Abstract:
The role of Government in a modern economy is a pervasive one. The classical Government functions of Adam Smith's time - internal order, defence and expenditure for economic and social ends - have been filled out by the process of economic and social evolution to the stage where in a wholly democratic society such as New Zealand's there is scarcely any form of economic activity where the Government does not play some part.
In fact the role of Government in the economy has probably been carried further in New Zealand than in most Western democracies, for on the basis of national income and expenditure estimates upwards of 30% of gross national product passes into and out of the hands of the Central Government Sector each year. See Table 9, Monetary and Economic Council Report No.2 - May 1962. This means that there is a continual and substantial stream of claims on the goods and services produced by the economy being taken over by the Government through its revenues and borrowings on the one hand and being directed into its nominated ends through its expenditures and transfer payments on the other. But while the flow of claims on goods and services into and out of the Government Sector is continual there need not necessarily be a balance between the two over any particular period of time so that quite apart from any influence on the general level of incomes and expenditure resulting from the aggregate level of Government transactions there may also be influences resulting from imbalance between the two flows. "The level of economic activity, employment and prices can be significantly affected by changes in the relationship between (Government) expenditure and the amounts which it receives from taxation and borrowing from the public in New Zealand." Monetary and Economic Council Report No.1 - Page 36.
