Spanish Public Budget: Structure, Cycle, and Oversight

Posted on Dec 3, 2024 in Economy

General State Budget

Budget Overview

The General State Budget systematically outlines the financial rights and obligations of public sector entities for the fiscal year. It encompasses all income and expenditure items.

1 Budgetary Principles

  1. Competence: Parliament holds the authority to approve state budgets, reflecting the will of the people.
  2. Balance: Equivalence between revenues and expenses is maintained.
  3. Unity: All income and expenditure are included within the budget, avoiding multiple budgets.
  4. Universality: The budget encompasses all public sector revenue and expenditure.
  5. Integrity: Income and expenditure are reflected in gross amounts, without netting out related items.
  6. Treasury Unity: Coordinated management of public funds is ensured.
  7. Non-Earmarking: State revenues are allocated to finance all expenditures without specific restrictions.
  8. Annuity: The General Courts approve the budget annually. The Budget Law (LGP) mandates the cancellation of unobligated appropriations by December 31st.

2 Budget Scope

The Budget Law mandates a consolidated budget encompassing the state, autonomous bodies, other public sector agencies, and social security. This consolidated format eliminates internal transfers and double-counting, providing a comprehensive overview.

Public Expenditure

Public spending by government bodies fulfills their objectives and obligations. Article 31.2 of the Constitution mandates equitable allocation of public resources, adhering to efficiency and economy.

1 Public Expenditure Structure

  1. Functional and Program Classification: Costs are allocated based on functions and objectives. This facilitates performance assessment.
  2. Territorial Classification: The Budget Law, in line with the General Taxation Law, requires annual publication of the provincial distribution of divisible public spending.
  3. Organic Classification: Resources are distributed among management centers.
  4. Economic Classification: Expenditures are categorized by economic nature, divided into chapters, articles, concepts, and sub-concepts.

Public Revenue: Taxes

Taxes are a primary source of public expenditure financing:

  1. Fees: Charges for specific public services or activities benefiting the taxpayer.
  2. Special Contributions: Charges levied for benefits or increased property value resulting from public works or utilities.
  3. Taxes: Levies without direct consideration.
    1. Direct Taxes: Levied on individuals and cannot be transferred. Examples include Personal Income Tax (PIT), Corporate Tax, and Inheritance/Gift Tax.
    2. Indirect Taxes: Levied on consumption and included in the final price. Examples include Value Added Tax (VAT), Transfer Tax, and Special Taxes.

Monopolies

State-owned monopolies generate revenue by exclusively providing certain services, often to improve public services or generate income.

Public Debt

Borrowed funds by the state and its autonomous bodies (Art. 92, Budget Law) constitute a significant revenue source.

Other Income

  1. Capital Proceeds: Income from state-owned property and proceeds from its disposal.
  2. Social Security Contributions: Payments by workers and employers to fund social security benefits.
  3. European Union Funds: Structural funds, cohesion funds, and community initiative programs.

The Budget Cycle

  1. Preparation: The government drafts the budget, which is debated in Congress and the Senate.
  2. Approval: Parliament reviews and amends the budget. Final approval by Congress is followed by Senate review.
  3. Implementation: The government and authorized bodies manage public expenditure.
  4. Control: Oversight by Parliament and the Court of Auditors.

1 Budget Control

  1. Internal Control: Conducted by the government and a national audit plan.
  2. External Control: Conducted by the Court of Auditors, which examines budgets and oversees public sector financial activity.

2 Budget Amendments

Amendments address unforeseen circumstances or insufficient appropriations:

  1. Expandable Appropriations: For expenses with indicative or insufficient amounts.
  2. Transfer Appropriations: Reallocate unused funds to areas with greater need.
  3. Fixed-Term Appropriations: For multi-year investment programs.
  4. Supplemental Appropriations: Cover unforeseen expenses through supplemental budgets.
  5. Revenue-Generating Appropriations: Increased appropriations due to higher-than-expected revenue.
  6. Multi-Year Appropriations: Cover spending commitments spanning up to four years.

3 Budget Liquidation and Closing

The budget year closes on December 31st. The public accountability plan covers state administration, autonomous bodies, and other public sector entities under specific regulations.