Public Finance: Understanding State Financial Activity
What is the Subject of Financial Activity?
- Active Subject: The State
- Taxpayer: The natural or legal person
What are the Phases of State Financial Activity?
- Searching for resources
- Managing resources
- Applying resources
Differences Between State Financial Activity and Economic Activity of Individuals
- State: Seeks resources to meet pressing public or collective needs.
- Private: Meets individual needs.
- State: No particular constraint exists.
- Private: Coercion is governed by private law.
- State: Does not pursue profit.
- Individuals: Pursues profit.
Sources of State Financial Activity
- Originating: Stem from the heritage of the state. Example: When exploiting oil fields.
- Derived: Stem from the patrimony of individuals. Example: Taxes, fees.
What is Public Finance?
Consists of the property, revenues that make up the activity, and liabilities of public spending. These are a nation’s outlay (investment or expenditure) in money, made through a state law, in order to meet public and collective needs.
Principle of Legality of Public Expenditure
The state will not spend that has not been established in the budget law.
Features of Public Expenditure
- It is an expenditure made by the state (national, state, municipal).
- Meets public or collective needs.
- Must always be authorized by law (budget law).
Difference Between Public Spending and Private Spending
- Subject of Public Expenditure: The state.
- Private Spending: What private individuals do.
- State: Meets the collective needs of the public.
- Private: Meets individual needs.
Effects of Public Expenditure
- Satisfies public or collective needs.
- Seeks fairness and justice to see the work of national income.
Causes of Growth of Public Expenditure
- Apparent: Devaluation.
- Relative: It is neither real nor apparent, such as the increase in population, payment of pensions.
- Interests: Military expenditures, bureaucratic costs for missions.
Taxes
Cash benefits are perceived by the state through coercion to meet public needs. Taxes are all those charges perceived by the state, instead of coercion by law, to meet the public or collective needs.
Fees
All those tributes perceived by the state, where a taxable event generates the provision of a public service.
Contribution
Taxes are those required by the state in return for the benefit of a public work. Example: Trolleybus.
Oil Rent
State income from oil.
Budget
An accounting document that estimates the revenues and expenditures of the state.
Who Makes the National Budget?
The Minister or Ministry of Finances, and leads it to the legislature for discussion.
When is the Budget Discussed?
By October 15th of the previous year. Upon approval, by December 31st of each year.
What Happens if the Budget is Not Approved?
A previous budget is reconditioned with its settings.
Why is the Budget Deficient?
Because there is an imbalance between revenue and expenditure. It is an economic phenomenon.
Inflation
Product of the devaluation of the currency’s purchasing power.
General Principles of the Budget
- Advertising: The budget plan must be made known to all public opinion.
- Clarity: Identify in detail the various items of income and expenditure to contribute to the clarity of the budget.
- Anticipation: All expenses must be authorized or sanctioned by the legislature earlier. In Venezuela, the principle of legality is applied.
- Unity: All expenses and revenues should be collected in a single annual budget. This principle requires fixing the budget for a one-year period.
- Balanced Budget: A budget is balanced when, during its term, expenditure and revenue totals equal amounts.
Budget Cycle
The different phases or stages through which the budget passes, from development to implementation. It has four phases:
- Processing
- Penalty or Approval
- Execution
- Control of Evaluation