What is Public Finance
Public finance refers to the use of government funds to provide financial services to its citizens. In contrast, private finance refers to the provision of financial services by companies that are privately owned. Private finance is often referred to as corporate finance.
The government provides many different types of services to its citizens, including healthcare, education, transportation, law enforcement, national defense, and others. These services are provided using tax revenue, which comes from taxes levied on individuals and corporations. Tax revenue is collected by the federal government, state governments, and local governments.
Taxes are imposed on individuals and businesses to fund government programs and projects. Taxes are based on income, property value, sales, etc.
To providing financial services, the government also regulates the financial sector. The government establishes rules for the industry, enforces those rules, and collects fees from firms that violate the rules.
Public Finance is the practice of financing government activities using tax revenues instead of issuing debt. In the United States, the federal government finances its operations primarily through taxes levied on individuals, corporations, and foreign entities doing business in the country. These funds are then distribute among various agencies and programs administered by the U.S. Department of Treasury.
Federal Government Financing – The federal government finances its operations through taxes levied on individuals and businesses. The money collect from these taxes is deposite into the general fund. From here, the federal government uses the money to pay for services and projects provided by the federal government.
State Government Financing – State governments use their revenue streams to provide services and projects. However, they do not have access to the full amount of revenue generated by state taxation. Instead, they receive only what is called the “general purpose” portion of the state income tax.
Local Government Financing – Local governments rely heavily on property taxes to raise revenue. Property taxes are pay by residents based on the assessed value of their real estate holdings.
Taxation – Taxes are fees charge to citizens or companies for the privilege of engaging in certain economic transactions. Taxes may be impose directly by the government, or indirectly through private parties who collect them and pass them along to the government.
Revenue – Revenue is any return earne by a person or company on the investment of capital.
Capital – Capital is anything that is own by a person or company and earns interest or returns profit over time.
What is Private Finance
Private finance refers to the provision and management of financial services by companies. Companies may offer these services directly to consumers (e.g., banks), or indirectly through intermediaries (e.g., insurance). Companies that provide financial services do not have to follow the same regulations as public institutions. Instead, they are regulate by self-regulatory organizations. Businesses are tax at rates set by their respective states. Businesses may choose whether or not to pay taxes.
Private Finance Initiative (PFI) –
Private Finance Initiative (PFI), sometimes known as PPP (Public-Private Partnership), is a method of financing infrastructure projects where a private company finances and builds a project, while the public sector owns and operates the asset. The private sector entity then collects tolls or rents from users to pay off the loan.
The PFI was introduce in the 1980s and is a method of financing infrastructure projects by borrowing money at interest rather than raising taxes. In return for the loan, the government agrees to repay the debt over a set period. The idea behind the PFI is that the project will generate enough revenue to pay back the initial investment plus interest. However, if the project fails to generate sufficient income, then the government may not have to make any payments.
Public Private Partnerships (PPPs) –
A Public Private Partnership (PPP) is a contract between a government agency and a private sector partner. In return for funding construction costs, the private partner receives a share of the profits once the project is complete.
Public-private partnership (PPP) –
A public-private partnership is a contract between a private company and a government agency. A PPP is similar to a PFI, except that the government does not borrow money to fund the project. Instead, the government sells shares in the project to investors. The government retains ownership of the asset, but rents out the land or building to the investor(s).
Infrastructure Development Company (IDC) –
An IDC is a type of special purpose vehicle create by the UK Government to raise funds for major infrastructure projects. An IDC is owne by its shareholders who are usually pension funds, insurance companies, or sovereign wealth funds. The IDC raises funds from institutional investors and uses these funds to build infrastructure assets. These assets are then lease to the government or sold to third parties.
Build Operate Transfer (BOT) –
A BOT is a financial arrangement where a private entity builds a piece of infrastructure and then transfers ownership of the asset to the government. The government operates the asset until it is transfer to a different owner.
Private Finance Initiatives (PFIs) –
A PFI is a way of funding infrastructure projects by borrowing money instead of raising taxes. In return, the government agrees to pay off the debt over a certain period. If the project generates enough revenue to cover the cost of construction plus interest, then the government pays off the debt early. However, if the revenue falls short, then the government may have to continue paying the debt for many years.
Public-Private Partnership (PPPs) –
A PPP is a type of agreement between a private company and the government. In exchange for providing services, the government gives the company access to public property or rights to use public property.
Infrastructure Development Company (IDC) –
An IDC provides a means for governments to raise capital for their infrastructure projects. IDCs shares are trade on stock exchanges just like regular stocks. Investors purchase shares to gain exposure to a particular industry or sector.
Infrastructure Trust –
Infrastructure trusts are a type of company set up to fund and build infrastructure projects. They are not run by the government and are therefore different from PFI and PPPs.
Government agency –
A government agency is a body create by the government to carry out its business. Agencies are responsible for providing services to citizens and businesses. Examples of government agencies include the Department of Health, the National Lottery Commission, and the Australian Tax Office.
Companies are organizations that trade goods and services. Companies are owne by shareholders who have shares in them.
Banks are financial institutions that provide loans. Banks are regulate by governments around the world.
Pension scheme –
Pension schemes are ways of saving money for retirement. People put their money into pension schemes and get pay regular payments.
Infrastructure Debt –
Infrastructure debt refers to bonds issued by governments to fund major capital expenditure projects. These bonds are repai over a fixed period, usually 30 years, and carry interest payments at set rates.
Infrastructure Bonds –
Bonds are financial instruments that represent claims on a borrower’s assets. Governments issue bonds to raise money for various purposes, including paying back loans, investing in businesses, and building infrastructure.
Infrastructure Loans –
An Infrastructure Loan is a type of bond issue by a government to build infrastructure. The government borrows money from investors and uses the funds to repay the loan.
Framework Financing –
The term ‘infrastructure’ refers to any physical structure or system that provides services to people. Infrastructure includes roads, bridges, buildings, water systems, sewers, airports, railways, power stations, telecommunications networks, and many others. Infrastructure is finance by borrowing money from banks, issuing bonds, or raising taxes.
Framework Project –
An framework project is a large-scale investment in framework. An example would be the construction of a road, bridge, airport, railway line, etc.