Whether it is the government, businesses, or individuals, finances are important for everybody. Every activity right from acquiring the basic needs of life, purchasing properties, implementation of projects by the government, giving salaries to employees, etc. requires finance. Finance is mainly of two types, namely public finance and private finance. So, let us now read on to understand in detail the key features of public finance, and private finance, and the differences between them. 

What is Public Finance?

Public Finance deals with the revenue, expenditure, debt, and all economic affairs of the government. The government collects money from the public in the form of taxes and carries out projects that promise development. The agenda is also to reduce poverty and increase economic growth. 

This being said, the government has three main functions to attain this objective. 

  • Making efficient use of resources

  • Stabilizing the economy 

  • Distributing the revenue generated among citizens.

Key Highlights of Public Finances

  • Sources: Tax collected from the general public tends to be the major source of revenue for any government. It also sees an inflow in its revenue through bonds, fines, import duties, fees, etc.

  • Nature of Public Finance: The government often maintains a deficit budget. This means that a government’s expenditure usually exceeds that of its revenue. 

But isn't a deficit budget a bad sign?: Contrary to popular belief that deficit budgets are a sign of bad financial governance, a deficit budget helps the government save on its revenue expenditures. 

The government citing a deficit budget can lower its bills and other amounts of money it owes. A deficit budget also allows a government to increase its tax collections. 

  • Nature of account: Public Finances are transparent and are accessible to the general public as its affairs have a major say on how the economy fares at both local and international levels.

What is Private Finance?

Private Finance deals with financial matters related to individuals and private entities. 

Private finance involves maintaining budgets, cutting down costs, investing, and saving for the future. How an individual manages his/her finances has little say on how well the economy works. 

Key Highlights of Private Finance

  • Source of Income: Salaries, investments, and savings are the various means of income for individuals. For businesses, their sources of income depend on the profits earned.

  • Nature of Private Finance: Individuals and businesses often try to maintain a surplus budget. In case they lack the means, they borrow and/or restrict their monetary transactions.

  • Nature of account: Private Finances are personal affairs of individuals that are not mostly open to the public. While in the case of a business, their accounts are open to public view to an extent. 

Similarities Between Public and Private Finance

Both private and public finances deal with economic and monetary affairs. The revenue and expenditure of the government are classified as public finances while all personal and business level monetary affairs are classified as private finances. 

The objective of public finance is to achieve sustainable development. This is attained through 

Private finance focuses on achieving financial security for individuals and businesses by maximizing profits, minimizing costs, and generating wealth.

Key Differences Between Private and Public and Private Finance

Key differences

Public Finance

Private Finance

What is it?

Deals with the expenditure and revenue of the government.

Deals with the expenditure and revenue of individuals and business entities.

Nature of budget

Deficit budget where expenditure exceeds revenue.

Surplus budget where revenue exceeds expenditure.

Revenue generation

More sources of revenue generation- can print money and establish laws to raise its revenue.

Limited sources

Nature of transactions

The financial transactions are open and transparent.

The financial transactions are personal and are kept a secret.

Objective

To promote social welfare and economic security.

To accumulate wealth for a secure future.

Right to print currency

The government has complete authority over the currency. A government has the right to create, distribute, and monitor the currency.

No individual or business is allowed to create their currency.

Impact on economy

A country’s economic health is entirely dependent on how well a government manages its public finances.

How individuals and businesses manage their finances has little to no say in the overall effect of an economy.

Conclusion

While it is true that private and public finances are monetary affairs of separate entities, they are interconnected at some level. The efficiency with which individuals and businesses are thriving and managing their finances does reflect on how well a government is carrying out its financial duties. 

FAQs About Difference Between Public and Private Finance

What is the objective of public finance?

The key objective of public finance is to achieve financial stability, eradicate poverty, and promote sustainable development.

What is the objective of private finance?

The key objective of private finance is to plan, invest, and secure a profitable future. 

How does the government generate its revenue? 

Tax collected from the general public is the main source of revenue for public finances. Other sources of finance include fines levied, import duties, interest on money lent, and bonds.

How do individuals generate their revenues?

The main sources of private finance are salaries obtained from their jobs, investments, interest from savings, etc. 

Disclaimer: This page includes information that has been compiled from many sources and is only offered for informational purposes. Since this type of data might change over time, we cannot guarantee that the information supplied or included within it is accurate. It is anticipated that the user would confirm with the relevant source before taking any choices or actions.