(a) Public Expenditure—Public expenditure is the expenditure incurred by the public authorities (central, state and local governments) to satisfy those common wants which the people in their individual capacity are unable to satisfy efficiently.
Three reasons for an increase in public expenditure in India are as under:
1. Development Work—Modem state has also taken up developmental work in addition to their primary functions of administration and defence.
2. Rise in price level—As a result of the rise in price level, the public expenditure has gone up everywhere. The reason is that, the private individuals and also the government have to buy goods and services from the market at higher prices.
3. Increase in Population—As a result, the government has to incur great expenditure to meet the requirements of increasing population. In fact, the public expenditure increases in the same ratio in which the population increases.
(b) “Tax is a compulsory contribution from a person to the government to defray the expenses incurred in the common interest of all, without reference to social benefits incurred.”
Three Merits of a Direct Tax:
1. Equitable—A direct tax is an equitable tax. It is equitable in the sense that, it is levied according to the taxable capacity of the people. The rates of direct taxes, like the income tax, can be fixed in such a way that the higher income of a man, the greater is the rate at which he has to pay the tax.
2. Certainty—The tax-payers know how much they are going to pay and at what time they are going to pay the tax. The authorities also know the amount of revenue they can expect.
3. Elasticity—A direct tax c$n be varied according to the needs of the government and changes in the income of the people. When the income of the people goes up, the rate of income tax can also be increased. If the income of the people falls, the rate of income tax can be lowered.
