Primary balance

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In the case of public budgets, the primary balance is the difference between government revenue (excluding net borrowing) and government expenditure (minus interest payments on government debt ).

General

The state budget , the budgets of the federal states , municipalities and associations of municipalities come into question as cameralistic public budgets . Their households compare income with expenditure . As a rule, these do not match, so that there is a difference between them, which is generally referred to as the balance .

The idea behind the term primary balance is that interest payments are not one of the core tasks of the state . Also repayments as the second part of the debt service thus do not belong to the state's core tasks are in the literature , however, sometimes added to the regular expenditure; however, there are also literary opinions that exclude the repayments from the primary balance. If the income is sufficient to finance the core tasks of the state, the primary balance is zero . In this case, the state does not have to take on any new debt in order to finance part of its core tasks.

The primary balance is a household key figure and thus also an economic figure .

calculation

The starting point is the income, which is composed primarily of taxes and other charges , but does not include the income from net borrowing . Income from the sale of state assets (e.g. privatizations ) is also not taken into account when determining the primary balance.

The primary balance is the balance between primary income and primary expenditure:

   Steuereinnahmen
   + Länderfinanzausgleich
   + sonstige Einnahmen
   = Primäreinnahmen
   Personalausgaben
   + Sozialleistungen
   + sonstige konsumtive Ausgaben
   + Investitionen
   + Tilgungsausgaben an öffentliche Verwaltungen
   + sonstige Ausgaben
   = Primärausgaben

If one compares the primary income with the primary expenditure, the primary balance results:

   Primäreinnahmen
   - Primärausgaben
   = Primärsaldo

Based on the primary income, the total income results:

   Primäreinnahmen
   + Vermögensveräußerungen
   + Nettokreditaufnahmen
   + Rücklagenentnahmen
   = Gesamteinnahmen

The total expenditures result from the primary expenditures

   Primärausgaben
   + Zinsausgaben
   + Tilgungen
   + Rücklagenzuführungen
   = Gesamtausgaben

If one compares the total income (state income) with the total expenditure (state expenditure), the result is the budget balance .

species

The primary balance ( ) is the difference between the income (excluding credit income ) and the expenditure (excluding interest expenses).

.

Since the income can only coincide with the expenditure by chance, a balance remains as a difference. A distinction is made between a primary surplus and a primary deficit in the primary balance . A primary surplus exists when the primary income is higher than the primary expenditure:

.

A primary surplus enables the payment of interest and amortization on the borrowed debt . A primary deficit is when the primary expenditure is higher than the primary income:

.

In the case of a primary deficit, the state not only has to take out new loans in order to be able to fulfill its core tasks, but it also has to take out new loans to finance its debt servicing for the existing debts.

A positive primary balance (primary surplus) means that the income is sufficient to finance the core tasks and that part of the interest expenses can also be covered. A negative primary balance (primary deficit), on the other hand, indicates that the income is insufficient to finance the core tasks. A loan is required for this remaining part and to finance the interest service.

A structural (also: cyclically adjusted ) primary balance is created by adjusting the primary balance for cyclical effects. The OECD and Eurostat also adjust primary balances for so-called one-off effects. In contrast to primary balances and financing balances, structural or adjusted primary balances are not actual, but hypothetical balances, the values ​​of which depend on the assumed business cycle model. During a recession , the structural primary balance is larger than the primary balance, which in turn (because of interest rates) is larger than the financial balance. Adjusted primary balances make the economic situation even more favorable.

In media reports, the terms are often not clearly differentiated, which politicians can take advantage of: In 2013 Greece's financial balance was EUR -23 billion. With interest expenditure of 7 billion euros, this corresponded to a primary balance of −16 billion euros. However, the European Commission published an “adjusted” primary balance of +1.5 billion euros (all values ​​rounded) with the argument that this better reflects the structural budget situation. This gratifying primary surplus then found its way into the media and was commented by a spokesman: "This reflects the remarkable progress that Greece has made in fixing its public finances since 2010."

purpose

International organizations such as the OECD or the IMF use the primary balance to assess the debt sustainability of public budgets. A indebted state must generate sufficient primary surpluses in the long term, otherwise it will become insolvent. Insolvency , however, does not occur when a central bank , the government bonds indefinitely buys ( monetary state financing ).

The generation of sufficiently high primary surpluses is a central point of contention in the Greek sovereign debt crisis . In addition, the strength of the bargaining power of Greece or its creditors depends crucially on the primary balance.

Primary balance in financial equalization

In the context of financial equalization , the primary balance of a member state is understood as the balance of the state budget adjusted for the transfer payments between the member states and the grants from the federal state. The primary balance is defined as the difference between primary expenditures and primary income . In this sense, primary income is income without privatization and nationalization (theoretically also without net interest income). The primary expenditures are the expenditures without external transfers and interest payments.

economic aspects

The primary balance is an economic indicator that can provide indications of budgetary discipline. It shows the extent to which primary income in the public budget is sufficient to cover primary expenditure. If the nominal interest rate on public debt is higher than the growth rate of the nominal gross domestic product, the public budgets will have to generate substantial primary surpluses if a further increase in the government debt ratio and a further narrowing of future budgetary leeway are to be prevented.

However, the primary balance ratio , which relates the primary balance to the gross domestic product (GDP), is more meaningful :

.

This primary balance ratio depends above all on the level of interest rates and the GDP growth rate or on the difference between the two. If the interest rate rises faster than the GDP growth rate, the primary balance ratio deteriorates and vice versa. It can be used to establish both the temporal change in budgetary discipline in a country and an international comparison.

The primary balance is comparable to the company's earnings before interest , taxes , depreciation and amortization ( business key figure : EBITDA ).

International

Eurostat calculates the primary balance for all EU member states as follows:

   Staatseinnahmen
   - Staatsausgaben
   = Saldo nach dem Maastricht-Vertrag
   + Zinsausgaben
   = Primärsaldo

In 2015, with 2.3% of GDP, Germany had the highest positive primary balance ratio of all EU member states, followed by Cyprus (1.8%), Luxembourg / Italy / Hungary (both 1.6%), Lithuania (1.3 %) or Austria (1.2%). The highest negative primary balance ratios were in Greece (- 3.4%), Great Britain (- 2.1%), Spain (- 2.0%) and France / Finland (both - 1.5%). Latvia, for example, had a negative fiscal balance ratio of 1.3% in 2015 and at the same time an interest expenditure ratio of + 1.3%, so that the primary balance ratio was “zero”. This enabled the country not only to cover its core expenses, but also to pay loan interest.

Individual evidence

  1. ^ A b Hanno Beck / Aloys Prinz: National debt: causes, consequences, ways out . In: Beck's series . 2nd Edition. tape 2742 . CH Beck, 2013, ISBN 978-3-406-63302-7 , pp. 13 ( limited preview in Google Book search).
  2. a b Robert F. Heller, Budgetary Principles for the Federal Government, States and Municipalities , 2010, p. 128
  3. Council of Experts for the Assessment of Overall Economic Development , Effective Limiting of Public Debt , 2007, p. 18
  4. ↑ German Advisory Council on Economic Development, Effective Limiting of Public Debt , 2007, p. 20
  5. EconoMonitor of October 8, 2012
  6. ^ Wall Street Journal, April 23, 2014, Greek primary surplus-Statistics
  7. SPIEGEL ONLINE from May 5, 2014, Arithmetic for the Greeks
  8. Der Tagesspiegel of April 23, 2014, Athens achieved primary budget surplus for the first time
  9. IMF Guide
  10. EU defines primary surplus for Greece (FAZ.net)
  11. ^ Project Syndicate of May 14, 2015
  12. Reinbert Schauer: Accounting in Public Administrations: Cameralistics and / or Doppik? Introduction and positioning . In: Linde textbook . Linde Verlag GmbH, 2014, ISBN 978-3-7094-0624-3 , p. 63 ( limited preview in Google Book search).
  13. ^ Martin Junkernheinrich, Stefan Korioth, Thomas Lenk, Matthias Woisin, Henrik Scheller: Yearbook for Public Finances 2009 . In: Writings on public administration and public economy . tape 216 . BWV Verlag, 2009, ISBN 978-3-8305-2779-4 , p. 188 ( limited preview in Google Book search).
  14. ↑ German Advisory Council on Economic Development, Effective Limiting of Public Debt , 2007, p. 20
  15. ^ Marc Hansmann, Before the third national bankruptcy? , 2012, p. 27
  16. ^ Household control.de of April 23, 2016, EU comparison of the primary balance and interest expenditure 2015