You may have questions after you read the title of this essay. What is the meaning of Government Expenditure? What’s really happened with it? What’s the relationship between Government Expenditure and Economy of Indonesia? What are the strengths and weaknesses with today’s expenditure and economy of Indonesia? Is the change of Government Expenditure affecting something to the Economy of Indonesia? If it yes, what will happen if the government spending too much money on national budget? What step that society or the government must do to overcome the weaknesses? And I guess there are still many more questions to ask. Here, I’m going to explain about it as much as I can do. Enjoy.
Government expenditure (or also called government spending) includes all government consumption and investment but excludes transfer payments made by a state. Government acquisition of goods and services for current use to directly satisfy individual or collective needs of the members of the community is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment (gross fixed capital formation). Government expenditures that are not acquisition of goods and services, and instead just represent transfers of money, such as social security payments, are called transfer payments. The first two types of government spending, final consumption expenditure and gross capital formation, together constitute one of the major components of gross domestic product (GDP). What is GDP means, actually? Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living. GDP per capita is not a measure of personal income. Under economic theory, GDP per capita exactly equals the gross domestic income (GDI) per capita.
What’s the relationship between GDP and Government expenditure? We can see the relationship between them from the expenditure method:
GDP = private consumption + gross investment + government spending + (exports − imports), or
GDP = C + I + G + (X - M )
GDP on words: "Gross" means that GDP measures production regardless of the various uses to which that production can be put. Production can be used for immediate consumption, for investment in new fixed assets or inventories, or for replacing depreciated fixed assets. "Domestic" means that GDP measures production that takes place within the country's borders. In the expenditure-method equation given above, the exports-minus-imports term is necessary in order to null out expenditures on things not produced in the country (imports) and add in things produced but not sold in the country (exports).
20 years ago, the economy of Indonesia isn’t the same-or even hasn’t reached out nearly to economy levels nowadays. But it was only until in 1960, the government tried a new and an effective method to decrease Indonesia’s poverty rate. Indonesia began to walk away from a gloomy economy and began to develop economically in 1980s. Indonesia as a developing country, of course has moved out from low level of GDP into a higher level. And as the GDP that always getting higher, the levels of Government Expenditures are increasing also. Why GDPs affecting the flow of Government Expenditure, anyway?
I’ll give you an example of this kind-like relationship between government expenditure and GDP; when you want to buy a car, you must let your money off of your pocket, from your income. It’s same with the relationship of GDP and Government Expenditure. When the government wants to spend any money, it’s not far from the amount of GDP. That’s why the relationship of GDP and Government Expenditure shows a positive relationship.
Every stuff has its own strengths and weaknesses, government expenditure also. One of the strengths of the government expenditure would be that it could be used to fund public projects. For example, it could be used to fund for construction of roads. This would lead to a reduction in transporting public goods. With reduced transportation times comes increased productivity. Or government expenditure on education, if people in Indonesia are well educated, then they will increase the levels of human resources. And they can give the best back to Indonesia itself. With increased productivity, it would also stimulate the economy. When the economy is growing, the nation will see an increase in GDP. It has a chain reaction effect as an increase in GDP would mean that the nation could have more to spend for their government expenditure which could result in more subsidies and better funding for a range of public goods.
And for the weaknesses, in Indonesia, this government expenditure or spending often used for a wrong use. The government usually uses this spending-money for something that they shouldn’t take, for example, they use these in personal stuffs, which is very wrong. This is called corruption. Maybe they were in trouble and needed much money, but corruption isn’t a way out or the answer. Maybe for a while it can be the answer for their financial thingies, but actually it’s a new problem for the nation. Of course it will be related to the economy of Indonesia. The money that actually must be spent for a small communities now used by the government for their personal stuffs. The money that must be spent on education to build Indonesia’s future plan now used by the government for fun. Furthermore, this case can lead us to the war, when our patience has reach on minimum level. Why is it-the corruption so easy to be done? Government finance in developing countries such as Indonesia is often constrained by the ability to collect taxes; tax collection in Indonesia is often hindered by the lack of accounting information on many informal businesses, the difficulty in imposing income tax withholdings among the millions of self-employed in agriculture and services, and extensive corruption.
Actually, government expenditure has other weaknesses that affecting to the economy of Indonesia. It happens when the government expenditure is way too much from the GDP. What are we going to buy when we have no money? And of course this case is affecting something to the economy of Indonesia. Or when the government has spent any for Indonesia, but Indonesia won’t to develop anything. So it claimed as a waste.
As a student, I suggest for Indonesian people to keep trying and trying to be a better person especially in educational thing. So the government expenditure on education wouldn’t be a waste. If Indonesian human resources are good, I can really guarantee that Indonesia will be a developed country. It will be easy to get lots of income; because of Indonesia has so many nature resources. For an example, our Oil & Gas Business is in the #3 rank for the biggest Oil & Gas Production. But why Indonesia cannot use it as maximum as it can be? The answer is because the human resources of Indonesia haven’t been well educated.
But the society behavior can’t solve the problems when you don’t have any resolution from the government itself. Because in Indonesia, corruptions by the government are widespread, so it seems useless when we are improving our skill so the government spending isn’t be a waste but the government itself use the money for a wrong uses. Government should realize that Indonesia isn’t just about them or stuffs around them. And am hoping that government would keep good values on their own heart so it can be a shield when they almost doing something wrong that affecting big stuffs for nation.
· Robert Barro and Vittorio Grilli (1994), European Macroeconomics, Ch. 15-16. Macmillan.
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Name : Amanda Talitha
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