Public Finance and Budget System Key Concepts
The Financial Program and Budgeting
The Financial Program
The Financial Program is a tool for planning and financial management of the medium-term Public Sector, typically prepared by the Budget Office. The forecast includes revenue and expenditure, internal and external credit, public investment, procurement, and staffing needs. The Financial Program serves as a medium-term strategy, establishing priorities in resource allocation, and acts as a mechanism for annual budgets.
The National Budget Law (Budget Act)
The National Budget Law (or Budget Act) is a periodic law that approves the government's revenue estimate and specifies the purposes for which those funds are allocated for a specified period of one year. This is a special law that regulates the expression of Article L 64 of the Constitution, giving its processing and content peculiar characteristics that differentiate it from other laws.
Core Principles of the Budget System
The budget system operates based on several core principles, including:
- Principle of Legality (of Law): Requires that all budgetary actions are authorized by law.
- Balanced Budget: Requires alignment between the receipts and expenditures of the Nation.
- Principle of Universality: Requires that the budget estimate includes all income and planned expenditure for the period in question.
Principle of Legality in Public Expenditure
The legality of public expenditure means that all spending must be included as such in the Budget Law. While this principle, embodied in the Constitution, does not require the Executive Branch to issue a specific law for every single expenditure order, it establishes the requirement for a broad legal framework that governs the budget system. In short, it means that expenditures are fundamentally a matter of law.
The Principle of Universality
The Principle of Universality dictates that the budget estimate must include all income and expenses planned for the period concerned. This principle is based on the idea that all revenue available should fund any and all needs of the state.
In practice, this means that all income received by the Treasury or a state organization and all expenses incurred by the Treasury or a state organization must be reflected in the budget.
The Budget Directorate (Dipre)
The Budget Directorate (Dipre) is the technical body responsible for proposing the allocation of State financial resources, guiding and regulating the process of budget formulation, and regulating and supervising the execution of public spending. The Directorate General of Budget performs the following functions:
Key Functions of the Budget Directorate
- Propose the allocation of financial resources of the Treasury.
- Advise the Ministry of Finance on budgetary matters.
- Prepare the Budget of the Nation.
- Regulate and supervise the implementation of public expenditure (without prejudice to the powers that correspond to the Comptroller General of the Republic).
- Supervise funds before they are signed by the Minister of Finance.
- Elaborate the Financial Program, which is a tool for planning and financial management within the Public Sector, including forecasts for revenue, expenditure, internal and external credit, public investment, procurement, and staffing needs.
Key Fiscal Definitions
Structural Surplus
A Structural Surplus is the excess of government revenue (such as taxes) over public sector expenditures (such as subsidies or stimulus plans), calculated based on the economy's long-term potential output.
Tax
A Tax is a monetary imposition—a provision required by the state from individuals or entities—without providing a direct consideration in return.