Government finance statistics
From Statistics Explained
- Data from 21 October 2013. Most recent data: Further Eurostat information, Main tables and Database. Planned article update: end of April 2014.
This article examines how key government finance indicators have evolved in the European Union (EU) and the euro area (EA-17). Specifically, it considers public (general government) deficits, general government gross debt, revenue and expenditure of general government, as well as taxes and social contributions, which are the main sources of government revenue.
These statistics are crucial indicators for determining the health of a Member State’s economy and under the terms of the EU’s stability and growth pact (SGP), Member States pledged to keep their deficits and debt below certain limits: a Member State’s government deficit may not exceed -3 % of its gross domestic product (GDP), while its debt may not exceed 60 % of GDP. If a Member State does not respect these limits, the so-called excessive deficit procedure is triggered. This entails several steps – including the possibility of sanctions – to encourage the Member State concerned to take appropriate measures to rectify the situation. The same deficit and debt limits are also criteria for economic and monetary union (EMU) and hence for joining the euro. Furthermore, the latest revision of the integrated economic and employment guidelines (revised as part of the Europe 2020 strategy for smart, sustainable and inclusive growth) includes a guideline to ensure the quality and the sustainability of public finances. The financial and economic crisis has resulted in serious challenges being posed to many European governments. The main concerns are linked to the ability of national administrations to be able to service their debt repayments, take the necessary action to ensure that their public spending is brought under control, while at the same time trying to promote economic growth.
Main statistical findings
In 2012, the government deficit (net borrowing of the consolidated general government sector, as a share of GDP) of both the EU-28 and the euro area (EA-17) decreased compared with 2011, while general government debt increased.
In the EU-28 the government deficit-to-GDP ratio decreased from -4.4 % in 2011 to -3.9 % in 2012 and in the euro area it decreased from -4.2 % to -3.7 %. Germany registered a government surplus in 2012. Furthermore, there were 10 Member States, namely Bulgaria, Estonia, Italy, Latvia, Luxembourg, Hungary, Austria, Romania, Finland and Sweden, which recorded deficits in 2012 that were not greater than -3.0 % of GDP (see Figure 1). Deficit ratios were greater than -3.0 % of GDP in 17 of the Member States in 2012: the largest government deficits (as a percentage of GDP) in 2012 were recorded by Spain (-10.6 %), Greece (-9.0 %), Ireland (-8.2 %), Portugal and Cyprus (both -6.4 %), and the United Kingdom (-6.1 %). A total of 15 Member States had a government deficit exceeding -3.0 % for the whole of the reporting period 2009 to 2012. Government deficit (in relation to GDP) decreased in 2012 compared with 2011 in 15 Member States. One Member State – Austria – recorded the same deficit in 2012 and in 2011.
In the EU-28 the government debt-to-GDP ratio increased from 82.3 % at the end of 2011 to 85.1 % at the end of 2012, and in the euro area from 87.3 % to 90.6 %. A total of 14 Member States reported a debt ratio above 60 % of GDP in 2012. At the end of 2012, the lowest ratios of government debt-to-GDP were recorded in Estonia (9.8 %), Bulgaria (18.5 %) and Luxembourg (21.7 %) – see Figure 2. In 2012, government debt-to-GDP ratios increased for 22 EU Member States when compared with 2011, while government debt ratios decreased for six Member States: Greece, Hungary, Latvia, Denmark, Poland and Sweden. The highest increases of debt ratios from 2011 to 2012 were observed in Portugal (15.9 percentage points), Spain (15.5 points), Cyprus (15.1 points) and Ireland (13.3 points).
Government revenue and expenditure
The importance of the general government sector in the economy may be measured in terms of total general government revenue and expenditure as a percentage of GDP. In the EU-28, total government revenue in 2012 amounted to 45.4 % of GDP (up from 44.6 % of GDP in 2011), and expenditure to 49.3 % of GDP (up from 49.0 % in 2011). In the euro area, total general government expenditure amounted to 49.9 % of GDP in 2012 and total revenue to 46.3 % of GDP – see Figure 3.
In absolute terms, total general government expenditure grew steadily over the period from 2002 to 2012 – both in the EU-27 and in the euro area (see Figure 4). Only from 2010 to 2011 did total general government expenditure decrease slightly in absolute terms, both in the EU-27 and in the euro area. Revenues also grew steadily through to 2008 in the EU-27 and the euro area, decreased in 2009 and then increased again from 2010 onwards. In 2011 and 2012 total revenue exceeded pre-crisis levels both in the EU-27 and the euro area.
The level of general government expenditure and revenue varies considerably between the EU Member States (see Figure 5). In 2012, the countries with the highest levels of combined government expenditure and revenue as a proportion of GDP (in excess of 100 %) were Denmark, Finland, France, Belgium, Sweden and Austria. Seven Member States reported relatively low combined ratios (less than 80 % of GDP); these were Lithuania, Romania, Slovakia, Bulgaria, Latvia, Ireland and Estonia, while Switzerland reported the lowest ratio among the EFTA members.
Across the EU-28, the main components of total general government revenue are taxes and social contributions (see Figure 6). In 2012, taxes made up 58.4 % of total revenue in the EU-28 (55.5 % in the euro area), while social contributions amounted to 30.8 % of total revenue (34.3 % in the euro area). Looking at each Member State, the relative importance of the different revenue categories varies widely. For example, taxes made up less than 50 % of government revenue in Slovakia, the Czech Republic, the Netherlands and Lithuania in 2012, but 85.2 % of government revenue in Denmark (see Figure 7).
The largest proportion of EU-28 government expenditure in 2012 concerned the redistribution of income in the form of social transfers in cash or in kind (see Figures 8 and 9). Social transfers made up 43.7 % of total expenditure in the EU-28 (47.0 % in the euro area). Compensation of employees accounted for 21.7 % of government expenditure (21.0 % in the euro area). Property income paid – of which by far the largest part is made up of interest payments – accounted for 6.0 % of government expenditure in the EU-28 (6.2 % in the euro area).
General government expenditure can be analysed in more detail using the Classification of the functions of government (COFOG). In 2011 social protection measures accounted for the highest proportion of government expenditure in all EU Member States, with an EU-27 average of 19.6 % of GDP. This pattern held across all Member States. The share of the ‘social protection’ function ranged from 25.2 % of GDP in Denmark and 23.8 % in both France and Finland, to 12.0 % in Slovakia; in Iceland the share was 11.6 %. The next COFOG functions, in order of their relative importance within the EU-27, were health (7.3 % of GDP), general public services (6.6 %) and education (5.3 %). Spending on economic affairs in the EU-27 stood at 4.0 % of GDP in 2011 (significantly down from 2010), while less than 2 % of GDP was devoted to each of the functions defence, public order and safety, environmental protection, housing and community affairs, recreation, or religion and culture (all of these functions are grouped together under the heading of ‘others’ in Figure 10).
The main types of government revenue are current taxes on income and wealth, etc., taxes on production and imports, and social contributions, with capital taxes making up just 0.2 % of GDP in the EU-28 in 2012. There was an increase in the relative importance of receipts from social contributions in the EU-27 during the period from 2007 to 2009, however, this pattern was reversed in 2010, with social contributions then remaining almost stable from 2010 to 2012 (at 14.0 % of GDP in 2012 and 13.9 % of GDP in 2010 and 2011). The relative importance of current taxes on income and wealth, etc. decreased from 13.6 % in 2007 to 12.3 % in 2010, before increasing to 13.0 % of GDP in 2012. Taxes on production and imports increased from a low point of 12.6 % in 2009 to stand at 13.3 % of GDP in 2012 (see Figure 11).
There was considerable variation in the structure of tax revenues across the EU Member States in 2012 (see Figure 12). As may be expected, those countries that reported relatively high levels of expenditure tended to be those that also raised more taxes (as a proportion of GDP). For example, in 2012 the highest return from the main categories of taxes and social contributions was 48.8 % of GDP recorded in Denmark, with Belgium and France recording the next highest shares (46.5 % and 46.4 % respectively), while the proportion of GDP accounted for by such revenue was below 30 % in six of the Member States: Lithuania, where the lowest share was recorded at 27.3 % of GDP, as well as Bulgaria, Latvia, Slovakia, Romania and Ireland. Switzerland also recorded a share below 30 %.
Data sources and availability
Under the terms of the excessive deficit procedure, EU Member States are required to provide the European Commission with their government deficit and debt statistics before 1 April and 1 October of each year. In addition, Eurostat collects more detailed data on government finances within the framework of the ESA transmission programme which results in the submission of national accounts data. The main aggregates collected for general government are provided to Eurostat twice a year, whereas statistics on the functions of government (COFOG) and detailed tax and social contribution receipts should be transmitted within one year after the end of the reference period and within nine months after the end of the reference period, respectively.
The data presented in this article correspond to the main revenue and expenditure items of the general government sector, which are compiled on a national accounts (ESA 95) basis. The difference between total revenue and total expenditure – including capital expenditure (in particular, gross fixed capital formation) – equals net lending/net borrowing of general government, which is also the balancing item of the government non-financial accounts.
Delineation of general government
The general government sector includes all institutional units whose output is intended for individual and collective consumption and mainly financed by compulsory payments made by units belonging to other sectors, and/or all institutional units principally engaged in the redistribution of national income and wealth. The general government sector is subdivided into four sub-sectors: central government, state government – where applicable, local government, and social security funds – where applicable.
Definition of main indicators
The public balance is defined as general government net borrowing/net lending reported for the excessive deficit procedure and is expressed in relation to GDP. According to the protocol on the excessive deficit procedure, government debt is the gross debt outstanding at the end of the year of the general government sector measured at nominal (face) value and consolidated.
The main revenue of general government consists of taxes, social contributions, sales and property income. It is defined in ESA95 by reference to a list of categories: market output, output for own final use, payments for the other non-market output, taxes on production and imports, other subsidies on production, receivable property income, current taxes on income, wealth, etc., social contributions, other current transfers and capital transfers.
The main expenditure items consist of the compensation of (government) employees, social benefits, interest on the public debt, subsidies, and gross fixed capital formation. Total general government expenditure is defined in ESA95 by reference to a list of categories: intermediate consumption, gross capital formation, compensation of employees, other taxes on production, subsidies, property income, payable, current taxes on income, wealth, etc., social benefits, some parts of social transfers in kind, other current transfers, some adjustments, capital transfers, and transactions on non-produced assets.
General government data reported for main aggregates of general government and for expenditure of general government by function in the ESA95 framework must be consolidated, meaning that specific transactions between institutional units within the general government sector – ‘property income’, ‘other current transfers’ and ‘capital transfers’ – are eliminated or cancelled out. Sub-sector data should be consolidated within each sub-sector but not between sub-sectors. Thus data at sector level should equal the sum of sub-sector data, except for the items ‘property income’, ‘other current transfers’ and ‘capital transfers’, which are consolidated. For these latter items and consequently total revenue and total expenditure, the sum of the sub-sectors should exceed the value of the sector.
Taxes and social contributions correspond to revenues which are levied (in cash or in kind) by central, state and local governments, and social security funds. These levies (generally referred to as taxes) are organised into three main areas, covered by the following headings:
- taxes on income and wealth, etc. including all compulsory payments levied periodically by general government on the income and wealth of enterprises and households;
- taxes on production and imports, including all compulsory payments levied by general government with respect to the production and importation of goods and services, the employment of labour, the ownership or use of land, buildings or other assets used in production;
- social contributions, including all employers' and employees' social contributions, as well as imputed social contributions that represent the counterpart to social benefits paid directly by employers.
The disciplines of the stability and growth pact (SGP) are intended to keep economic developments in the EU, and the euro area countries in particular, broadly synchronised. Furthermore, the SGP is intended to prevent Member States from taking policy measures which would unduly benefit their own economies at the expense of others. There are two key principles to the SGP: namely, that the deficit (planned or actual) must not exceed -3 % of GDP and that the debt-to-GDP ratio should not be more than (or should be falling towards) 60 %. The SGP was substantially reinforced in 2011, as was EU economic governance in general.
Each year, Member States provide the European Commission with detailed information on their economic policies and the state of their public finances. Euro area countries provide this information in the context of the stability programmes, while other Member States do so in the form of convergence programmes. The European Commission assesses whether the policies are in line with agreed economic, social and environmental objectives and may choose to issue a warning if it believes a deficit is becoming abnormally high. This action can lead to the Council finding the existence of an excessive deficit, which requires a deadline to be set for its correction.
- General government deficit - first quarter 2013 - Statistics in focus 21/2013
- General government deficit - second quarter 2013 - Statistics in focus 25/2013
- Government expenditure by function – COFOG
- Government expenditure by sub-sector of general government
- Government finance statistics - quarterly data
- Integrated government finance statistics presentation
- Structure of government debt
Further Eurostat information
- The level of government expenditure on education varies between Member States - Statistics in focus 12/2013
- In the fourth quarter of 2012, euro area and EU-27 seasonally adjusted government deficits remain stable - Statistics in focus 11/2013
- Support for financial institutions increases government deficits in 2012 - Statistics in focus 10/2013
- General government expenditure in 2011 – Focus on the functions ‘social protection’ and ‘health’ - Statistics in focus 9/2013
- In the third quarter of 2012, euro area seasonally adjusted deficit remains stable, while EU-27 deficit increases - Statistics in focus 3/2013
- In 2011 tax revenues increased to 40.0% of GDP in the EU-27 and 40.8% of GDP in the EA-17 - Statistics in focus 55/2012
- Government expenditure by sub-sector of general government - Statistics in focus 52/2012
- Structure of government debt in Europe in 2011 - Statistics in focus 34/2012
- General government expenditure: Analysis by detailed economic function - Statistics in focus 33/2012
- EU-27 government revenue and expenditure stood at 44.6% and 49.1% of GDP respectively in 2011 - Statistics in focus 27/2012
- Government finance statistics – summary tables
- Taxation trends in the European Union – data for the EU Member States, Iceland and Norway - 2013 edition
- Annual government finance statistics (t_gov_a)
- Government deficit and debt (t_gov_dd)
- Quarterly government finance statistics (t_gov_q)
- Annual government finance statistics (gov_a)
- Government deficit and debt (gov_dd)
- Quarterly government finance statistics (gov_q)
Methodology / Metadata
- Main national accounts tax aggregates (ESMS metadata file - gov_a_tax_ag_esms)
- General government expenditure by function (COFOG) (ESMS metadata file - gov_a_exp_esms)
- Government deficit and debt (ESMS metadata file - gov_dd_esms)
- Government revenue, expenditure and main aggregates (ESMS metadata file - gov_a_main_esms)
- Quarterly financial accounts for general government (ESMS metadata file - gov_q_ggfa_esms)
- Quarterly government debt (ESMS metadata file - gov_q_ggdebt_esms)
- Quarterly non-financial accounts for general government (ESMS metadata file - gov_q_ggnfa_esms)
- Structure of government debt (ESMS metadata file - gov_dd_sgd_esms)
Source data for tables and figures (MS Excel)
- Manual on compilation of taxes and social payments on a quarterly basis – first edition
- Manual on government deficit and debt - implementation of ESA2010 - 2013 edition
- Manual on government deficit and debt - implementation of ESA95 - 2013 edition
- Manual on quarterly non-financial accounts for general government - 2011 edition
- Manual on sources and methods for the compilation of COFOG statistics - Classifications of the Functions of Government - 2011 edition
- Manual on sources and methods for the compilation of ESA95 financial accounts - 2nd edition - 2011 update