Understanding the Role of State Budgets in Public Finance
6.1 Budget Item as the Main Tool Involving the Public Sector.
6.1 Concept, Characteristics, and Principles.
6.1.1 Concept and Characteristics.
The PGE (General State Budget) is the encrypted expression, jointly and systematically, of the rights and obligations to be settled during the year for each of the organs and entities that are part of the State Public Sector.
The PGE is composed of:
1) Budget allocation of organs with differentiated subjects that make up the public administration sector.
2) Budgets of public companies and foundations.
3) Budget funds from the General Appropriations Act.
The PGE determines:
a) The financial obligations of recognizable subjects referred to in point 1).
b) The rights recognized during the relevant period by the bodies mentioned.
c) The expenses, income, and investment and financial operations to be performed by the entities referred to in paragraph 2).
d) The objectives to achieve in the exercise by each of the heads of the programs.
e) The estimate of the fiscal benefits affecting State taxes.
f) Financial transactions of the funds referred to in section 3).
The rights included in the PGE have character, and instead, the estimate of the costs has the character of obligation. That is, the latter may not exceed the limit fixed by the Law on the General State Budgets.
6.1.2 The Classic Principles and Developments.
The PGE is based on budgetary principles that determine its contents and method of production, through the disciplinary aspects to which it is submitted.
Among these general constraints include:
– Top of programming.
– Top of budget management.
Competencia Limitación Economic Political Accounting Principles of annual budgetary expenditure Balance Payment of the tax neutrality deuda Universalidad Presupuesto bruto Unidad Unidad of Caja Claridad Especificación Especialidad: – Qualitative – Quantitative – Temporal Anualidad Ejercicio cerrado Publicidad
Ø Political Principles:
® Competition: The determination of receipts and payments, which give content to the budget, is for popular representation in the Cortes or Parliament.
® Universality: All revenue and expenses incurred in the financial activity of the state must be collected.
® Unit: Provides that the budget is unique. This principle precludes the existence of special and extraordinary budgets.
® Clarity: Should be presented in an orderly, clear, and consistent manner, allowing better control.
® Specialty: The authorization to spend, granted to the executive through the budget, is a general authorization of spending, but special and conditional.
– Qualitative: The expenses must be allocated to the purpose for which they are approved.
– Quantitative: The amount by which they are approved.
– Temporal: During the period for which they are approved.
® Annuity: Must be temporary mandate. In Spain, 1 year.
® Advertising: They should be of general knowledge, except for those items which are confidential.
Or Accounting Principle:
® Gross Budget: It corresponds to the political principle of universality and stipulates that the budget items should appear on a gross basis.
® Unit Box: It corresponds to the unit. All receipts and payments should focus on a single treasury.
® Specification: They must classify each of the receipts and payments according to their specific nature.
® Year Ended: You can only account for income and expenditure for that year.
Ø Economic Principles:
® Limiting Government Spending: The budget must be as small as possible.
® Budgetary Balance: The classical finance golden rule states that budget expenditures should be financed entirely by revenue.
® Tax Neutrality: The essential minimum expenditure must be financed by tax neutrality.
® Payment of Debt: One should only go into debt dramatically. Generate income which should allow the debt to be written off.
The laws and regulations (under preparation and approval), the administrative acts, contracts, cooperation agreements, and any other action of the subjects that make up the state sector affecting public spending should assess their impact and effects.
Public Sector Management is subject to an annual budget system tested by the Cortes Generales and framed within the boundaries of a multi-stage.
The budgetary appropriations of AGE, its autonomous bodies, and public sector entities within the state with limited budgets must be used for specific purposes authorized by law or by PGE amendments conforming to the Act.
Liquidity rights and obligations conferred by taxes were imposed fully unless the law expressly authorizes otherwise.
Excepted from the above provision are income returns declared incorrectly for the court or competent authority and under the regulations of such income.
The budget and its amendments contain sufficient and adequate information to enable verification of compliance with the principles and rules that govern them and the objectives they intend to achieve.
The PGE is included in the tax expenditure budget document that must collect the amount of tax benefits pertaining to taxes in the state.
* Tax Benefit: This involves the diversion of the relevant tax legislation that benefits specific sectors or activities.
6.1.3 Basic Legal Framework.
The GEA is a highly regulated document:
1. Constitución Española.
2. Ley General de Presupuestos.
3. Ley de Estabilidad Presupuestaria.
4. Ley de Organización y Funcionamiento de la Administración General del Estado (LOFAGE).
5. Órdenes del Ministerio de Hacienda.
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The Laws of the State Budget each year.
The laws of PGE collect a series of rules that determine annually the financial and economic activities of the State.
Generally, they are developed for an exercise.
6.1.4 Content and Structure of the State Budget.
The PGE contains what is called numerical statements, including statements of expenditure, which in turn comprise the necessary funds to meet compliance obligations.
Income statements, which have the character of estimation.
The financial statements of the State companies, i.e., a business operating account and a statement of source and application of funds.
The PGE is comprised of the following conditions:
1) Budgets of State.
2) Budgets of the Autonomous Bodies.
3) Budgets of other public agencies.
4) Social Security Budgets.
5) Budgets of Corporate Public Entities.
6) Budgets of State Foundations.
7) Budgets of State Trading Corporations.
6.1.4.1 Statements of Expenses:
Expenditure statements of the State Budget are classified as:
I. Classification Organic: Who spends? Expenditures are classified as responsible for those costs.
II. Classification Foundational Program: Classification of the citizen.
III. Economic Classification: How is spent?
6.1.4.2 Statements of Income:
The income classification program has not only organizational and economic classification:
I. Classification Organic: Allows identifying the unit or staff member who receives income directly or indirectly.
II. Economic Classification: Heeds the nature of revenue. Three groups:
i. INGRESOS CURRENT:
® Chapter I: Direct Taxes.
® Chapter II: Indirect Taxation.
® Chapter III: Fees and Other Income.
® Chapter IV: Current Transfers.
® Chapter V: Income Property.
ii. INGRESOS CAPITAL:
® Chapter VI: Disposition of Real Investments.
® Chapter VII: Capital Transfers.
FINANCIAL iii. INGRESOS:
® Chapter VIII: Financial Assets.
® Chapter IX: Financial Liabilities.
6.2 The Budget Cycle, with Special Reference to Spain.
6.2.1 Elaboration.
The PGE is accompanied by a series of documents explaining the government policy agenda, in both economic and financial fields. Furthermore, the budget as a whole represents a summary of the fiscal and social policies of the government.
1 book introduction and 4 sets of documents:
1. Series Red: Includes the texts that, once approved by Parliament, will compose the Law of the State Budget.
2. Serie Green: Comprises a series of books that are considered necessary for the proper implementation of the GEA. They receive formal approval from the courts because they are ancillary data and contain the collection with a different criterion for classifying the credits authorized under the states of the Red Series.
3. Serie Gray: This is a set of additional information on specific issues and sufficient degree of detail, e.g., personal attachments or liquidation of prior years’ budgets.
4. Serie Yellow: Three books:
– Firstly, economic and financial report (report on economy and prospects)
– Second, reports, collected in 3 volumes presenting variations on the budgets of previous years.
– The third, the consolidated budget, is a summary that integrates into a single book the State Public Sector agents, eliminating transfers between them in order to perform a joint function.
Before preparing the PGE, the scenario of the Spanish economy is explored, and a stability program is produced.
UASI delineates the starting position of the most relevant economic variables and objectives were formulated.
ulos PGE were designed according to those objectives (economic plan 4 years).
The Spanish Constitution states that the power to produce the GEA is for the government.
STABILITY PROGRAM
It is produced every year.
“A Council of Ministers agreed that:
§ Reflects the goal of fiscal stability.
§ It raises the macroeconomic scenario in the next 4-5 years.
§ It is presented to those responsible for monitoring the Plan Stability in the European Union.
§ It is approved by the Parliament.
PREPARATION OF THE STATE BUDGET (PGE)
1. Government: Fixed macroeconomic scenarios to which they should adjust the PGE and approves the draft law of the State Budget.
2. Ministry of Finance: through the DGP (DG Budget) coordinates the budgets of schools and prepares the budget managers of income.
3. Centers Managers-Ministerial Departments and Constitutional Bodies: They are responsible for the production of documents prior to the preliminary draft budget (the draft approved by the Government).
4. Various Committees:
a. Expenditure Policy Committee: Chaired by the Minister of Finance when it does not attend the Second Deputy Government, coordinated by the Secretary of State for Budget and Expenditure, comprising the heads of major management centers and the Secretary of State Treasury.
Analyze the content of budgetary policy and public performances, taking into account both the objectives to be attained and the resources available to it, and formulate priorities for obtaining revenue and expenditures to be made.
It is expected in early May to look at its content budget public policies and actions, consistent with the scenario with multi-annual budgetary stability objective envisaged.
b. Program Analysis Committee: Chaired by the Secretary of State for Budget and Expenditure Committees will meet program analysis, which determined the financial cost of the programs taking into account the objectives prescribed pursuant to the Budget Policy Priorities.
v. Commissioner of Revenue: Under the chairmanship of the Secretary of State for Budget and Expenditure Committee will meet Revenue, responsible for coordinating the preparation of forecasts, assessments, and proposals to be considered according to guidelines Commission Expense policy.
Preparation of Draft PGE:
PHASE-AGENT-LENGTH: Development Executive to Ministry of Economy and Finance / months Presidente 6 Legislative Discussion and Approval of the Cortes months Generales 3 Implementation Executive to Executive Control Gobierno 12 months IGAE Legislature à à Court Cuentas 15 months
6.2.2 Parliamentary Procedure.
The Spanish Constitution gives to Parliament the review, amendment, and approval of PGE:
1) Initial Processing in Congress in October will be published in the Official Gazette of the Courts (BOC). Term starts amendments:
· Amendments to the whole: it rejects the document.
· Amendments of partial character: partial changes.
If there are amendments to the whole, debate begins in full. A re-vote majority. If approved, the amendment must be restructured, returning to the executive. If not successful, the amendment is discussed in committees.
If no amendments to the whole, debate starts in the budget commission. Partial amendments are voted.
BOC Report on the amendments adopted. Is discussed in the plenary conference.
It is published again in the BOC and referred to the Senate.
2) Processing in the Senate The Senate can:
· Veto Proposal: reject.
· Partial amendments.
The discussion always starts at committee level. It is made to the opinion (report of the amendments approved) through to the full.
If you start veto proposals for them. If successful, the document is submitted to Congress as it reached the Senate.
Congress may lift the veto by an absolute majority or, after two months, by simple majority.
If you cannot lift the veto, it refers to the executive.
If no veto proposals or fails, are discussed and approved the amendments. It is published in the BOC and refers to Congress.
3) Final Examination in Congress in the full Congress should approve changes made by the Senate. PGE Act.
Amendments to the Constitutional Limitations:
“Any amendment which adds to the expense or reduces the income must have government approval.
“If it has been approved, the amendment must collect the same reduction in expenditure in the same amount and in the same section as the increase.
6.2.3 Budget Performance.
Government Competition From 1 January to 31 December to run it.
It consists of realizing the income and expenses that have been approved in Congress. If not approved on 31 December, extending the previous year.
Expenses are subject to very strict control on their execution. The implementation is extended to one calendar year. The executive is responsible for implementation.
6.2.3.1 Expenditure Management:
Management of Expenditure Budget of the State and its autonomous bodies and managing bodies and common services to Social Security will be held in the following phases:
® Approval of Expenditure:
· By which authorizes the implementation of a cost claim for a certain or approximate amount, reserving for that purpose all or part of a budget.
• The approval procedure starts execution of expenditure, without involving relations with third parties outside the State Treasury or the Social Security.
® Commitment of Expenditure:
· Act by which it is agreed the implementation of previously approved expenses for a certain amount.
· Is an act with legal relevance to third parties linked to the State Treasury or the Social Security to the completion of the expenditure relates to the amount and conditions.
® Recognition of the Obligation:
· Act by which the Public Sector declares the existence of a claim against the State Treasury or against Social Security, derived from an approved and committed expenditure and entails the proposed payment.
• The recognition of obligations under the State Treasury upon documentary evidence be produced before the competent organ of the relationship of the benefit or the right of the creditor in accordance with the agreements adopted at its day.
® Management of Payment:
• The authorized representative of the center manager, who has acknowledged the existence of an obligation, requests the competent authority to order payment.
• The Accounting Office processes affected the proposal to the Treasury Department.
® Materialization of Payment:
• The Treasury makes the payment of obligations, which is made by bank transfer or by delivery of checks against the appropriate Treasury account.
Treasury is in charge of collecting the rights and paying the bonds.
6.2.3.2 Specialties of Expenditure:
Provision for gestures are intended solely for the specific purpose for which they have been authorized by the budget law or resulting from the changes approved under the General Appropriations Act.
Specification of State Budgets
In the State Budget appropriations specifying conceptual level, except for claims for personal expenses and other current expenditure on goods and services specified at the item and the actual investment level chapter.
However, specifying the appropriate level according to their specific economic classification, the following credits:
a) The protocol for care.
b) The rights expandable (Article 54).
c) Establish a named grant.
Specialties of Expenditure
® Multi-Year Expenditure Commitments:
· Expenditure commitments may be purchased to be extended to that in subsequent years are permitted provided they do not exceed the following limits:
– The number of exercises that can be applied to expenditures not exceed 4.
“The expenditure is charged against each of the subsequent years shall not exceed the amount obtained by applying the appropriate initial credit to the operation the following percentages: In the immediate exercise, 70% in the second test, 60%, and exercises three and four, 50%.
· These limitations do not apply to liabilities arising from the financial burden of debt and leases of property.
• The government in particularly justified cases, agrees to a modification of the above percentages, increasing the number of annuity purchases or authorizing the expenditure commitments to be met in subsequent years if there is no initial credit.
® Modification of the Opening Credits: The amount and purpose of the appropriations contained in the budget could only be modified within the limits and under the provisions of the General Appropriations Act, by:
a) Transfers: These are transfers between credit allocations. They may be different budget appropriations, including the creation of new credits, with the following restrictions:
“No transfers may be made from appropriations for financial operations to the rest of the credits, or from appropriations for capital operations to appropriations for current operations.
“It may take place between different sections of the budget appropriations.
“Extraordinary or non-retail credit loans that have been supplemented or expanded during the year.
“In the field of entities comprising the Social Security system, expandable credits may not be reduced to fund other loans except expandable.
The above restrictions do not affect credit transfers made as a result of administrative reorganization or transfer of powers to autonomous regions, those that arise from collaborative arrangements or agreements between different ministries, government bodies, with different sections in the Budget State or an organ. Self-employed, those which were made to comply with the provisions of the Spanish Historical Heritage Act.
Under no circumstances may create credit transfers under grants registered.
b) Generation of Credits: The generations are amendments that increase appropriations due to the attainment of certain revenue not provided for or superior to those provided in the initial budget.
c) Extensions of Credit: Exceptionally scalable have the status of appropriations for the payment of pensions for servants and those designed to address the status of law obligations.
In any case, expandable credits are considered included in the Social Security Budgets as detailed below:
“The used to pay pensions.
“The subsidies for the payment of minimum income guarantee.
“Those who defend the Constitution of capital-income for the payment of pensions.
The extensions of credit transactions involving the state budget are funded from the Contingency Fund, or with low budgets in other non-financial credits.
May not be extended credits which have previously been impaired, except in the area of the entities comprising the Social Security system and in Section 06 of the Public Debt.
d) Credit and Charge Extraordinary Credit: They appear in the event that a claim is not appropriate or this is inefficient and not scalable for an expense that cannot be delayed until a later period.
If spending is the need for non-financial transactions financed through credit loans low contingency fund or other financial not deemed appropriate.
If spending is the need for financial operations, funding is done through debt or low credit financial nature.
These loans have a complex procedure. The Minister of Finance has to propose to the Council of Ministers on sending a bill to the courts if they are extra credit to meet obligations from previous years, if need be to finance it with other low claims or in the case involved financial transactions.
e) Additions: As an exception to the general rule which states that appropriations for expenses the last day of the financial year are not accepted (recognized by invoices) the fulfillment of obligations already recognized will be canceled and void. However, it can incorporate into next year’s appropriations remnant credits from the previous year (those who have not spent) in the following cases:
“When you set a standard of legal status.
“When you come from generations.
“The claims relating to deductions for loan financing of extraordinary or supplemental credits.
“The resulting balance of credits outstanding credits and supplements that have been granted by rules with the force of law in the last month of the previous financial year.
® Contingency Fund: This is endowed in PGE to cope during a financial year with urgent needs of a non-discretionary nature for which there is no provision of adequate credit. The contingency fund accounts for 2% of total expenditures for non-financial transactions and is intended to cover extensions of credit, the costs of extra credit and credit supplementation, and the additions of receivables. In no case is it used for discretionary funding of the Administration. To use this pool of money, it always has to go through a proposal of the Minister of Finance and the agreement of the Cabinet. Each quarter, in addition, the government has to send a report to Parliament indicating how this fund has been used.
6.2.4 Control of the State Budget.
The activity of which is to verify that the performance of the different organs is consistent with the law and that targets are met previously marked. It is the last phase of the budget cycle, conducted by the executive (IGAE) and the judiciary (ECA). Budgetary control can take three forms:
1) Internal or Administrative Control: last held by the department’s own executive, specifically by the General Comptroller of the State Administration (IGAE), through the Ministry of Finance. There are two types:
a) Interventaria function to control all acts giving rise to the recognition of rights and obligations of economic content.
b) Financial control function includes the verification of the efficiency and effectiveness and the proper recording and accounting of all transactions.
2) External Control: Does not depend on executive power, but the Legislature, specifically the Court of Auditors, which is the supreme body to oversee the accounts and public sector economic activities, to consider the General State Accounts.
3) Political Control: Is that exercised by legislative power over the executive. It is based on information from the general account of the state.