CHAPTER Vil THE0EY OF PUBLIC EXPENDITURE

Transcription

1 CHAPTER Vil THE0EY OF PUBLIC EXPENDITURE

2 Theory of Public Expenditure In the last three chapters we have tried to present a detailed account of how the early Islamic state collected revenues to finance its expenses. We have also discussed the characteristic features of early Islamic taxation policy. We now, in this chapter, turn to see how these revenues were allocated to meet various socio-economic goals and related functions. Our study will not be an enumeration of public works and development projects in historical context. Rather it is intended to present the early Islamic views on public expenditure in theoretical perspective. Adjustment of distribution of income and wealth to assure conformance with what society considers a fair and just state of distribution, referred to as the 'distribution function', is one of the major function of fiscal policy to the modern day conventional economists. But this aspect of public finance has been a neglected part of study in the early literature on the subject. As Dalton observes: 202

3 "English economists, as a body, had surprisingly little to say concerning the public expenditure" 1. Another recent writer on evolution of public finance writes: "When the entire amount of literature on public finance is taken into consideration, only a small part of it will be found to deal with public expenditure" 2. In contrast to this, the early Islamic scholars paid considerable attention to this aspect of fiscal policy. They analysed, in a very pragmatic way, how the state funds to be allocated for the achievement of certain goals such as need fulfilment, welfare of the people and development of the economy. In Islam the fundamental point regarding principles of public expenditure is that the public resources are trust in the hands of the ruler. He is the guardian and trustee of the public funds and is responsible to spend it in the best interest of public in accordance to the guidance of shari'ah. A tradition of the Prophet(SAW) states: "The honest Muslim trustee who spends what he is commanded to do and he gives that in full, with his heart overflowing with cheerfulness and he gives it to one to whom he is ordered, he is one of the givers of charity" 3. The tradition of the Prophet is applicable to public money which is to be spent on the welfare of the people. Caliph Umar also integrates the 203

4 collection of revenue to its disbursement. To him it is the distribution of income which justifies the collection of taxes 4. The distribution of public funds was so important in Islamic system of public finance that the Holy Quran has clearly laid down certain norms as to the policy of the state regarding expenditure of state income. The verses of the Holy Quran clearly instructs to distribute the income of state from zakah and war booty on specific categories of beneficiaries 5.(we shall shortly come to these heads). The Holy Quran also laid down a broad policy of expenditure for equitable distribution of wealth among the various sections of the society. The main objective of the Quranic principle of distribution is to avoid the concentration of wealth in few hands. As the verse reads: "What Allah has bestowed on His Messenger (and taken away) from the people of the township belongs to Allah, to the Messenger and to kindred and orphans, The needy and wayfarers; In order that it may not (merely) make a circuit between the wealthy among you" 6. Thus the general philosophy of public expenditure is to bring the surplus wealth into circulation and to ensure the balance and just distribution of wealth among the poor and the needy. 204

5 A. Role of Bayt al-mal in Distribution of Public Income Bayt al-mal or public treasury provides the general framework of fiscal policy in early Islamic days. The early discourses on public expenditure are found in the analysis of role of bayt al-mal in the economy. From historical viewpoint, in the early days of Madinah, when the Islamic state was in making, there was no set programme of public expenditure. Although the state received revenue from sadaqat, and war booties, income form these sources was not sufficient for the then current needs. Moreover, the general condition of people was not good to impose additional taxes. The Prophet, therefore, at several occasions resorted to borrowing from public or call for voluntary donations in order to meet contingencies. It was after the conquest of Khaybar lands that the Prophet constituted a permanent source for various types of expenditure. As we earlier saw,(chapter v) the Prophet made the income from the lands of Fadak and Khaybar and Banu Nadir for war expenses, contingencies and for the help of the poor, destitute and wayfarers. However, the maintenance of income and its disbursement was not institutionalised during the period of the Prophet and his successor Abu Bakr. The situation changed with the great conquest during the reign of caliph Umar. 205

6 The inflow of revenue form conquered territories required to establish a permanent office of finance. A regular department of finance called diwan (Commonly known as Bayt al-mal) was establish to keep the income from various sources and disburse it for the general welfare of the people 7. In general, revenue of the bayt al-mal came in the form of zakah, ghanimah and fay' income. As already stated (chapters iv & v), the revenue from all these source was kept in separate accounts and spent on Q their respective heads. If the account of a particular category did not suffice to meet the expenses earmarked for that category, the authorities might borrow funds on its account from the others 9. The early system of fiscal administration was what is known nowadays as fiscal federalism. Fiscal operations were carried out, in general, by local units of bayt al-mal in their provincial branches. Revenue from each province was applied to meet the expenses of that province. If the expenses were less than the local income, the governor remitted the balance to the central treasury. On the other hand if the expenses exceeded the revenue, the surplus from other provinces or central treasury was transferred to balance the deficit Public Expenditure as Liability of Bayt al-mal The early Muslim thinkers regarded certain types of public expenditure as liabilities that bayt al-mal was obligated to fulfil. Al- Mawardi defines liability as every expenditure which must be incurred in 206

7 the common interest of the community". This concept constitutes a permanent and theoretical basis for the scope of public expenditure. Al- Mawardi has classified the liabilities of bayt al-mal into two categories; i) Liabilities resulting from property kept in the bayt al-mal as a trust for special categories of beneficiaries. ii) Liabilities arising with respect to revenues which are the treasury's own assets 12. According to above description, the first category of liabilities of bayt al-mal is related to the revenue form sadaqah. As the income from sadaqah is earmarked for prescribed categories of beneficiaries and can not be spent on general heads, the state is only entrusted to manage income on account of the various purposes for which it is earmarked. Thus the first category of state liabilities which arise due to the income from sadaqah constitutes a permanent and minimum irreducible public expenditure. This relieves the state, to a great extent, in fulfilment of its certain responsibilities such as removal of poverty, defence, law and order and meeting the emergencies. The second category of liabilities which arise with respect to revenues which are the treasury's own assets is related to the income from fay'. According to al-mawardi all types of wealth which belong to Muslims in general and not to any Muslim in particular constitute a part of the assets of bayt al-mal' 3, Thus the/ay' 207

8 revenue which is generalised for the common goods of Muslims, is the asset of bayt al-mal. Al-Mawardi further classified these liabilities of state into two categories. The first category of liabilities, which state is obligated to discharge, consists of those which are incurred for value received (badal), i.e. for the pay of soldier, prices of weaponry and by way of compensation. As these liabilities arise against the value received, the state is compelled to settle the claims. The discharge of these liabilities results in mandatory expenses which the state is obligated to incur at any cost 14. The other part of second category consists of those liabilities which have been incurred by way of assistance and general interest. Al-Mawardi holds that the discharge of these type of liabilities is related to the existence of fund in the treasury. If there is sufficient funds in the bayt al-mal, the liabilities of public interest must be met. However, in the case of non-availability of funds, they become a socially obligatory duty (fard kifayah) upon all Muslims. Thus, if their neglect affects the entire community, the liability of bayt al-mal become a liability of whole community. Al-Mawardi holds that in the absence of funds, the discharge of those liabilities becomes a duty of the Muslims Public Interest {Maslahah) as Basis for Public Expenditure Besides the mandatory obligations of state, public interest 208

9 (maslahah) provides a permanent basis for public expenditure, which either should be met by the state from its own assets or otherwise financed indirectly by well-to-do inhabitants of the country. Maslahah has been the main criterion for the scope of public expenditure to the early Islamic thinkers. At several places, Abu Yusuf, Yahya and Abu Ubayd said that fay' revenue should be spent for the common goods or general interest of the people 16. The early scholars did not give the account of what constituted the public interest. However, al-ghazali writing in fifth century, A.H. has defined the concept of maslahah as follows: "What we mean by maslahah is the preservation of the maqasid (objectives) of the law (shari'ah) which consist of five things: preservation of religion, life, reason, descendent and property. What assures the preservation of these five principles is maslahah". The concept has been further elaborated by al-shatibi, who defines maslahah as follows: "I mean by maslahah that which concerns the subsistence of human life, the completion of man's livelihood, and the acquisition of what his emotional and intellectual qualities requires of him in an absolute sense". This implies that what is focused by both scholars is the 'protection 209

10 of interest'. The concept is, therefore, related to the promotion of social and material welfare of the community 19. According to these definitions of maslahah, the liabilities of bayt al-mal (say state) become broad and flexible. Consequently the public expenditure acquires a wide scope which is determined by the maslahah. This implies that state is obligated to extend public funds on such type of activities which can promote the maslahah i.e. public interests. However, as we have already seen, al- Mawardi holds that liabilities of such types of duties rest upon state {bayt al-mal). But if the fund does not exist to meet these duties, it becomes a socially obligatory duty on all Muslims. This socially obligatory duty, termed as fard kifayah, provides another basis for public expenditure. Technically the basic requirement is that the duty must be performed by any one in the society. But in practice it is not possible to persuade individuals to perform such duties. Thus the state has to assume the responsibility to discharge such type of duties on behalf of the society. The eminent jurists al-shatibi categorically holds this view in the following words: "Those being obligatory means that their performance is not the duty of any particular individual but they devolve on the totality of all individual so that common interest are preserved without which individual interest can not be safe. Social objectives relate 210

11 to the good of all men. They aim at preserving human life but the single individual has hardly the ability and power to set the affairs of the community at large. This is why Allah has entrusted the fulfilment of the common needs of mankind to the society as a whole. This is the raison d'etre of the state in the society" 20. Indeed the above argument of al-shatibi indicates that socially obligatory duties relate to public interest. That is to say, since an individual is not capable to discharge these duties, the state is ultimately responsible to carry them out. The early scholars have identified many obligations of what constitute the socially obligatory duties on the basis of maslahah. For example, al-mawardi holds that defence, supply of water, construction of roads are socially obligatory duties 21. Another jurist, al- Nawawi, suggests that socially obligatory duties include the elimination of suffering by providing clothes to the unclad and food to the hungry 22. As earlier stated to Ibn Hazm fulfilment of the needs of have-nots is the duty of the rich in the society. It includes provision of food, clothing and house 23. We also saw, al-ghazali held the state responsible for assisting the needy at the time of scarcity of food and high prices 24. This shows that there is no fixed list of socially obligatory duties. It ranges from national defence to the supply of essential goods and need fulfilment. As we shall 211

12 shortly see there is a gradual development in the heads of expenditure nnder the category of public interest. B. Expenditure Pattern From the foregoing it is established that the theory of public expenditure in early Islamic literature in general revolves around the need fulfilment, and promotion of maslahah. i.e. public interest in its broader sense. We now turn to see how the revenue of the state was allocated to these goals. As we have already mentioned, in Islamic system of public finance, the public revenue is divided into three categories, namely, sadaqah, ghanimah and fay' revenue. The revenue from sadaqah and ghanimah is to be spent on their specified heads and revenue from fay' is meant for the general expenses of the state. Here in this section we intend to present a detailed account of this aspect of distributive mechanism. 1. Distribution of Zakah Revenue The revenue of zakah does not constitute the asset of general budget since its beneficiaries are fixed and clearly mentioned in the Holy Quran. Consequently, the yield from zakah is to be kept in separate account and spent on those specified heads only. The state has no authority to transfer this amount to other developmental and welfare heads. The beneficiaries of zakah are clearly mentioned in the Holy Quran: "The sadaqat ( sing, sadaqah meaning zakahah) are only for the 212

13 poor and the needy and those who collect them and those whose hearts are to be reconciled and to free the captives and debtors and for the cause of Allah and(for) the wayfarers; a duty imposed by Allah" 25. The above named group of beneficiaries provides a theoretical basis for public expenditure. This shows that need fulfilment of the poor, needy and have-nots are the most important heads of expenditure on priority basis. Further the help of debtors and wayfarers secures a sense of social security.!to free the captives' includes the financial help to buy the slaves freedom. 'Those whose hearts are to be reconciled' refers to those who should be helped in order to make them sincere to Islam and friendly to Muslims. 'Those who collect them' are the persons in administration of zakah. An important head of zakah is 'way of Allah' This term provide a wider scope of zakah distribution. However, there is difference of opinions on what constitute the 'way of Allah'. Abu Ubayd and al-mawardi maintain that this category cover those persons who have been unable to join the Islamic force for the purpose of holy war. Thus the zakah funds should be spent to equip the Muslims to enable them to participate in holy war against the enemies of Islam 26. According to this description the category 'way of Allah' is limited for expenses on religious war by way of purchasing weaponry and equipping soldiers. However other scholars 213

14 opine that this limitation of the 'category of way of Allah' does not appear to be correct. The noted scholar al-razi holds that the phrase 'the way of Allah' does not mean religious wars only but it covers every act of piety such as construction of bridges, burial of dead and expenses of mosques 27. Thus this expression of the phrase covers all types of work of public interest providing a generalised base for the distribution of zakah funds. On.the other hand the earlier view of jurists limit the category of 'the way of Allah' by confining it to finance the religious wars. Considering the nature of zakah, it seems appropriate not to extend the scope of the term 'the way of Allah' beyond the defence of Islam. Since the zakah. is a share of havenots and poor in the property of the rich it requires that zakah funds should be spent on need fulfilment and provision of social security. However, extending financial assistance to warriors and purchase of weaponry is an emergency step to defend the Muslims and the Islamic state from enemies of Islam. So it may be financed by zakah funds. On the other hand the other works of public interest and general welfare should be financed from fay' revenue. To finance the general welfare works from zakah funds would, indeed, affect the share of beneficiaries who have been categorically mentioned in the Holy Quran. Thus it is safe to say that the expression means the religious war and other necessary works for the 214

15 defence of Islam. a. Principles of Distribution of Zakah First point in the distribution of zakah is that its expenditure should be confined to eight classes of beneficiaries only(mentioned in the Holy Quran). However, as Abu Ubayd recommends, it is not obligatory to disburse the funds on all these heads. He is of the opinion that the ruler has discretion to decide where to distribute, in accordance to need and importance.he placed emphasis that the shares of poor and needy are obviously more important than other heads. As the following tradition of the Prophet clearly indicates it: "zakah will be collected from the rich and returned to the poor" 29. Another related point to the disbursement of zakah is how much should be given to the beneficiaries. For al-mawardi the poor and needy should be given only enough to relieve them from poverty. He holds that there is no specified limit for assistance since the need fulfilment is a relative term. A person may be relieved only by the payment of one dinar, while another may require one hundred for his subsistence 30. Abu Hanifah, opines that the maximum amount a man should be given is less than 200 dirhams of silver and 20 dinar of gold which is the minimum limit for imposition of zakah. He holds that it is rationale to give someone less than that amount in order to avoid the levy of zakah if he is given more than 215

16 200 dirhams 31. However, according to Abu Ubayd there is no fixed amount to be paid to a beneficiary. He holds that as zakah funds may be given for the construction of houses, purchasing of clothes, buying slaves' freedom, and to travellers to help them reach their destination, there may not be a minimum limit since all these heads require huge amount of money 32.This shows that there is no limit for the financial assistance and the authorities might decide according to the prevailing circumstances. Another important point related to the distribution of zakah is that it should be disbursed in the area from where it is collected. The transfer of zakah of one area to other is not permissible unless all classes of beneficiaries have received their sufficiency. Al-Mawardi holds that if the share of all classes is more than sufficient for their needs, the surplus is disbursed among the beneficiaries of the nearest city 3. However, as a principle Abu Ubayd recommends that in habitants of a locality have more rights to the zakah of the area. He reports that caliph Umar instructed one of his governors to collect zakah from the rich people and disburse it among the poor and needy of the area 34. Citing a number of traditions to show that the zakah of a region was distributed in the same region until the needs were fulfilled. He holds that the sunnah has provided this (distribution of zakah in the same region) because of the importance of neighbourhood and the fact that they (the poor) live near the rich 35.This 216

17 shows the social, moral and psychological dimensions of Islamic distributive mechanism. Indeed the distribution of zakah in the same locality will ease the envy of poor at the wealth of rich and create a sense of social responsibility and accountability among the rich towards the needy of the area. 2. Distribution of Ghanimah Ghanimah (movable war booty), like zakah, does not constitute the asset of bayt al-mal as it was not full-state revenue. In accordance to the general direction laid down in Holy Quran, four-fifth of ghanimah is to be distributed among fighters and remaining one-fifth (termed as khumus), is to be retained by the state for specific purposes. The expenditure of the khumus is based on the following verse of the Holy Quran: "Whatever you take as spoil of war, a fifth thereof is for Allah and for the Messenger and for the kinsmen and orphans and the needy and way-farers if you believe in Allah" 36. The above verse of the Holy Quran shows that the functions of the state in respect of the receipt of khumus is merely that of distributor. The state is obligated to spend the entire proceed on earmarked heads. Thus one fifth of total war booty would be available for the expenditure of the head of the state, his dependants, elimination of poverty and assistance for the way-fares. As for the share of Allah and His Messenger was concerned, 217

18 it was special for the use of the Prophet. Abu Ubayd reports that the share was utilized by the Prophet on his relatives and other heads at his own discretion 37. Al-Mawardi holds that after the demise of the Prophet the share of Allah and Messenger is to be used on general welfare of the community. However the share of needy, orphans and wayfarers is clearly specified and it goes to these beneficiaries. This shows that only the share of Allah and His Messenger would be available to public treasury as its assets for the general welfare of the community. Other part of the one fifth of the booty would be therefore, spent on need fulfilment of poor and destitute. As the major part of ghanimah was distributed among the fighters, it is obvious that it eased the financial position of individual soldiers and their family. On the other hand, in early days of Islamic state, when other sources of the revenue were not institutionalised, the khumus receipt had much bearing on relieving the burden of the state and thus supporting this it to discharge various socio-economic obligations. As we earlier saw, (chapter iv), the Prophet, as head of Islamic state, utilized the receipt of khumus in providing arms for war. Besides, the income was spent for the help of orphans, destitute and wayfarers. Further in accordance to the direction of Holy Quran the Prophet spent the income on financing expenses of his family. Thus in early days o f Islamic state, the khumus, 218

19 receipt provided considerable relief to the Muslims. The gradual increase in the khumus in expanding phase of Islamic state considerably enriched the bayt al-mal. Consequently the khumus income was spent on pensions, grant and other charitable heads. 3. Distribution of Fay' Revenue As the zakah revenue was earmarked for special and prescribed categories of beneficiaries, the fay' proceed was spent on the welfare and benefit of the whole community. As earlier stated, the fay' revenue constituted the main component of public budget. Thus all type of welfare projects and other general expenses of the state were financed through this source. It ranged from the defence of the nation to the improvement of quality of social life and development of the state. Al-Ghazali gives this source the name of welfare revenue (amwal al-masalih) as he states: "Fay' revenue, meant for the welfare of Muslims, should be spent on construction of bridges, mosques, public shelter, roads leading to Makkah and other similar activities whose benefits are shared by all 39. This shows that fay' revenue should be spent on such general heads which could improve the quality of life and enhance the development and prosperity of the state. Historically, in the early stages of Islamic state, when inflow of fay' revenue increased considerably, there was no set 219

20 pattern of its distribution. Caliph Umar used to distribute the proceed among the companions of the Prophet in the form of pensions and grants. Here is a tradition, reported by Abu Yusuf which shed some light on the pattern of distribution of fay' under caliph Umar. He reports that after Allah helped him(caliph Umar) to conquer the Persian and Romans, he consulted some of his colleagues concerning the payment of pensions and the yearly accumulation of funds. He then granted to each of those emigrants and companions who took part in the battle of Badr 5,000 dirhams and to each of those who did not participate in that battle 4000 dirhams and to each of the Prophet's wives dirhams 4. It appears that these pensions and grants were given in recognition of one's early acceptance and advancement of the cause of Islam. From the viewpoint of scope of public expenditure this generous distribution of public funds is not important as it was a timely arrangement of granting pensions. It appears that this donations and grants become necessary on the account of immense fay' income received by the treasury during his period. Later on, when a permanent office of finance was established regular salaries of soldiers and other functionaries were fixed 41. In such a precedent, Abu Yusuf reports that diwan of Himyar region was kept separately and the heads of the army and villages used to receive from it their pensions e.g. some 9,000 some 8,000 or 7,000 dirhams in accordance 220

21 to their needs of sufficiency and their status This shows that financial help and grants at permanent basis were given to those who were engaged in military services. Besides, as we shall shortly see, the fay' revenue was spent on salaries, child allowances, pensions and other form of social security. It was also spent on the improvement of quality of life by spreading education and expenditure on public utilities, infrastructures and welfare projects. Thus the heads of expenditure of the/ay' revenue are as numerous as the economic duties of state. In principle the revenue from this category was spent on all type of activities which were in the interest of the community and could promote welfare and improve the quality of life. Ibn Taimiyah observes that since a major portion of proceed of zakah goes to the help of poor and needy, in fay' revenue other social, welfare and developmental heads should be given preference. He further holds, if the revenue form zakah is not sufficient for the needy and the poor there is a general direction that they should be supported from fay' revenue 43. C. Heads of Expenditure In the third chapter of this study, we have studied the goals and subsequent functions of the Islamic state. Indeed the public expenditure depends on the functions which the state discharges in order to achieve the socio-economic goals of the state. Here in this section, we intend to 221

22 present the heads of expenditure as reflected in the early Islamic literature. 1. Need Fulfilment The fulfilment of basic needs of the poor, needy and destitute was on important head of expenditure. This head was so important that revenue iiom all three main categories was extended to cover this head. Beside the zakah and ghanimah, the revenue from/ay' was spent on need fulfilment. In the earl) days of Islamic state fay' revenue was extended for the help of needy and poor. As earlier stated(chapter v), the Prophet made the fay' proceeds of the lands of Khaybar, Fadak and Banu Nadir as a permanent source for the poor, travellers and for contingencies. Need fulfilment which include food, clothing and shelter, has been termed as a socially obligatory duty. As stated earlier, the Prophet called for voluntary contribution and even resorted to public borrowing to meet this head. The later jurists permitted the impost of extra taxes to finance the expenses of this head. 2. Defence National defence is one of the most important function of the state. From the early days of Islamic state, enough funds have been extended to meet the war expenses. It was so an important head that beside the fay', the income from ghanimah and zakah was also used for the preparation of war 45. We have seen above, the Prophet made the land of Fadak and Banu 222

23 Nadir, as a trust to meet the war expences 6. The defence expenses include pensions and grants to the soldiers, their dependent, war widows and weaponry and horses. Pensions and financial help were granted to those who were engaged in the fighting against enemies Administrative Services As the early Islamic state was a large empire, it required a huge amount to be spent on salaries of servicemen, employed in civil, judicial and other administrative heads. Al-Mawardi enumerated these functions in his discussion of duties of the ruler 48. He also recommended that the fay' revenue should be spent for the stipends of governors and judiciary, wages for teachers, civil servants and other employed in public services Social Security Provision of social security of every citizen of the state has been one of the main functions of the early Islamic state and enough funds were spent on this head. The social security includes pensions and grants to war widows and their children, old age pensions, relieving people from debts and so on. The social security was given, besides Muslims, to ahl aldhimmah, (the non-muslim inhabitants of the state). As we saw caliph Umar ordered to assist weak blind and old age non-muslims 50. Similar type of provision has been given by Umar II for the decrepit and the weak

24 5. Pension and Grants The grant of pension was also one of the major heads of expenditure during the early Islamic state. Indeed a considerable part of the state's treasury was extended to meet this head. Caliph Umar initiated to grant pensions to those who have done something beneficial to Islam and the state. Monthly rations were also given to those who fell in need 52. A new born infant was allotted 100 dirhams then on growing 200 dirhams 53. Umar II advanced financial help to poor for marriage expenses 54. Beside these provisions, we also saw that caliph Umar granted pension in recognition of one's early acceptance and advancement of the cause of Islam. These heads of expenditure show the concern of early Islamic state for its elderly citizens and its care for poor and destitute. This type of provision for freedom fighters, and senior citizens is still a common feature of modern budget. 6. Education This has been an important head of expenditure from the early days of Islamic state. Caliph Umar sent salaried teachers to teach the people in villages 55. It has been also reported that he appointed teachers for the children in Madinah. Umar II also sent salaried instructors for teaching of the Quran 56. Ibn Taimiyah recommends that those engaged in teaching and guide people in religious matter and devote themselves to learning should 224

25 be supported from public funds Developmental Heads The above list of heads of expenditure as discernible in the early Islamic writing is not claimed to be complete. These are only some of the permanent and important heads. Besides, there were various works of public utilities and socio-economic infrastructure which were carried out by the state in order to enhance the development of the economy and increase the welfare of the people. These works included construction of roads, bridges, digging of canals, cleaning of watercourses, and other developmental wo rks 58.( We h ave already presented a detailed account of developmental works in chapter iii). Abu Yusuf is of the opinion that since these developmental works involves high cost, they should be provided publicly by free of direct charging. He, therefore, recommended that all expenses occurring in provision of developmental work should be borne by the state. Umar II, also ordered that state fund is to be spent for promotion of agriculture. In such a precedent, he instructed one of his administrator to extend financial help to farmers in order to develop barren and uncultivable lands 60. D. Criteria for the Provision of Welfare Projects In early Islamic literature the main objective of provision of welfare and developmental projects has been the promotion of Public 225

26 interest. The state was obligated to carry out all such projects which would increase the welfare of people and were of general interest. Historically we find a gradual development in the provision of socio-economic infrastructure provided by the Islamic state from time to time and its obvious that considerable amount of revenue was spent on them. We now see what was the criterion for the provision of such projects. For the conventional economists this question is of much significance as Musgrave states: "The difficulty lies in deciding type and quality of a social good that should be supplied to begin with and how much a particular consumer should be asked to pay" 61. Musgrave concludes that this is to be decided by political process. The ft") voters by means of ballot will decide their own preferences. Indeed the demand for public goods through political process is a concept of modern day living and systematised fiscal mechanism. But the concept that state is to decide fulfilment of developmental projects on public demand is found in early literature on public finance as Abu Yusuf recommends: "If the attention of a tax collector is drawn to uncultivated tracts of land where unused ancient water courses are found which, if cleared and repaired, could irrigate the uncultivated areas and increase the cultivators as well as the state's income then all 226

27 expenses would be met out of public treasury. Here we see, Abu Yusuf is of the opinion that people may ask the state fulfilment of certain type of welfare project. We further note that Abu Yusuf set up criteria whether a project should be carried out or not. According to him the experts should decide whether a project is beneficial or not. He states: "Honest and reliable person should be sent to investigate into the nature of the project with the aid of experts and efficient people from the areas in question. If they agree that such projects would result in improvement of agriculture and increase the income from land taxes then project will be carried out by the state 64. The above passage from Abu Yusuf indicates that the state would provide social goods (welfare projects) provided it is beneficial. It also shows that a welfare project should be carried out after its evaluation. In this connection, Abu Yusuf placed emphasis on what we term today as negative externalities of public goods. He suggests: "The authorities must cancel any canal whose damage is greater than its benefit. Thus if the newly dug canals cause damage to adjacent buildings they should be filled in and ground levelled" 65. In this way he suggests application of cost-benefit analysis for selection of 227

28 the public project. Another criteria set up by the early writers for the provision of public goods (welfare projects) is the recommendation through the institution of al-hisbah. Al-Mawardi holds that the person in charge of the institution of al-hisbah, namely al-muhtasib will look into the requirement of the community and recommend for the provision of public goods as society requires. He states: "it" the supply mechanism of drinking water to a city becomes out of function, or its surrounding wall are wrecked or the city is crossed through by wayfarers, who are in need, then he (the muhtasib) will order to continue the supply of water, construction of wall and grant financial help to the needy, since these are obligations due on bayt al-mal (say state) and not on i v66 people Besides, as we earlier saw, the state will provide such public goods which become a socially obligatory duty (i.e. fard kifayah) 61. In the light of foregoing, it may be concluded that to early Islamic scholars, the public goods (welfare projects) should be provided on public demand or recommendation of public authority on the basis of maslahah or due to their nature of fard Kifayah. Indeed the provision of public goods on the basis of maslahah and fard Kifayah, is a unique characteristic of Islamic fiscal policy. 228

29 E. A Theory of Public Expenditure So far in this chapter we have studied the scope, the pattern and heads of public expenditure as reflected in the writings of early Islamic scholars. As a matter of fact the early Islamic account of public expenditure does not lie in their enumeration of heads of expenditure. Rather, the early scholars stressed on the proper distribution of public funds and in this connection they formulated a defined theory of public expenditure and suggested a systematic pattern for it. For example, on what basis public expenditure will be given priority, how the state will meet the expenses occurring on several welfare projects and so on. Further they stressed the need for project evaluation and analysis of socio-cost benefit of a project. To early scholars, public expenditure was aimed at the provision of need fulfilment, national defence, provision of civil and judicial administration, equitable distribution of income and wealth and promotion of welfare of the community. For them, the concept of maslahah (Promotion of welfare) provide a permanent basis for the public expenditure. It covers all types of developmental projects and provision of such social and merit goods that could benefit the people and improve the quality of life. Further the concept 'fard kifayah' covers the need fulfilment and contingencies. A characteristic feature of public expenditure, to early Islamic 229

30 scholar is that they set up criteria for priorities. As stated, need fulfilment is the most important head of public expenditure and the revenue from all categories namely, Sadaqat, ghanimah and fay' was extended to meet this head. Further it is a fard Kifayah on the whole community and must be carried out by the state on behalf of the society. The noted jurist al-shatibi, gives another criterion for public expenditure. To him the objectives of shari'ah must be protected in order to promote welfare (maslahah) of the people. He, therefore, divides public interest into three categories namely, necessary (daruri), needed (haji) and commendable (tahsini) 6 *. Al-Shatibi observes that the objectives of shari'ah are so divided because they are indispensable in sustaining the interest of religion (din), self (nafs), family (nasi), property (mal), and intellect (aql) b9. This philosophy of al-shatibi applies that public expenditure is required on priority basis on such heads which are necessary for the protection of objectives of shari'ah. In accordance to this criteria several heads of expenditure listed earlier, such as need fulfilment, maintenance of law and order, promotion of religion and national defence are mandatory heads. While the heads such as payment of allowances and pensions, development and welfare projects are regarded as needed and commendable heads. Another feature of public expenditure in early Islam is that it was an 230

31 effective instrument to transfer the wealth and income into different classes of the community. The zakah was the most important fiscal and distributive mechanism of early Islamic state. As it was collected from the rich and distributed among the poor; it served as an effective measure to transfer the income into different segment of the society. On the other hand, through the exhaustive public expenditure the/ay' revenue was also transferred for the general benefit of all. Interestingly the economic effect of income transfer through public expenditure was known to early scholars. Al-Mawardi giving the account of public expenditure states: "Whatever decrease in public's wealth is an increase of state's wealth and whatever decrease in the state's wealth is an increase of public wealth" 70. This shows that to al-mawardi public expenditure (and taxation as well) is an effective measure to transfer the resources of the economy. It also suggests that for al-mawardi public expenditure will increase the income of the community in general. We now conclude the discussion with the remarks that the rationale of public expenditure, to early Muslim scholars, was to achieve the objectives of shari'ah and promotion of welfare of the people. It was intended to balanced equitable distribution of income and wealth especially among needy and poor in order to avoid concentration of 231

32 wealth. Historically, there is a gradual development in public expenditure from the time of the Prophet. This indicates that areas of public expenditure in Islam is broad and flexible. It is not left on the whims of the ruler, rather it is guided by the general guidance of shari'ah. The authorities are trustees of the public fund and must work for the welfare of the people and growth of the economy. 232

33 Notes & References 1. Dalton, H., principles of public Finance, (London: Routledge & kegan Paul, 1966), P Hunter, M.H. & Allen, H.K., Principles of Public Finance, (New York: Harper & Brother, 1940), p Muslim, Safci7»,(Delhi:Matba Mujtabai,1348 A.H.), Vol.1, p Abu Yusuf, Kitab al-kharaj, (Beirut: Dar al-ma,arifah, 1979), p The Holy Quran, 8:41, 9: Ibid., 59:7. 7. Al-Mawardi, al-ahkam al-sultaniyah, (Beirut:Dar al-kutub al- Ilmiyah, 1978), p Abu Yusuf, op. cit., p Al-Mawardi, op.cit., p Cf. Ibid., p Ibid., p Ibid., p Ibid. 14. Ibid. 15. Ibid. 16. Abu Ubayd, Kitab al-amwal, (Beirut:Dar al-kutub al-ilmiyah, 1986), p.3. Yahya, Kitab al-kharaj, (Beirut:Dar al-ma'arifah, 1979), p.19, Abu Yusuf, op. cit., p

34 17. Al-Ghazali, al-mustasfa, min Ilm al-usool, (Egypt: 1322, A.H.), Vol. I, p A\-Shalibi,al-Muwafaqat, (Cairo:Mustafa Muhammad, n.d.), Vol.2, p Masud, M. Khalid, Shatibi's Philosophy of Islamic Law, (Islamabad: Islamic Research Institute. 1995), p Al-Shatibi, op. cit., Vol. 2, p Al-Mawardi, op. cit., p Al-Nawawi, Minhaj al-talibin wa Umdat al-muftin, (Egypt:Dar Ihya al-kutab al-arabiyah, 1343, A.H.), p Ibn Hazm, al-muhalla, (Egypt: Matba'at al-nahdah, 1347, A.H.), Vol. 6, p Al- Ghazali, al-tibr al-masbuk fi Nasa'ih al-muluk, (Egypt:al- Matba'ah, al-khayriyah, 1306 A.H.), p The Holy Quran, 9: Cf. Abu Ubayd, op. cit., p. 603, Al- Mawardi, op. cit., p Al-Qardawi, Yusuf, Fiqah al-zakah, (Beirut: Muassasah al-risalah, 1984). Vol.2 p Abu Ubayd, op. cit., p Ibid., p Al-Mawardi, op. cit., p Ibid., 32. Abu Ubayd, op. cit., p Al-Mawardi, op. cit., p.! Abu Ubayd, op. cit., p

35 35. Ibid., p The Holy Quran, 8: Abu Ubayd, op. cit., p Al-Mawardi, op. cit., p Al-Ghazali, Ihya Uloom al-din, p.130. eirut: Dar al-nadwah, n.d.), Vol. 2, 40. Abu Yusuf, op. cit., p Cf. Al-Mawardi, op. cit., p Abu Yusuf, op. cit., p Ibn Taimiyah, Majmu Fatawa, Vol. 28, pp ,576. (Riyadh: Matabayal-Riyadh, 1963), 44. See for details Chapter v. 45. Al-Mawardi, op. cit., p.123, Abu Ubayd, op. cit., p Ibid., p Al-Mawardi, op. cit., p Ibid., p Abu Ubayd, op. cit., p Ibid., p Ibid., p Ibid., p Ibid., p

36 55. Ibid., p Ibid. 57. Ibn Taimiyah, Majmu Faiawa, op. cit.,vol. 28, p Abu Yusuf, op. cit.,p.l Ibid., p Aby Ubayd, op. cit., p Musgrave, R.A. & Musgrave, P.B., Public Finance in Theory and Practice, (Siirgapore:McGraw Hill, 1987), p Ibid. 63. Abu Yusuf, op. cit., p Ibid., p Ibid., p Al-Mawardi, op. cit., p Cf. Ibid., p Al-Shatibi, op. cit., Vol. 2, p Ibid., p Al-Mawardi, op. cit., p