CHAPTER IV

THE CANONS OF EXPENDITURE

THERE are four canons of financial propriety in regard to public expenditure. These are: I. The Canon of Benefit; II. The Canon of Economy; III. The Canon of Sanction; and IV. The Canon of Surplus.

I. Firstly, with regard to the Canon of Benefit. We shall again refer to the principle of benefit in dealing with the classification of public expenditure.1 The ideal is maximum social advantage. Other things being equal, public expenditure should bring with it important social advantages such as increased production, the preservation of the social whole against external attack and internal disorder, and as far as possible a reduction in the inequality of incomes. In short, public funds must be spent in those directions most conducive to the public interest, i.e. maximum utility is to be attained in public expenditure. This reminds one of Beccaria's expression 3 in the preface to his remarkable little pamphlet Dei delitti e delle pene (Crimes and Punishments) (1764)-" the greatest happiness of the greatest number" (la massima felicità divisa nel maggior numero), a phrase that has penetrated deep into the mind of every writer on the science of public finance. Maximum social advantage is the aim of the financier in public expenditure.

This canon requires further analysis. It does not mean that because primary public expenditure has to be undertaken before secondary public expenditure that expenditure on primary heads 2 See Ibid.

1 See Chapter XIII.

3 Cf. Priestley's Essay on Government (1768) and Bentham's Fragment on Government (1776). "Priestley was the first (unless it was Beccaria) who taught my lips to pronounce this sacred truth; that the greatest happiness of the greatest number is the foundation of morals and legislation " (Bentham).

must always have precedence over those which are secondary. It may be necessary to stop expenditure on defence after a limit is reached in order to devote more and more expenditure on a social service, such as education. Nor can each claim on public funds be settled regardless of other conflicting claims. Expenditure should be viewed as a whole, and adjudication made on the various competing claims for new expenditure.1 "The ideal of public expenditure", says Nicholson with great truth, on the utilitarian principle would be attained when the public utility of the marginal expenditure in each case is equal. The ideal is no doubt unattainable, but it is not unthinkable, and the pursuit of it may lead to important practical results. Without a beacon of this kind expenditure may be continued in certain directions long after it is justified by changing conditions, and the most necessary reforms may be met with the non possumus of passive inertia." 2

In regard to the canon of benefit it is a well-recognised rule that no public expenditure should be permitted for the benefit of a particular person or section of the community unless (a) the amount of expenditure involved is small; (b) a claim for the amount could be enforced in a court of law; and (c) the expenditure is in pursuance of a recognised policy or custom. This has been adopted in most countries. In India the principle arose in connection with the polo grounds constructed at Delhi on the occasion of the King-Emperor's Durbar. No objection was raised to the initial expenditure, but the Auditor-General did object to the proposal that Government should maintain the grounds as polo grounds because these grounds would benefit only those who would play polo, and therefore the cost of upkeep should fall on them, not on Government. The third exception above is intended to cover such cases as the grants made on the successful termination of the War to Field - Marshal Haig and Admiral Beatty. It also covers expenditure on behalf of communities that have been recognised as a matter of policy, e.g. grants to certain schools and colleges and hospitals. But a grant for the construction of a temple or mosque in India would not be in accordance with the principle laid down as this is not a recognised policy or custom.

1 Cf. Chapter III.

2 Nicholson, Principles of Political Economy, vol. iii. p. 379.

The canon of economy is a

II. The Canon of Economy. canon that is frequently abused owing to weak financial administration. The same vigilance is required in public expenditure as a person of ordinary prudence exercises over his private expenditure. The price of economy, as of liberty, is eternal vigilance, and there can be no assurance of effective action without the resolute application of the spur of sound financial control and sound public opinion.

Economy, too, means protecting the interests of the taxpayer not merely in effecting economies in expenditure, but in developing revenue. Especially in public works, disbursing and controlling officers must see that the expenditure incurred is necessary and the rates fair. A great deal of intelligence and care on the part of senior officers is required in the scrutiny of rates. Similarly, in stores and workshops, more attention has to be paid to large questions such as are involved in stores than to petty rules on pay and allowances. The British Ministry of Munitions (now defunct), the Office of Works, and the Ministry of Labour are all mentioned in the Report of the British Public Accounts Committee, published as a White Paper in August 1923 for a transaction under which a factory was taken over from the Ministry of Munitions by the Office of Works and handed over to the Labour Ministry, none of them apparently being aware until two years later that the £17,000 worth of stores in the building were not held on ledger charge by any of them.

Some time ago an officer on arrival in Bombay from England was ordered to Maymyo, the hill-station of Burma. Three days after his arrival in Maymyo he was reposted to Bombay. He had his wife with him all the time, and covered some thousands of miles. The 6th Jats Regiment was at Jhansi early in 1919; in September they were moved to Ferozepur, depot and all; and in January 1920 they were moved back to Jhansi, and at the end of that year to Delhi, where also their stay was short. May this not to some extent be due to moves ordered and countermanded, unnecessary transfers especially of officers because of want of forethought? The British Public Accounts Committee, in the report above referred to, cites further similar examples of the absence of economy in public expenditure. The Office of Works is criticised for defective co-ordination between its different branches, as illustrated by the payment of rent for a building at Pontypridd

for eleven years after it had been given up. The Colonial Office is criticised for not informing the Commonwealth Government that a proposed internment camp in Australia was not required, the result being an unnecessary expenditure of £132,000, the greater part of which, however, is recoverable from other Governments. A subsidy to the British Italian Corporation of £283,418 had been paid, as arranged by Government in 1916, and the Committee comment: "The witness who appeared before the Committee was unable to inform them what advantages had accrued to H.M. Government from the payment of this subsidy ". The Committee give an apt illustration of the spending of public moneys not on the lines followed by a person in respect of his own money. In 1918 two typewriting machines were hired by the Air Force when there was a shortage of these machines, at a rent of £2: 10s. a month, which the Committee was informed was not unreasonable for a period of a month or two, but could not be justified for an extended period. In December 1918 the Air Ministry, on learning that the Stationery Office was once more in a position to supply typewriters, gave general directions that all hiring should cease forthwith. The hire of these particular machines was continued in one case for one year, and in another case for two years, and in addition one of the machines was lost. In consequence an unnecessary payment of £120 was made from public funds. In all these examples of public expenditure there was need for pitiless economy. Public authorities, especially at the time of year when they are preparing their several budgets, require all the curb that conscientious heads, political and executive, or a vigilant public opinion can apply. The Treasury (or Finance Departments) must, in a special degree, prove to be an unsleeping guardian of the public purse.

III. The Canon of Sanction. The canon of sanction is that no public expenditure should be incurred without proper authority. A remarkable instance of the breach of this rule is given in a public report of an Accountant-General on the accounts of a certain Provincial Government in India for 1921-22. A Circuit House was, in the opinion of the Provincial Government, urgently required, and the work was commenced in April 1920 "without proper sanction, allotment of funds, call for tenders, or the other usual formalities required by the Public Works Department Code". In June 1920 the plans and estimates amounting

to nearly Rs.1,97,000 were sent to the Central Government for approval, as the proposal exceeded the limit of Rs.30,000, up to which the Provincial Government was competent to sanction expenditure on a new Circuit House. The Government of India considered that the expenditure proposed to be incurred appeared unreasonable for the purpose, and regretted their inability to sanction the scheme. The Circuit House was renamed District Bungalow," as it was intended for the use of various touring officers and others ", and the Local Government went on with the scheme, although the average cost of these bungalows was Rs.9,000. The Government of India refused to sanction the expenditure, but finally, "in view of the fact that the money had already been expended, have since decided not to press the matter further, and have accorded sanction, which they considered useless to withhold in the circumstances, to the action of the Local Government". The Public Accounts Committee of the Legislative Council endorses the Accountant-General's disapproval of the procedure followed, and "they desire to point out that either the Finance Department failed to exercise control or the Administrative Department failed to obtain the statutory approval of the Finance Department. To guard against the latter contingency the Committee consider that any officer taking action, or directing that action should be taken, before the statutory examination and approval of the whole scheme by the Finance Department, should be warned that he may be held personally liable." The net result was that the bungalow was built at a cost more than ten times that of the most expensive district bungalow previously erected in the Province, and at a cost more than twenty times of the average district bungalow. In the (British) Public Accounts Committee's Report, already referred to above, there are cases of similar waste through the breaking of this canon. The Office of Works is criticised for the payment of over £12,000 for additional work on a tender which originally amounted to only £930, and the Air Services are found fault with at some length, in one case for a gift of £10,000 to a Dominion without Treasury authority, in a second case for cancelling an old contract and making a new one on a higher basis also without Treasury authority.

The canon of sanction also includes the following rules: (1) No expenditure should be sanctioned by an authority which at