Public Finance Fundamentals: Budget Cycle and State Agencies

Understanding the General State Budgets (PGE)

What are the General State Budgets (PGE)?

The General State Budgets (PGE) are forecasts conducted by the Government and approved by the Parliament (Cortes Generales). They detail the expected income and expenditures for the State during a specific fiscal year.

Why are the PGE necessary?

The PGE are necessary for the State to participate effectively in economic life by incurring expenditures and forecasting revenues. This process is essential to improve the welfare of citizens, benefit the country, and meet public needs.

The Budget Cycle: Phases and Duration

Phases of the Budget Cycle

1. Preparation: Developed under the Executive Power (Government), specifically by the Ministry of Finance. The project is referred to the Cortes Generales (Parliament), as mandated by Article 134.1 of the Constitution. The Government is responsible for producing the PGE, and the Cortes Generales examine, amend, and approve it. Duration: 6 months.
2. Approval: Involves the amendment or return of the draft forwarded by the Government to the Parliament/Legislature. Duration: 3 months.
3. Enforcement (Execution): Corresponds to the Government or Executive Power, carried out through its various managing bodies according to the established distribution of competence. Duration: 1 year.
4. Control:
   • External Control: Competes with the Court of Auditors (Tribunal de Cuentas), which reports to the Legislature.
   • Internal Control: Conducted by the Executive Branch through the General Comptroller of the State Administration (IGAE).
   Duration: More than 1 year.

Tax Administration: State vs. Autonomous Communities

Distribution of Tax Administration

The administration of taxes is distributed between the State and the Autonomous Communities (CCAA) as follows:

• Wealth Tax: CCAA 100%
• VAT (Value Added Tax): State 35%
• Tax on Gaming/Gambling: CCAA 100%
• Income Tax (Personal Income Tax - IRPF): State 33%
• ITPAJD (Transfer Tax and Stamp Duty): CCAA 100%
• Succession and Gift Tax: CCAA 100%
• Tax on Electricity: State 100%

Key Public Agencies and Institutions of the State

Autonomous State Agencies

Examples of Autonomous State Agencies:

• National Employment Institute (INEM/SEPE)
• Wage Guarantee Fund (FOGASA)
• Official State Gazette (BOE)
• National Library
• Youth Institute (INJUVE)

Public Institutions of the State

Examples of Public Institutions of the State:

• State Tax Administration Agency (AEAT)
• National Intelligence Center (CNI)
• Instituto Cervantes
• Museo Nacional del Prado (National Prado Museum)

Public Finance: Revenue vs. Expenditure

Distinguishing Public Expenditure and Public Revenue

Public Revenue represents the sources of funding for the State, typically derived from taxes, fees, and public debt. Conversely, Public Expenditure represents the investments and costs incurred by the State to fulfill its functions and meet public needs.

General Principles Governing Public Expenditure

Core Principles of Public Expenditure Management

Public service actions must adhere to the principles of efficiency, hierarchy, decentralization, deconcentration, and coordination, being fully subject to the rule of law.

1. Principle of Legality: The Constitution mandates that the State may only contract financial obligations and make expenditures in strict accordance with established laws.
2. Control Principle: This involves parliamentary control, both prior and subsequent to execution.
   • Prior Control: Examination and approval by the Parliament (Cortes Generales).
   • Subsequent Control: Attributed to the Court of Auditors (Tribunal de Cuentas), which functions as an organ of the Parliament.
3. Principle of Budgetary Unity: Requires that all resources and expenditures of the Treasury are consolidated and included within a single budget document.
4. Principle of Treasury Unity (Single Cash Box Principle): Requires that all resources and expenditures of public finances not only fall into one budget but are also managed through, or depart from, a single cash box or treasury account.