Public Revenue and Expenditure Budget Structure

Introduction: Modern states in the prevailing capitalist economic system significantly intervene in the economy, either acting as direct economic agents or indirectly encouraging the private sector. This strong state participation has been prevalent since the second half of the twentieth century, mainly after World War II. During this time, we have shifted from the classic conception of a liberal state with limited intervention to an interventionist state that assumes many social and economic activities. These include the provision of goods and services to the community (education, health, etc.), production of consumer goods (water, electricity, etc.), implementation of social benefits (pensions), and the promotion of regional development.

To meet these objectives, a significant amount of money must be spent. The more ambitious the objectives or the more inefficiencies the system produces, the higher the expenditure. The financing of such expenditure is done through public revenues, which are not an end in themselves but a means to an end. The state's financial activity, including revenue collection, is instrumental in achieving public sector functions. The document that encompasses the state's activity, and therefore the objectives of economic and fiscal policy, is the state budget.

A. Structure of the State Budget: The state budget is the main tool for fiscal policy, which is the most effective tool for state intervention in the economy. The other major policy, monetary policy, is fundamentally grounded in the efforts of the European Central Bank. State budgets have two main groups: revenue budgets and expenditure budgets. Revenue budgets are forecasts of what the state intends to raise during the year, while expenditure budgets are estimates of the costs to be incurred during the period for which they are approved.

1. Revenue Budget: It is structured by organizational units and economic categories. The organizational structure classifies revenue by the center responsible for collection. Thus, we distinguish between the state, autonomous agencies, social security, and state agencies to improve public services.

a) Economic Structure of the Revenue Budget: This classification separates receipts by type into current income, capital revenue, and financial transactions. Revenue budgets are divided into nine chapters; the first four chapters are estimates of current income, chapters 6 and 7 are capital inflows, and chapters 8 and 9 are financial transactions.

Chapter 1: Direct taxes and social contributions. This chapter provides the estimate of revenues from direct taxes like income tax.

Chapter 2: Indirect taxes. This chapter provides the forecast revenue from the collection of indirect taxes (value-added tax (VAT), excise duties on tobacco, etc.).

Chapter 3: Taxes, public fees, or other income. This group includes revenue generated from services provided by the state and paid through taxes or public fees.

Chapter 4: Current transfers. These are anticipated contributions of money received without consideration to finance operations.

Chapter 5: Income from property. This group includes expected revenue from the income of the property or assets of the state.

Chapter 6: Sales of real investments. These include the expected revenues from the sale of capital assets owned by the state.

Chapter 7: Capital transfers. Similar to those in Chapter 4, but to finance capital operations.

Chapter 8: Financial assets. This includes resources from the sale of financial assets and derivatives, returns on loans and deposits, and finances.

Chapter 9: Financial liabilities. This anticipates proceeds from the issuance of debt and loans, deposits, and finance received by the state, autonomous bodies, and the public.

b) Structure of General Budget Expenses: The general structure of budget expenditure meets the following criteria:

1. A program structure where expenditures are classified according to goals or objectives.
2. An organizational structure where the expenditure budget is classified according to its managing body.
3. An economic structure where costs are classified according to their economic nature.
4. A territorial structure where the cost is classified according to territorial decline.

The economic classification of budget expenditure has different levels, with nine chapters:

Chapter 1: Personnel expenditures. This forecasts spending on the payment of officials and staff recruited by the administration, as well as contributions to social security and other organizations managing the social welfare system.

Chapter 2: Expenditure on goods and services. This comprises estimated expenditures for purchases with the following characteristics: a) they are fungible (consumable); b) they are expected to last less than the budget year; c) they cannot be included in the inventory; d) expenses may be repetitive. This section also includes the provision of services such as rent, recoveries, and insurance.

Chapter 3: Financing costs. This chapter integrates the forecasting of expenses incurred by the financial burden, including implicit and explicit interest.

Chapter 4: Current transfers. This includes conditional or unconditional payments incurred by the state, autonomous bodies, and other public bodies, without direct consideration from the receiving agents, which allocate these funds to finance operations.

Chapter 5: Contingency fund and incidentals. This includes two types of durations, relating to contingency funding for unforeseen events and ministerial departments.

Chapter 6: Real investments. This includes the costs provided for the creation or acquisition of capital assets, whether tangible or intangible, with a nature and duration longer than one year.

Chapter 7: Capital transfers. This includes conditional or unconditional payments from the receiving agents to finance capital operations.

Chapter 8: Financial assets. This includes loans for the purchase of securities (debt) or loan contracts and other similar instruments.

Chapter 9: Financial liabilities. This records the estimated expenditure to repay public debt issued, incurred, or assumed by the state in local or foreign currency, in the short or long term. It also includes the return of deposits made. It does not include the interest generated by this debt, as that is included in Chapter 3.

Fiscal Policy: The Budget A budget is the forecast of expenses and income for a specified period, usually a year. According to Newmark, it is a systematic summary made for regular periods of expected state spending, which is mandatory in principle, and estimates of income to cover them. The budget has the force of law.

The budget cycle begins with the government's presentation of a draft bill in Parliament. Approval by Parliament allows the execution of approved items for a period, normally from January 1 to December 31. During that time, internal control of administrative action is performed by the State's General Accounting Office. Once the budget's implementation is complete, it is submitted to external control by the Court of Auditors.

A) Public Expenditure: According to Newmark, public spending can be defined as the set of obligations incurred by the general government as a result of its activity as an economic agent.

Criteria for Classification of Public Spending:

• Economic Criteria: This criterion distinguishes between recurrent and capital expenditure. Recurrent expenditure refers to expenses involved in maintaining the state's role (staff remuneration, purchase of goods and services). Capital expenditures are those that enhance the country's productive capacity (roads, ports).
• Functional Criteria: This allows us to understand the priorities that the state gives to public spending. We distinguish between public goods, preferential redistribution of income and wealth, and financial activity.
• "Organic" Approach: This permits the analysis of expenditure by government departments.