Key Principles Governing Public Finance and Budgeting

Core Principles Governing Public Finance and Budgeting

Budgetary principles are fundamental rules categorized into political, accounting, and economic frameworks, reflecting the structure of a constitutional state and informing fiscal policy decisions.

Political Principles of Budgeting

These principles are a set of rules which reflect the balance of power and the distribution of competencies relevant to a constitutional state.

1. Shared Budgetary Powers

   This principle determines the distribution of budgetary powers to achieve a balance between the legislative and executive branches of government. Powers are shared: Parliament is responsible for approving and monitoring the budget, while the government handles drafting and implementation.

2. Unity and Universality

   The budget must be one document and must collect all revenue and expenditure of the State or the public entities concerned.

3. Principle of Specialty

   According to this principle, in the implementation of the budget, resources should be allocated exactly to the objectives and purposes set out in the approved budget.

4. Principle of Annuity

   This requires that the budget is approved and running for a certain period of time, which is typically the natural year.

Accounting Rules for Public Budgets

Accounting principles are a set of rules that inform both the way the budget document is structured and its content.

1. Gross Budgeting Principle

   Budget items must be collected without any deviation. This essentially excludes the possibility of deducting expenses from the income generated to collect them, and deducting the cost of the benefits they could generate.

2. Principle of Treasury Unity (Unit Box)

   All revenue and expenditure must be centralized in a single treasury, which corresponds to the flow management of all agencies.

3. Principle of Non-Affectation

   This principle forbids allocating certain income specifically to cover any specific expenditure.

4. Specification Principle

   The budget should be classified so as to give meaningful data on their origin (revenue) and their destination (expenses).

5. Principle of the Financial Year Ended

   According to this principle, the budget must relate to a determined period.

Economic Principles Shaping Fiscal Policy

These rules should inspire political decisions on the budget and serve mainly to coordinate the budgets with the other economic decisions of the country, showing the budget's role as an instrument of economic policy.

The traditional formulation of these principles corresponds to the liberal state and includes the following:

1. Minimum Management

   Based on this principle, the budget should be minimized, since this is the way to limit public sector assignments.

2. Budget Balance

   Under this principle, budget expenditure must be financed entirely with regular public revenue, and an initial budget deficit may not be approved.

3. Neutrality

   Based on this principle, the economic intervention of the State should not interfere in the economic activities of individuals.