the money on goods and services. They are called transfer payments because the Government is simply transferring money from those in work who produce goods and services to those who do not. People in work have to pay taxes to pay for these benefits. The fact that the number of people of pensionable age and the number of people unemployed has risen in recent years means that public spending on transfer payments has been increasing, Public goods Private firms cannot profitably provide these goods, which are known as public goods. For example, it would not be profitable for private firms to provide services of defence or street lighting, but these things are of great value to the public. Because of this the Government provides these and many other goods Merit goods These goods are goods that the Government feels everybody should have, whether or not they can afford them. For example, the Government provides state education and health care so that everyone can benefit from them. Social reasons ‘Today most people feel that it is unacceptable for the old, unemployed and sick to be left to starve if they cannot earn an income for themselves. Because of this, Government spends a large sum of money in order to provide a safety net, so that nobody in this country need to go without food, shelter or health care. Control of the economy In the UK, the Government receives billions of pounds in taxes each year and also spends many billions of pounds on provisions of goods and services. In fact, the Government spends and receives so much money that a change in either Government spending or taxation can have important effects in output, employment, prices and national income. The Government uses spending and taxation to influence the economy. This is known as fiscal policy. Financing the public sector: Public sector borrowing Interest payments on loans of money made by the public sector Rent from public-owned land and buildings Profits from public owned industries like JTB and JKR ‘Taxes on income (except in Brunei), wealth and expenditure’ gaene