Portuguese Public Finance Council
The Portuguese Public Finance Council (CFP) is an Independent Fiscal Institution that oversees the compliance with budgetary rules and the sustainability of public finances in Portugal.
The Council began its activity in February 2012 and its mission is to conduct an independent assessment of the consistency, compliance and sustainability of fiscal policy, while promoting fiscal transparency, in order to contribute to the quality of democracy and of economic policy decisions and to enhance the State’s financial credibility.
The CFP is the independent body in Portugal that carries out the monitoring role established in Community legislation. It is one of the European fiscal councils, also known as fiscal watchdogs.
The CFP was established by Law no. 22/2011 of 20 May, following the 5th amendment to the Budgetary Framework Law (Law no. 91/2011 of 20 August). The current Budgetary Framework Law refers to the CFP in article no. 7.
Potential output
The potential output represents the theoretical equilibrium level of the economy, i.e., the highest level of output the economy can achieve in a sustainable way in the long-run, assuming an efficient utilization of its productive factor (labour and capital). Since this is a theoretical and unobservable concept, the estimation of this aggregate is surrounded by high uncertainty, and several methodologies exist to estimate it. This concept is closely related to that of NAWRU or NAIRU which is the equilibrium unemployment rate of the economy. When the observed real GDP is above potential, the economy has a positive output gap and can be considered as being “overheated”.
Primary income
Primary income represents the return that accrues to institutional units for their contribution to the production process, the provision of financial assets or from renting natural resources to other institutional units. It comprises compensation of employees, investment income and other primary income. Primary income refers to income earned by those directly involved in production such as compensation of employees, profits, dividends, or interest. It also encompasses subsidies and taxes on products and production or rents. Income received from abroad includes dividends from those who invest in stocks of foreign companies. Income paid to foreigners includes interest that the State pays to non-residents who invest in government bonds.
Private consumption
Private consumption of residents corresponds to all the expenditures incurred by Households and Non-profit Institutions Serving Households (NPISH) on goods and services to meet their needs. Private consumption includes expenditure on food, clothing and other non-durables; purchases of electrical appliances, cars and other durables; expenditure on water, electricity, gas, communications and other household services; and other expenditure by the NPISH.
Privatization revenues
Privatization revenues are the revenues derived from legally regulated operations through which the government's ownership in companies that were part of the state's assets is reduced. The amortization of public debt is one of the legally stipulated purposes for the revenues obtained. In the case of companies that were previously nationalized, the correct term to use is “reprivatization revenues”.
Program budgeting
Program budgeting consists of a specification of the expenditure budget (and funding sources) by areas of State or public policy action, in parallel with the traditional structure of budget classification by headings. Budget programmes are aggregations of revenue and expenditure, with a common purpose. In a programme-based budget, decisions on the allocation of resources take into account the policy objectives to be achieved in each programme.
Progressive tax
A progressive tax is characterized by an increase in its average rate as the tax base on which it is levied increases. In these cases, economic agents with higher incomes need to allocate a greater percentage of their income to pay the tax when compared to others who earn lower incomes (the opposite of a regressive tax).
Provisional appropriation
Provisional appropriation is a sum inscribed in the Ministry of Finance's expenditure budget (in Chapter 60) to cover unforeseeable and unpostponable expenses. From a public budgetary accounting point of view, this sum is usually initially included under the heading "other current expenditure". During the budget implementation, as budget reinforcement needs are identified, the provisional appropriation is cancelled in exchange for the reinforcement of other expenditure items. This budget management mechanism should only be activated when, as part of the internal management of each ministry's budget, it is not possible to find available funds that can be reallocated.
Public accounting standards
The public accounting standards are part of Annex II of the Accounting Standardisation System for Public Administrations (SNC-AP) and comprise the requirements for accounting for transactions and other events, as well as the necessary disclosures for each of the accounting subsystems (budgetary accounting, financial accounting and managerial accounting) provided for in the SNC-AP. The 27 public accounting standards include 25 financial accounting standards, one budget accounting standard and one managerial accounting standard.
Public Administrative Sector
The Public Administrative Sector is comprised of all the entities and services of the Central, Local and Regional Administration, as well as Social Security and Autonomous Funds. It carries out its activity based on non-business criteria, integrating the traditional activities of the State.
Public budgetary accounting
Public budgetary accounting corresponds to a cash basis perspective, which only takes in account the receipts and payments occurred in a given period. Under the terms of the Accounting Standardization System for Public Administration, approved by Decree-Law No. 192/2015, of 11 September, this constitutes a subsystem that aims to allow a detailed record of the budgetary process.
Public consumption
Public consumption corresponds to the expenditure incurred by the General Government in the production or acquisition of goods and services for collective or individual consumption. As they generally do not have a market price, these products are valued by their production costs, which consist mainly of expenditure on wages and salaries, intermediate consumption and social transfers in kind. It is a subset of the General Government expenditure, as it does not include, for instance, gross fixed capital formation, interest or social transfers other than in kind.
Public Corporate Sector
The Public Corporate Sector is comprised of a diverse universe of organisations operating in multiple sectors of activity. It is characterised by the development of intrinsically commercial activities, through the production and sale of goods and services, although it also pursues social and/or collective purposes. These entities basically have an organisation and business management that is very similar to private organisations. Companies in the Public Corporate Sector can have as their "parent organisation" the State (State-Owned Enterprises – SOE), municipalities or associations of municipalities (Local Government Owned Enterprises) or the Regional Governments of the Azores or Madeira (Regional Government Owned Enterprises Sector).
Public debt (ESA)
Public debt is a concept of gross and consolidated debt that corresponds to all gross liabilities in the General Government, in terms of the European System of National and Regional Accounts (ESA), with the exception of public debt held by entities in the General Government sector, valued at market prices. Public debt consists of the liabilities of General Government in the categories of cash and deposits, securities other than shares, excluding financial derivatives, loans and commercial credits in accordance with ESA definitions.
Public debt (Maastricht definition)
Public debt in the Maastricht definition corresponds to the definition of General Government debt which is relevant in the context of European budgetary supervision. This is a concept of gross consolidated debt valued in nominal terms. This concept differs from the total stock of liabilities defined in the European System of National and Regional Accounts (ESA), both in terms of the instruments accounted for and in terms of valuation criteria. This is a less comprehensive concept that does not include, among other financial instruments, shares and other participations, financial derivatives, nor other debts/credits, particularly commercial debts. This concept of debt adopts the nominal value as a valuation rule, that is, the value that the General Government (issuer/debtor) must repay at the end of the contract. The limit established by the protocol annexed to the Treaty on the Functioning of the European Union is 60% of GDP.
Public debt ratio
The public debt ratio is an indicator frequently used to analyse the evolution and risk of public debt. It measures the ratio of public debt to GDP. The most widely used definition of public debt is that established under the Excessive Deficit Procedure (Maastricht debt). The evolution of the debt-output ratio depends on the evolution of the primary balance, the nominal GDP, the implicit interest rate and the stock-flow adjustment.
Public Financial Management (PFM)
PFM in the narrow and perhaps most traditional sense is concerned with how governments manage the budget in its established stages - formulation, approval and execution. It is concerned with the set of processes and procedures that cover all aspects of expenditure management in government. This concept has evolved. It now covers all aspects of public resource management, including resource mobilisation and debt management, and all levels of government and the broader public sector, including state-owned enterprises and public-private partnerships. In addition, PFM is now seen as an "umbrella" definition, encompassing a set of systems designed to produce information, processes and rules that can support fiscal policy-making and provide tools for its implementation.
Definition and remaining text adapted from Cangiano, Teresa R Curristine, and Michel Lazare (2013), “Public Financial Management and Its Emerging Architecture”, Washington, D.C., International Monetary Fund.
Public Sector
The Public Sector comprises all entities controlled by political power. It is comprised of the Public Administrative Sector and the Public Corporate Sector (entities with public company status), as well as companies and quasi-companies (non-financial and financial) controlled or mainly financed by general government units, including the central bank.
Public-Private Partnerships (PPP)
Public-Private Partnerships (PPPs) correspond to a long-term relationship between public and private entities, aimed at providing a certain service (which may or may not require the design, financing and construction of public infrastructures for this purpose), in which the objectives of the public entity are aligned with the profit objectives of the private partner. The effectiveness of the alignment depends on an adequate and sufficient transfer of risks to the private partners.