Public Revenue: Understanding State Finances and Taxation

Public Revenue: Understanding State Finances

Public revenue must distinguish between two sides: revenue-side inputs and expenditure-side outputs. Revenue, the input side of public revenue, consists of a sum of money received by the state and other public entities whose main purpose is to finance public expenditure. Therefore, public revenue is a sum of money. In some instances, payment can be made with goods that qualify as national heritage. To distinguish payment from debt, the debt is always a debt of money. In those cases, the goods settle a money debt and are accepted as payment instead of their money equivalent.

Nowadays, the request of the modern state on the individual is based on the ability to pay. The state collects money from its citizens with which it can buy any good or service that the community needs. On the other hand, there still remain some personal services, such as military service or certain transport services (Article 128 of the Spanish Constitution). These are not deemed public revenue sources.

Public revenue sources must be distinguished from expropriation and confiscation.

  • Expropriation: There is fair compensation for the good or asset that the state claims.
  • Confiscation: This is a punishment that is applied when an individual breaks the law.

The nature of public revenue does not regard a punishment but rather a participation in the needs of the community that each of its members is requested to fulfill (based on solidarity). The money payments are received by a public entity. It is relevant in this regard that the public nature of the receiver, not the legal regimen that is applied to the payment, could be public or private law.

It is an important element of the concept of public revenue that the receiver has to be a public entity. The purpose of public revenue is to finance public expenditure. Therefore, public revenue is an instrument we use to cover the costs of public needs, such as education and public health. Instrumentality means that the money is collected to make certain goals possible.

Classification of Public Revenue

1. Based on the Norms that Regulate Them (Public or Private Nature)

Article 5.2 of the General Budgetary Law (LGP), depending on the nature of their legal regulation, states that public revenue can be obtained under a private or public law regime.

  • Public Law: The content of the legal relationship is decided in the law.
  • Private Law: This is decided by the will of the parties of the relationship.

Regarding the legal regimen, in the revenue of public law, norms of public law would be applied, and the public administration will enjoy certain prerogatives. It is a potentior personae, derived from the presumption of legality of its decisions that have executive nature. The administration can enforce its own decision without the need for judicial assistance.

Private law includes revenue derived from takings (expropriation) of public assets. Therefore, all sources of public revenue, except revenue from public assets, are under a public law regime.

2. Based on the Nature or Origin

Depending on the source of public revenue, we have four types:

  1. Compulsory Contributions: A source of public revenue that consists of economic payments required by a public administration.
  2. Revenue from Monopolies.
  3. Revenue from Public Assets: Revenue obtained from the exploitation or transfer of assets owned by the public entity that are not used for public services.
  4. Revenue from Public Debt: When the state issues debt, it will collect funds. This is the most relevant classification of public revenue since each type of source has a different legal regime.

In most modern states, compulsory contributions are the main source of revenue.

3. Based on the Addressee

Depending on whether they are periodical or not, sources of revenue can be classified as ordinary or extraordinary.

  • Ordinary: If they are periodical, that are collected by the state, we find the tributo (compulsory contribution).
  • Extraordinary: They are not regularly applied and are only used under special circumstances. We can find the public debt and those that derive from the state of public entities.

Nevertheless, today all sources have to be regarded as ordinary.

4. Based on if They are Foreseen in the Budget or Not

Depending on whether or not a source of public revenue is accounted for in the budget, it will be deemed in the budget or out of the budget. The budget is the annual act that makes a calculation of all revenue and authorizes the executive branch a ceiling on total expenditure. The principles of budgetary law provide that all revenue must be accounted for in the budget based on the principles of unity and universality.

  • Universality Principle: All the revenue and expenditure have to be in the budget.
  • Unity Principle: There is only one budget for each individual public entity.

Although they still exist, therefore, an out-of-the-budget source of revenue would be against the law.