What’s it: Government discretionary spending is an item in government spending where the allocation is at the government’s discretion and is implemented through an appropriation bill. The government decides what to spend in the next fiscal year and must get congressional or legislative approval. For example, expenditures on national defense, education, transportation, and foreign aid are discretionary spending.
In the United States, discretionary spending is one of three categories of expenditure in the fiscal budget. The other two are mandatory spending and interest. Mandatory spending will continue to exist from year to year unless policymakers change the laws governing the program.
Meanwhile, net interest is influenced by government debt. Interest spending will be higher when the budget deficit increases yearly, forcing the government to increase debt. In addition, inflation and, therefore, interest rates also affect interest spending by the government.
What is the difference between government discretionary spending and mandatory spending?
Broadly speaking, two types of government spending are:
- Discretionary spending
- Mandatory spending
Discretionary spending is at the government’s discretion, which is then submitted to the legislature or congress for approval. So, the government intends to allocate it based on relevant needs and considerations.
For example, the government allocated a budget for non-physical education infrastructure even though in the previous year there was none or the nominal amount was small. Last year, the government allocated more physical infrastructure for education. The allocation is complementary to building an advanced education program with adequate facilities. Thus, discretionary spending depends on the needs and priorities of the government.
On the other hand, mandatory spending is determined by pre-determined laws or regulations. In the United States, it can only be changed through changes to the laws or regulations governing it.
Government discretionary spending can change at any time, depending on government priorities. If there is a change in discretionary spending, the government submits it to the legislature or congress for approval.
In contrast, mandatory spending rarely changes. And if it changes, it requires the legislature or congress to change the relevant rules or laws. For this reason, changes in mandatory spending can take more time than discretionary spending.
Examples of government discretionary spending
Some items in government spending are categorized as discretionary expenditures. However, what items fall into this category will vary between countries.
In the United States, discretionary spending reached $1.6 trillion in 2020. It consists of $714 billion of the national defense budget and $914 billion of the non-defense budget. The defense budget includes expenditures for:
- Operation and maintenance
- Military personnel
- Research, development, testing, and evaluation
Meanwhile, the non-defense budget includes expenditures for:
- Education, training, and social services
- Veterans benefits and services
- Community and regional development
- Foreign aid
- Housing loan program
Examples of mandatory government spending
If discretionary spending is optional in the fiscal budget, then mandatory spending is not. Instead, its funding is mandatory, like spending on social programs.
In the United States, administrative spending on social security is generally a discretionary expense. However, benefit checks sent to beneficiaries of social security programs are mandatory spending.
In 2020, US mandatory spending reached $4.6 trillion, of which about $1.9 trillion was allocated to social security and medicare. Examples of another mandatory spending in the United States in the year are:
- Covid−19 unemployment compensation
- Supplemental security income
- Supplemental nutrition assistance program (SNAP)
- Paycheck protection program
- Coronavirus relief fund
- Student loan programs
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- Discretionary Fiscal Policy: How it Works, Types, Effects
- Government Budget: Components, Types, and Fiscal Policy
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- Government Current Expenditure: Example, Calculation in GDP
- Government Discretionary Spending: What Is It? What are some examples?
- Government Expenditure: Components and Effects on the Economy
- Government Revenue: Types and Why Does It Matter?
- Induced Expenditure: Examples, Formula
- Induced Tax: Examples, How they Work, Effects on the Economy
- National Debt: What is it and What Are the Implications?
- Net Tax in Macroeconomics: Formula, Effects on the Economy
- Structural Budget Deficit: How it Works and Its Implications
- Tax: Types and Its Impact on the Economy
- Transfer Payments: Importance, Types, and Criticism