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In the State budget, transfers may be made to SGCs in proportion to the volume of State services and activities for which they assume responsibility [Art. 158(1)]. Transfers are aimed at safeguarding solidarity between the SGCs. They are partly unconditional and are designed to offset the discrepancy (positive or negative) between each SGC’s spending responsibilities and their own revenues. The SGCs also receive conditional transfers so that they can guarantee a minimum provision of health and education services throughout their territory and correct regional economic imbalances. The share of these conditional transfers has been reduced to less than 2% of total receipts, compared to about 45% under the previous system.

4. Legal provisions for each stage of the budget cycle

4.1. Budget preparation and presentation by the executive

4.1.1. Institutional coverage of the budget

To understand the institutional coverage of the budget, the distinction between the State sector and the public sector should be borne in mind. The GBA, mainly governing the State budget, is applicable to the State sector, defined as “the general State administration (ministries), autonomous bodies that belong to the general State administration, semi-commercial public entities that are part of the general State administration or any other public bodies linked to it, entities which are part of social security system, State commercial enterprises, and certain other entities” (Art. 2).7 The State budget covers all ministries, agencies, public corporations, and public entities financed by the State budget, including Parliament, the judiciary, the COA, and other constitutional organisations. However, it excludes the SGCs.

In contrast, the GABS, which requires the setting of medium-term budgetary stability objectives, is applicable to “the public sector”, which has a broader definition than the State sector. The public sector includes not only entities listed in the State sector but also the administrations of the SGCs, those bodies and agencies subordinated to the SGCs, and local councils (Art. 2.1).

4.1.2. Extrabudgetary funds and earmarking of revenues

Spain has few extrabudgetary funds with earmarked revenues, which have to be approved by law (Kraan, 2004). One example is the use of the proceeds of goods confiscated due to drug seizures, which are by law earmarked for the prevention of illegal drug use programme. EU financial aid for regional governments is another example of extrabudgetary funds.

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4.1.3. Definition of budget aggregates

Budget aggregates are defined by law (Art. 13, GABS). The MTBP defines budget aggregates as the maximum spending limit with which the public sector should comply within the annual budget allocation process. The annual State budget must conform to the medium-term stability objective and aim at achieving the objective established in the MTBP.

4.1.4. Fiscal rules

The GABS provides fiscal rules to achieve economic and budgetary stability (see above). When budgets show a deficit, the government is required to submit an economic-financial plan to Parliament to correct such an imbalance, which includes revenue and expenditure measures required to correct the situation over the next three budgetary years (Arts. 14 and 17.1). In the case of a surplus, the State administration will either reduce its net indebtedness or allocate it to the Social Security Reserve Fund for the future needs of the social security system (Art. 17.2).

Local councils, in the area of their powers, are required to adjust their budgets to comply with the budgetary stability objectives, notwithstanding the budgetary powers vested in the SGCs (Art. 19). The GABS allows the government to determine the budgetary stability objective for the local councils (Art. 20). Local councils which have not achieved the budgetary stability objective are obliged to prepare within three months after the approval or settlement of the budget a medium-term economic-financial plan to correct any deficits. This plan is subject to the approval of the local council authorities and will in turn be submitted to the MOEF, which is charged with monitoring corrections to deficits (Art. 22).

4.1.5. The timetable for budget preparation and presentation to Parliament

The GBA provides the MOEF with the legal authority to issue the order (guidelines) for budget preparation (Art. 36). While the timetable for the internal procedures is stated in the guidelines, the GBA only requires the State budget bill to be submitted to the Parliament before 1st October (Art. 37). The government agreement on budget stability objectives should be made before 1st April (see Box 2). The GBA details the major contents of the guidelines, which include:

●Guidelines for the allocation of spending, including criteria for preparing the draft budget, quantitative limits and policy priorities to be determined by the MOEF. To ensure conformity with the criteria, the Spending Policies Commission is constituted, the composition of which is determined by order of the MOEF.

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Box 2. Spain: The timetable for the budget process (based on the fiscal year 2003)

●January: presentation of main framework of budget formulation to the Council of Ministers.

●Before 31 January: government agreement on budget stability objectives (BSOs); transmission of BSO proposal to the TFC.

●Before 1st March: meeting of the TFC and National Council of Local Government (reporting on BSO proposal to regional and local governments).

●Mid-March: approval of BSO by Council of Ministers and agreement sent to Parliament.

●Before 30 April: parliamentary approval or rejection of the BSO, which fixes legal limits on spending aggregates.

●Early May: budget guidelines sent to ministries by MOEF.

●May: meeting of the Spending Policies Commission.

●June: approval of budget scenarios for a three-year period.

●Late July: formulation of draft budget.

●Early August and early September: debates within the Council of Ministers.

●Before 1st October: draft budget approved by the executive and sent to Parliament.

●Before 31 December: debate and approval by Parliament of annual State budget law.

Source: Zapico Goni, 2002.

●Ministries and other State entities must submit their respective draft budgets to the MOEF, which requires conformity to the ceilings established in the guidelines. The Ministry of Labour and Social Affairs must prepare the draft bill for the social security budget, in co-operation with the Ministry of Health and Consumption, and submit it to the MOEF. As part of this procedure, an order of the Ministry of Labour and Social Affairs specifies how to prepare the budget of the social security system. The MOEF and the Ministry of Labour and Social Affairs submit the draft bill for the social security budget to the Council of Ministers for approval.

●For each programme, a report on annual objectives within the allocation limits under the MTBP.

The revenue budget shall be prepared by the MOEF in a manner consistent with the allocation of resources under the MTBP and in compliance with the objectives for economic policy set forth annually by the government.

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4.1.6. Approval process within the executive

After being negotiated between the MOEF and line ministries, the MOEF submits the State budget bill to the Council of Ministers for approval. Should no agreement be reached between line ministries and the MOEF, the dispute is resolved by an appeal process through the Secretary of State for the Budget, the MOEF, or the Council of Ministers. In general, agreement is achieved informally prior to meetings of the Council of Ministers, according to the interests of all the ministries involved and, if necessary, in the presence of the President who has the final decision.

4.1.7. Documents to accompany the budget law

The GBA requires the State budget bill to contain articles, annexes and detailed statements on revenues and expenditure (Art. 37). The following information is required (Art. 33, GBA):

●The maximum financial obligations of the State sector.

●Revenues, expenditures, and investment and financial operations to be performed by the semi-commercial and foundation State sector.

●The objectives to be achieved in the year by each of the entities responsible for the programmes.

●An estimate of tax expenditures.

Medium-term macroeconomic framework and fiscal strategy. The MOEF is responsible for elaborating the economic assumptions for the draft annual State budget and the MTBP. The GBA prescribes the basic framework for the MTBP in accordance with the budget stability objectives (Arts. 28-30). Prior to the preparation of the draft annual State budget, the MOEF drafts mediumterm revenue, expenditure and balance projections (Box 3). Line ministries are required to submit their MTBPs to the MOEF annually. The Ministry of Labour and Social Affairs prepares a separate MTBP for the social security system. The MTBP has to be consistent with the budgetary stability objectives for the State and the social security system for the three following years, pursuant to the provisions of GABS. The detailed procedures of preparation and the structure of the MTBP are established by order of the MOEF. Once the MTBP is drafted by the MOEF, it is transmitted to the Council of Ministers for their decision prior to the submission of the draft State budget of each year. When there are changes in economic or social conditions that are not foreseen at the approval stage, the government may submit an amended plan to Parliament (Art. 14.2, GABS).

New measures versus existing expenditure policies. In the process of elaborating the MTBP, the MOEF implicitly makes the distinction between existing and new commitments, programmes or measures. Furthermore, the