Public Revenues and Public Debt: Understanding State Finances

Posted on Jan 1, 2025 in Economy

Item 10: Other Public Revenues

1. Tributes of Contract Status

1.1 Fees

From a strictly operational point of view, the rate can be conceptualized as a coercive government revenue (tax) where the chargeable event is to use a particular title or be deprived of a public domain, and the provision of public services to which it relates, directly affect or benefit the taxpayer, for whom giving satisfactory, and, moreover, in no case be paid or incurred by the private sector.

  • These are revenues that the State Attorney Power holds, i.e. it is in any case of tax revenues or taxes.
  • Although it is coercive in nature income, however justified their presence in government revenue tables from the existence of a counter to the party responsible for payment.

One can speak of two types of fees:

  • Rates of funding: If it is the old way of understanding this tax, by which he was a source of income being devoted exclusively to finance the activities of units providing public services that motivate them.
  • Tax rate: From a certain point, the rates became regarded as an element of funding for general public services, abandoning the concept of rate of funding, to take a conceptual idea of this tribute that configures it as a regular public sector levy that is based on two key elements:
    • Coercion in their demand
    • The occasional circumstances that occur or factual circumstances that justify their demand.

1.2 The Special Contributions

“Coercive levy collected in proportion to the benefits and increased property value experienced by property as a result of works or public improvements undertaken in the public interest.”

Highlights of these taxes:

  • They are always coercive.
  • They have a compensation, objective and measurable individual, which serves as a justification and standard for encryption, and that is the benefit experienced by the real estate liable for payment.
  • The taxable event occurs only at the request of the Administration, which is what takes the initiative to execute the work or perform the service that causes the improvement of real property which is the taxpayer.
  • Require a clear delineation and location of the group of beneficiaries and taxpayers from them.
  • Your ultimate goal is to provide to municipalities and local government revenues from capital account, never mind current revenue or income.

1.3 Taxes: Collation

Taxes, Fees and Special Contributions: All three are taxable.

Tributes: Coercive features in which, above all other considerations, the prevailing view to contributing to the financing of public activities.

Differences between different Tributes:

  • The rates and special contributions; Your payment by the taxpayer assumes the existence of a direct public sector consideration into it.
  • Taxes, are characterized just the opposite: in addition to being coercive without any consideration.

Differences between the contractual Taxes:

  • In special contribution is the identification of possible benefits derived from public activity, in an objective, as objective is the market value of real property taxpayers, which in the case of the rate does not occur in any case.
  • The fact that the special contributions can be levied only on the existence of certain local improvements, which absolutely is the case of fees, which may serve, in principle at least, to the financing of any service.
  • Special contributions are paid once and for all, the rates on the contrary are often paid occasionally or periodically depending on the type of services provided by government.
  • The Special Contributions are always recorded in the consolidated general government capital, as their investment destination is improving then the real property, provided the fees are recorded as revenue or income account.

2. Public Debt

2.1 Concept and Types of Debt

You can define the Public Debt as a “unilateral contract under public law, by which one party (natural person or legal entity, public or private, domestic or otherwise) given to the state or other public entity a certain amount of money, committing it to satisfy a periodic interest and eventual repayment of principal, if the conditions of the loan is stipulated as depreciation.”

Types of Public Debt:

a) Given the currency in which you encrypt the loan and interest payments, it is called or the National Domestic Public Debt and External Public Debt and Foreign.

b) Subject to the State Organization for issue we have:

  • State Public Debt
  • Local Government Debt
  • Public Debt of the State Autonomous Bodies

c) Given the duration of the Loan:

  • Short term: As their duties, to cover temporary cash deficits, acting on the short-term interest rate. Articulated with the Notes and Treasury Bills, with maturities ranging from 6 to 18 months.
  • Medium-term and term distinction between: Callable debt, which has to repay on time and date and perpetual debt default, which does not require the state to repayment of principal. Articulated with government bonds (medium term) with a payback time of less than five years and the debentures, with maturity exceeding five years.

Other forms of Public Debt can be:

  • Public Debt singular or general
  • Nominative or Bearer
  • Mixed

2.2 The Life Cycle of Debt

The life cycle of the Public Debt, like any other loan, starts at the time of issuance to the public and ends when the state reimburses the capital that was borrowed in its day, it may also occur along its lifetime experienced a transformation, i.e. conversion takes place in other debt that has different characteristics. These being the three life cycle stages of Debt: The issuance, processing and amortization.

Public Debt

Issuance of Public Debt is but the application by a public body of a loan on certain contractual conditions. The problems that arise at this stage are mainly those related to the various alternatives from which the BCV has to choose to complete the realization of the loan, which can be summarized in: the form of the loan and the problem of fixing the issue price.

As to the manner, it is a choice between different kinds of existing borrowings. While the problem posed by setting the issue price, you can choose between three options:

  • At the same time, in which the issue price (PE) coincides with the nominal value of title (VN). PE = VN.
  • Above par, in which the issue price is higher than the nominal value. PE> VN.
  • Below par, in which the issue price is below face value. PE

Being the ultimate reason to do so in one way or another the relationship that exists between the invested capital, interest and capital market interest.

Par value (PV), is the result of capitalizing the interest of the debt issued under par at the rate in force in the market, which ultimately involves calculating the value at which the securities are to be sold in the market for savers, in principle, be completely indifferent to them investing in debt or any other asset.

VN = 5000 i.e., Td = 10% Tm = 12.5%> VP = (5000×10) / 12.5 = 1000 so we have a VP = 1000, which the EP = 4000.

Debt Conversion

The debt conversion is the unilateral reduction by the state in the interest rate payable with the consent of creditors, who either accept the lowering of the interest or proceeds to the repayment of subscribed capital at the time; therefore understood that a conversion has been successful when the bondholders accepted in most of the proposed conversion.

It must give two conditions for which the State can proceed to a conversion of outstanding debt:

  • One is a legal one, and is that the debt in question must be convertible, coming reflected as such in the terms of issue and subscription.
  • The other is economic and is that the market interest rate has fallen below due on the debt issue which is to be converted.

One explanation is that one should not confuse, conversion of debt consolidation since these are two substantially different actions:

Through debt consolidation what the state does is to maintain its debt position and simultaneously formally meet their obligations. For what it does is, when next the maturity of an issue, to launch another that he can meet the repayment of the former without resorting to an exacerbation of the charge, saying then that the State proceeded to consolidate the floating debt.

Debt Repayment

The debt repayment is the repayment of borrowed capital at the time of subscription, and requires the completion of the life cycle of borrowing. At this stage, technical problems are reduced to the choice of form or procedure to follow to settle the outstanding capital return:

A) The depreciation in the strict sense, or return of capital to subscribers at the time given to the state. May be carried out in very different ways:

a) Once. Arrival date of maturity proceeds to repay all the capital to lenders.

b) Gradually. When debt is issued is divided into series and titles are numbered, being able to recoup as follows:

  • For annuities. With the annual payment of interest is necessary to return a predetermined portion of the principal.
  • For draw. Each year, proceeds to repay a certain percentage of titles selected by lot (hence the need to split the titles in series and then number them).
  • By auction. On specific dates are accepted for redemption of securities as the holders offer the lowest prices.
  • For acquisition. That is, acquiring the state through the country’s monetary authority, debt securities in the secondary securities markets (this is known as open-market operations).

B) Inflation, inflation always hurts the creditors to the same extent that benefits debtors, which is why it may be considered as a mechanism for debt repayments in circulation, especially if long-term. This way of reducing the financial burden of interest and simultaneously lessen the outstanding capital return is at odds with justice and equity.

C) The Repudiation, is a violent form of debt repayment, as occurs when the state declared unilaterally that will not pay, in part or in full, interest or capital of the same. Depending on how it occurs is referred to as manifest or, otherwise hidden (by setting a tax not specifically returns income derived from debt).