Muslim Government Expenditure
Islam gives much emphasis to the role government expenditure should play in achieving welfare of the nation.
The government is not free to handle public money the way it likes. Public money should be spent to achieve goals of the Muslim state. The duty of the government in a Muslim state as seen by the second Khalifa Umar is not to squander public money but to utilize it to improve living standards of the public and to increase their allowances. Al-Mansour stated that public money should not be spent in lavish consumption but it should be spent to provide defence, security, improving living standards of the people by provision of accommodation, necessary aminities and safeguarding their souls and properties.
Such remarks as well as very many other remarks scattered in Islamic literature indicate that government expenditure should be utilized to provide public goods and should be utilized to improve the living standards of the people which entail preventing errosions in real value of their incomes and subsidising necessities as well as providing public health. Public expenditure must be used to prevent inflationary conditions and recession. In case a government is combating inflation government expenditure should be reduced where inflation is due to increased aggregate demand and in cases where inflation is due to shortages in production, government expenditure may be used to expand production. Today in many Muslim countries governments generate inflationary conditions by continuous increase in government expenditure especially outlays related to security and expenditure on salaries of officials and favourites. This clearly contradicts the constraints laid by Islam on how public money should be spent. It is quoted that the Prophet (peace be upon him) had said that anyone who takes even a needle from public money will be accountable for it on the Day of Judgement. Abu-Bakr at the time of his death is quoted to have told Aeisha to hand over to Umar whatever was left in his house from al-Fay. Only a few items were found and they were returned to Umar. Umar is quoted to have told the Sahaba that he should be paid what would provide him a winter and a summer dress, and his living expenses as an average person and that he, like any other person, should suffer the same during periods of hard times. Ali Ibn Abi Talib is quoted to have taken only a few dresses from Baitul-Mal. The Khulfai- Rashedeen in general saw themselves trustees of public money.
The ruler and the governing body in general must set a precedent to the whole nation in taking the minimum out of public money and not setting their wages beyond the ability of the nation otherwise they will generate more wage demands and inflationary conditions. Development projects will be impeded and continuous resort to deficit financing will also have adverse impact on the foreign balance due to increased demand for imports. To finance growing government expenditure many governments resort to taxes on consumption, especially, on necessities which are price inelastic, hence adding to the inflationary spiral.
Distributive Expenditure in Islam
The state by providing public goods especially public health, education, provision of accommodation as well as other services, generate a great impact on the distribution of income. Beside providing those goods the government in an Islamic state has to design a social welfare system which will alleviate poverty. This is not simply a theoretical assertion but is a reflection of what prevailed in Muslim states in the past. It was reported that such a system covered even debts incurred by deceased Muslims. It was reported that the Prophet (peace be upon him) ordered payment of debts of deceased Muslims from public money. It was also reported that Umar Ibn Abdulaziz ordered payment of debts for those who did not incur such debts due to lavish consumption. He also ordered to pay loans incurred by Kheraj-payers who were unable to improve their lands. It is also quoted that Umar Ibn Abdulaziz ordered his officials at a time when financial resources were abundant that all debts incurred by Muslims should be covered despite the fact that some of them had furnished homes and kept servants, since he considered such needs to be basic necessities.
This may sound strange given the conditions of today; but seen in the light of Islamic teachings, a consistency is found between the welfare system and the overall economic system. Islam does not permit interest or usury. The state has to ensure flow of loans by acting as a guarantor in case of death for debts not incurred in extravagance. Credit institutions will as a result, not fear extending such loans as bad debts will not be accumulated; if they apply Islamic criteria on those loans and extend them only to needy persons. Only debts created to meet essentials of life will be covered by the state.
It is clear that expansion of the welfare system, whether to meet narrower or wider needs depends on affluence of a Muslim state. Muslim countries with huge financial resources should provide an expanded social welfare system like the one established by Umar Ibn Abdulaziz. Where financial resources were limited the Prophet (peace be upon him) used to pray for those who incurred debts. Only when financial resources began to flow abundantly, the Prophet (peace be upon him) ordered coverage of debts of deceased Muslims.
Muslim states also introduced payment of children allowances. Nowadays such allowances prevail only in some economically developed countries. Umar used to pay children allowances when a child was no longer breast fed. But this led to hurried halt of breast feeding and the system was changed to pay allowances immediately after birth. Osman varied allowances with age, a newly born baby was paid 50 dirhams and a one year old child was paid 100 dirhams.
The system also introduced direct allowances to be paid to all Muslims who applied for it. Umar used to say that if financial resources were abundant, he would have paid every Muslim, one thousand for buying a horse, another for weapons to go to Jihad, a third for travel expenses and a fourth to subsist his family while he is away propagating and defending the cause of Islam. Muslims according to Islam should work for propagation of Islam and the security of its territories and the government should provide the individual with his necessities so that each person should work for this goal.
Later Abu Ubeid laid out minimum requirements which must be provided by Muslim states. According to him those were, a house, a dress and an ounce of gold. Ibn Taymiyyah thought that allowances should be distributed according to needs of persons and benefits accruing to a person from those allowances. A system that provides such minimum requirements will in turn provide equal opportunities to all individuals. As a result all those who belong to this state feel that they are part of an institution, which provides them with shelter. This will increase social harmony and reduce political upheavals. But it may be said that, disincentive effects may arise. When people find that the state will cover all their basic necessities, they may substitute leisure for work. Whether this effect is stronger than the income effect, i.e. people may be motivated to increase their incomes, should be investigated. Also costs of not providing such necessities may outweigh any adverse effects arising from application of the system.
Islam also guaranteed for those who work for the government some extra benefit. The Prophet (peace be upon him) is quoted to have said that those who work for the state will be given marriage allowances, a means of transport and a servant. Umar is quoted to have distributed public money such that army commanders were paid between seven to nine thousand dirhams. Extra allowances were paid to public officials, scholars, soldiers and security officials.
To conclude, Islam concerns itself with alleviating poverty and providing a decent life to all its people through an expanded welfare scheme and provision of public goods that are essential for all Muslims. Islam urges the rulers to prevent a decline in the standards of living of their subjects and hence they have to concern themselves with stabilizing their economies and assuring sustained economic growth.
Source: Fiscal Policy and Resource Allocation in Islam, Ziauddin Ahmed, Munawar Iqbal and M. Fahim Khan. Republished with permission.