Understanding Public Revenue Sources: A Comprehensive Analysis

Posted on Mar 16, 2025 in Law

Sources of Public Revenue: An Analysis

Sources:

1. Compulsory Contributions

Compulsory contributions are binding or mandatory in a modern state, constituting a significant portion of revenue. This source of public revenue (PR) consists of economic payments required by a public authority (PA).

2. Revenue from Public Assets (Ingresos Patrimoniales)

This revenue comes from the exploitation and sale of assets owned by public entities, generally regulated by private law rules. The state, autonomous communities (CCAA), and local entities distinguish between:

Public Property (Bienes de Dominio Público)

These assets, along with private property, constitute the state’s wealth and are directed towards public use or service.

Public Assets (Bienes Patrimoniales)

These assets generate revenue through exploitation and are regulated by private law norms. Community property (bienes comunales), used by local residents, is a unique aspect of local finance.

Act 33/2003 (LPAP) establishes the legal framework for public assets, with civil and commercial private law serving as subsidiary. The Ministry of Economy and Public Finance manages state property (patrimonio estatal) through the Dirección General Patrimonio del Estado. The Minister of Economy and Public Finance decides on the exploitation of public assets for profitable use. Revenue from public assets continuously influences public expenditure finance.

3. Revenue from Monopolies

Distinguish between legal and economic monopolies:

Legal Monopoly

A legal provision grants a single provider the right to supply a good or service.

Economic Monopoly

A single provider exists due to factual circumstances, not legal provisions.

Public revenue from monopolies refers only to legal monopolies. A legal monopoly can generate revenue in several ways:

  • It can be subject to an additional or special tax (compulsory contribution).
  • The state can own and exploit it (revenue from public assets).
  • It can be granted to a private operator in exchange for payment to the public entity (revenue from monopolies).

Historically, monopolies were significant, particularly for products like tobacco. However, joining the European Economic Community required Spain to abolish most existing monopolies, making them a less relevant revenue source today. The EEC aimed to create a European market, which national monopolies hindered. Today, gambling and lotteries are the most prominent monopolies. Exploited by the state, they generate revenue from public assets, and gambling is subject to special taxes (compulsory contributions). Public monopolies can be created for reasons beyond revenue generation, with political preferences playing a crucial role.

Revenue from Public Debt (Ingresos de Deuda Pública)

This is revenue that public entities obtain in exchange for a retribution, typically through interest and an obligation to return the borrowed amount after a specified period. Key features include:

  • Lending: Money is lent with the expectation of repayment with interest.
  • Promise of Payment: An annotation is given in exchange for the loan.
  • Dual Nature: It is both a source of revenue and expenditure.
  • Voluntary: Individuals are not forced to purchase debt.
  • Administrative Contract: It is not a private law contract.

According to Article 92 of the LGP, public debt (PD) is the total capital borrowed by the state, not necessarily through a lending contract as defined in private law. A public entity can borrow from a financial institution. Often, the state issues debt by selling titles (e.g., letras del Tesoro or bonos del Tesoro) that promise to repay the capital plus interest. PD generates revenue when the debt is issued.

PD is a vital economic policy tool for manipulating interest rates and the money supply. Selling debt reduces the money supply, while buying debt from private investors increases it. The money supply influences inflation. However, the usefulness of this instrument is not the decisive factor.

Types of Public Debt

  1. Based on Issuing Subject: Public debt or debt of autonomous entities.
  2. Based on Place of Emission: Internal (within Spain) or external (abroad).
  3. Based on Number of Moneylenders: Singular debt (one or several determined subjects) or general debt (undetermined number of subjects).
  4. Based on Deadline:
    • Short-term: Up to 18 months.
    • Medium-term: 18 months to 5 years.
    • Long-term: More than 5 years.
  5. Based on Emission Features: Negotiable vs. non-negotiable, redeemable vs. perpetual, bearing a person’s name vs. beared vs. mixed.

Article 135.1 of the Spanish Constitution (SC) establishes that PD is subject to the principle of legality, although not absolutely. Article 135 requires the state and CCAAs to obtain authorization from an act of parliament to issue debt or borrow. The SC provides strong protection for lenders. Article 135.3 states that credits to pay interest and capital of PD cannot be amended or modified as long as they comply with the terms of the issuing act. This means that the government and parliament are not free to draft the budget, and debt payments have priority over other expenditures.

The process for issuing PD involves an act of parliament authorizing the creation of debt, setting a ceiling on the issuance. The Minister of Finance, using this authorization, decides on the issuance. Parliament only authorizes the issuance, meaning the government can choose not to issue debt if sufficient funds are available from other sources. Once the issuance is decided, the Director of the Treasury and Financial Policy authorizes the issuance and terms of the debt, considering market conditions. Debt can be issued by any means that ensures equality (Article 100 LGP). The issuance of debt is always based on market conditions and anticipation. A common method is through bids, where investors make offers, and the best offers are selected to cover the issued amount. The contract is valid and effective either when the lender makes the offer or when the public entity adjudicates the debt, making the contract final for both parties.

Economic Obligations of Public Nature

Article 31.3 of the Spanish Constitution (CE) states that everyone must contribute to public expenditure according to their ability to pay through a fair tax system based on equality and progressive taxation. The main tax principles are generality, equality, ability to pay, progressive taxation, and prohibition of confiscation. Violations of this article allow for claims before the Constitutional Court. Article 31.1 SC links the duty to pay with the criteria of ability to pay, relating them to the financial system as a whole.

Constitutional Court judgment 76//90 interprets Article 31.1 SC, establishing that the duty to pay taxes binds both public authorities and citizens, impacting the nature of the tax relationship. For citizens, this constitutional duty implies a generic submission to the SC and the legal system. Article 31.1 is related to Article 9.1, which emphasizes that submission and collaboration with the tax administration to sustain public expenditure warrant legal limits on individual rights. Article 31.1 states that all must contribute to sustain public expenditure, meaning all citizens with legal links to Spain, both Spanish and foreigners, individuals or legal entities, must pay taxes. Some scholars interpret generality as an order aimed at the legislative power, subjecting to taxation every fact, act, or contract that reveals an ability to pay. The equality principle, in relation to the ability to pay principle (Article 31), prohibits the tax legislator from exploiting different legal regimes regarding social protection measures between common workers and civil servants. This article also refers to progressiveness, a characteristic of the tax system as a whole, defined as the principle that defines the increase of proportional contribution as a result of an increase of wealth of the passive subjects, requiring taxation to be proportionally higher as wealth increases. The principle of non-confiscation limits progressiveness, deriving from the constitutional recognition of property rights and the internal logic of the ability to pay principle. The legality principle, contained in the third paragraph of Article 31, states that only an act of parliament can establish personal or economic obligations of public nature, referring to public revenue that is not voluntarily paid but established in law. The purposes of the legality principle are to guarantee private property, to guarantee no taxation without representation, and to serve as an instrument for equality.