Archive:Evolution of government expenditure by function

This publication analyses global trends in the structure of general government expenditure breakdown by their main socio-economic function (according to the Classification of the Functions of Government - COFOG), with a focus on social protection expenditure.

Eurostat collects data on general government expenditure by economic function according to the international Classification of the Functions of Government (COFOG) in the framework of the European System of National Accounts (ESA95).

Main statistical findings

In 2012, EU-27 general government expenditure amounted to 49.4 % of GDP. Based on the latest available expenditure data by economic function for 2012, more than half was devoted to the functions ‘social protection’ and ‘health’, which accounted for 19.9 % and 7.3 % respectively of GDP. The other functions of government spending with a large share of government expenditure are ‘general public services’ (6.7 % of GDP), ‘education’ (5.3 % of GDP) and ‘economic affairs’ (4.1 % of GDP).

EU-27 general government expenditure at 49.4 % of EU GDP in 2012

General government expenditure amounted to around EUR 6 380 billion in 2012 in the EU-27 or 49.4 % of GDP.

As a ratio to GDP in 2012, the highest levels of government expenditure were found in Denmark (59.4 % of GDP), France (56.6 % of GDP), Finland (56.7 % of GDP) and Belgium (55.0 % of GDP), while the lowest levels were found in Bulgaria (35.9 % of GDP), Lithuania (36.1 & of GDP), Latvia (36.5 % of GDP) and Romania (36.7 % of GDP). Switzerland (34.1 % of GDP) recorded the lowest level among all reporting EU and EFTA countries.

All EU Member States which joined the EU in 2004 or after, continued to record a level of total general government expenditure below the EU average in 2012. Among the EU Member States, which joined the EU prior to 2004, Ireland, Luxembourg and Germany had the lowest proportion at 42.6 %, 44.3% and 44.7% of GDP respectively.

General government expenditure by function

In the EU as a whole, as well as in all EU and EFTA countries reporting data, ‘social protection’ was the most important function of government expenditure. In 2012, governmental social protection expenditure in the EU-27 was equivalent to 19.9 % of GDP (see Table 1), 0.3 % percentage points more than in 2011.

The next most important functions in terms of government expenditure were ‘health’ and ‘general public services’, amounting to 7.3 % and 6.7 % respectively of GDP in the EU-28 in 2012. ‘Education’ (5.3 % of GDP) and ‘economic affairs’ (4.1 % of GDP) followed. The remaining functions – composed of ‘defence’ (1.5 % of GDP), ‘public order and safety’ (1.9 % of GDP), ‘environmental protection’ (0.8 % of GDP), ‘housing and community amenities’ (0.8 % of GDP) and ‘recreation, culture and religion’ (1.1 % of GDP) - together represented 6.1 % of EU-27 GDP in 2012.

The figures at EU level mask disparate situations in the Member states. For instance the highest spending on social protection reach 25.2 % of GDP in Denmark, 24.8 % in Finland and 24.2 % in France whereas the ratio is below 14 % in several of the most recent Member States.

Other particular cases are Greece and Cyprus for which expenditure related to 'general public services' is significantly higher than in the other countries, notably due to the payment of interest to service debt and also to the relatively large size of central public services.

It is also in Greece and in the UK where we find the highest share of public expenditure in the defence function (respectively 2.4% and 2.3 % of GDP versus 1.5 for EU-28).

As regards government expenditure on economic affairs, there is sometimes considerable variation over time as the amounts recorded may be influenced by operations of an extraordinary nature, such as reclassification of public companies into the general government sector, sale of UMTS (mobile phone) licences or capital injections into banks. In particular, the latter two operations substantially explain the relatively high figures recently found for Spain and Belgium.

The importance of the 'economic affairs' division may furthermore be influenced by the amount of subsidies given to public or private transportation companies and even more by the amount of expenditure on transport companies classified within the general government sector. Other specific situations are the Netherlands, Malta, the Czech Republic and Luxembourg which present significantly higher spending in 'environment protection' than in the other countries. The Czech Republic, together with Iceland, is again very different from the other countries, showing the largest proportion of government expenditure in the 'recreation, culture and religion' function (2.7% of GDP), which is largely explained by restitutions to churches as a compensation for properties seized.

Further analysis for each economic function is described in more detail in the specific 'Statistics Explained' pages devoted to the different COFOG divisions.

Functional expenditure of general government and adjustment to the economic conjuncture

Over the last decade, 'social protection' has always remained by far the most important function in terms of general government expenditure as a ratio to GDP.

This said, we can notice that this share moved from 18.1 % EU-27 GDP on average during the period 2002-2008 to 20 % over the last four years, reflecting clearly social interventions in most of the countries in response to the recession.

Two other functions have also experienced a significant increase of public expenditure between the two periods: General public services and Health. The division 'general public services' includes notably expenses related to the payment of interest to service debt (recorded in COFOG group 01.7 'public debt transactions') which certainly explains this trend for a number of countries. At EU-27 level, public spending on health significantly increased from 2009 where it exceeded for the first time 7% of GDP, probably reflecting as well general government growing social concerns.

Social protection: the most important function of government expenditure

Social protection remains the highest share of general government expenditure

In the EU-27, general government expenditure on social protection amounted to around EUR 2 572 billion in 2012, or 19.9 % of GDP. In all countries, it is the most important function in public expenditure. As a ratio to GDP, the highest levels of government expenditure were found in Denmark (25.2 %), Finland (24.8 %) and France (24.4 %). The lowest ratios to GDP were found in Latvia, Iceland (both at 11.2 % of GDP), Lithuania and Slovakia (both ate 12.1 % of GDP).

With the exception of Iceland, the Nordic countries all exhibit a relatively high level whereas the most recent EU Member states tend to have the lowest shares.

The category 'old age' has the highest share of expenditure on social protection

In the countries for which detailed data is available, the breakdown of social protection expenditure by detailed COFOG group reveals different national structures.

In general, the category ‘old age’ which includes most pension schemes, is predominant and represents often 8.0 % or more of GDP or at least 40 % of total public spending in social protection. While expenditure in this group made up to two thirds of total social protection expenditure in Bulgaria, Greece, Italy and Latvia, public expenditure on 'old age' do not exceed one third of public spending in this division in Iceland, Croatia, Ireland, Norway and Denmark. It is only in Croatia, in Iceland and in Norway (due to some receipts of the Government Pension Fund not through general government) that 'old age' does not come first in social protection spending.

All benefits related to 'sickness and disability' often come as the second group of social protection expenditure, representing 20 % or more of social protection expenditure in the Nordic countries, in Ireland, in Hungary, in Lithuania, in the Netherlands and in Croatia where it represents more than half of the total of social protection spending.

Other relatively important categories concern benefits to families for dependent children (respectively 20.3 % and 21.0 % of total spending in social protection in Denmark and Luxembourg, respectively 5.1% and 4.0% of GDP) and unemployment allowances (nearly 20 % of social protection expenditure in Ireland and Spain).

'Social protection' expenditure increase as a visible effect of the economic crisis

As a ratio to GDP, after having slightly and regularly decreasing from 18.5 % of EU-27 GDP in 2003 to 18.0 % in 2008, government expenditure on 'social protection' increased substantially to reach nearly 20 % in 2009 until today.

The recent increase in this ratio is also imputable to a drop in GDP in current prices. Actually public expenditure on social protection also increased in absolute terms during the recent years but more smoothly.

The evolution at the level of the EU masks disparate developments in the Member States. During the period 2002-2008, total expenditure on social protection decreased by 4.7 percentage point (pp) of GDP in Slovakia, 2.7 pp of GDP in Poland and 2 pp of GDP in Sweden (and also by 2.6% in Norway). By contrast, increases were observed during the same period in Ireland (+3.8 pp), in Portugal (+2.6 pp) and in Romania and Hungary (both by 2.3 pp).

As for the most recent period, social protection expenditure increased in all countries except in Hungary it moved from 18.6 % of GDP in 2009 to 17.1 % in 2012.

Data sources and availability

Reporting of data to Eurostat

Annual government finance statistics (GFS) data are collected by Eurostat on the basis of the European System of Accounts (ESA95) transmission programme. Member States are requested to transmit, among other tables, table 1100, 'Expenditure of general government by function' twelve months after the end of the reference period. Table 1100 provides information about expenditure of the general government sector divided into main COFOG functions and ESA95 categories. The transmission of the COFOG I level breakdown (divisions) is compulsory for the years 1995 onwards, whereas information on the COFOG II level (COFOG groups) is provided on a voluntary basis. The main reference years used in this publication are 2012 as the latest year available and 2002 as the first year for which complete data on expenditure by function are available at EU-27 level.

Data was extracted on 07 March 2014.

Provisional data

Data for BG, EL, HU, IS and SE (2012 only) is provisional.

Definition of general government and its sub-sectors

The data relate to the general government sector of the economy, as defined in ESA95, paragraph 2.68: 'All institutional units which are other non-market producers [institutional units whose sales do not cover more than the 50 % of the production costs, see ESA95 paragraph 3.26] 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’.

Classification of functional expenditure of government

The Classification of the Functions of Government (COFOG) classifies government expenditure into ten main categories (divisions known as the 'COFOG I level' breakdown): general public services; defence; public order and safety; economic affairs; environmental protection; housing and community affairs; health; recreation, culture and religion; education; social protection. These divisions are further broken down into 'groups' (COFOG II level). Further information is available in the Eurostat 'Manual on sources and methods for the compilation of COFOG Statistics'.

COFOG level II data

COFOG level II data is published only in agreement with the country concerned. The development of COFOG level II data is not completed in many Member States and data needs to be looked at with this in consideration.

For BE and SK, COFOG group data is available but not published. For ES, COFOG group data is available for 2012, but not published pending the availability of more final data.

Satellite accounts

Administrative expenditure data is additionally collected in so-called satellite accounts. For education, the relevant collection is UOE (UNESCO-UIS/OECD/EUROSTAT data collection). In general, the amount of expenditure recorded in satellite accounts is expected to exceed the expenditure recorded under the respective COFOG division, as the COFOG classification focusses on recording expenditure by primary function. The comparability of UOE with COFOG data is explored in the COFOG manual.

Definition of general government expenditure

Government expenditure is defined in Commission Regulation 1500/2000 which uses as reference a list of ESA95 categories: Government expenditure comprises the following categories:

• P.2, 'intermediate consumption': the purchase of goods and services by government;
• P.5, 'gross capital formation' consists of: (a) gross fixed capital formation (P.51); (b) changes in inventories (P.52); (c) acquisitions less disposals of valuables (P.53); where
• P.51, 'gross fixed capital formation': consists of acquisitions, less disposals, of fixed assets during a given period plus certain additions to the value of non-produced assets realised by the productive activity of producer or institutional units. Fixed assets are tangible or intangible assets produced as outputs from processes of production that are themselves used repeatedly, or continuously, in processes of production for more than one year;
• D.1, 'compensation of employees': the wages of government employees plus non-wage costs such as social contributions;
• D.29, 'other taxes on production, payable',
• D.3, 'subsidies, payable',
• D.4, 'property income, payable', consists of : (a) 'interest, payable (D.41) and (b) 'other property income, payable (D.42+D.43+D.44+D.45), where
• D.41, 'interest': excludes settlements under swaps and forward rate arrangements, as these are treated as financial transactions in the ESA 95;
• D.5, 'current taxes on income, wealth, etc, payable';
• D.62, social payments: cover social benefits and pensions paid in cash;
• D.6311, D.63121, D.63131, 'Social transfers in kind related to expenditure on products supplied to households via market producers';
• D.7, 'other current transfers, payable';
• D.8, 'adjustment for the change in net equity of households in pension fund reserves'
• D.9, 'capital transfers payable'
• K.2, 'acquisitions less disposals of non-financial non-produced assets': public investment spending. Non-financial non-produced assets consist of land and other tangible non-produced assets that may be used in the production of goods and services, and intangible non-produced assets.

• Capital investments includes P.5 and K.2.
• Other current expenditure includes D.7, D.29, D.5 and D.8.

Gross Domestic Product

Throughout this publication, nominal GDP, i.e. GDP at current prices is used.

Time of recording & symbol

In the ESA95 system, recording is in principle on an accrual basis, that is, when ‘economic value is created, transformed or extinguished, or when claims and obligations arise, are transformed or are cancelled.'

"ISCED" International Standard Classification of Education (1997)

":" not available

"p" provisional

"pp" percentage points

More data and information

Denmark: Due to the structure of the Danish education system, the primary education is not divided into two levels. Therefore, the COFOG education data on primary education, 09.1 is composed of COFOG 9.1 primary education and 9.21 Lower-secondary education. COFOG group 09.2 is composed of COFOG 9.22 Upper-secondary education.

For more country-specific notes, e.g. on missing data, please refer to the metadata published on Eurobase. The authors can be contacted at ESTAT-ESA95-GOV@ec.europa.eu

Context

In the framework of the European System of National Accounts (ESA95), Eurostat collects data on general government expenditure by economic function according to the international Classification of the Functions of Government (COFOG) – see methodological note. This publication presents detailed COFOG data on education for the EU Member States and EFTA countries, presenting data by level of education on the basis of voluntarily transmitted COFOG level II data.

See also

• Government expenditure by function – COFOG

Further Eurostat information

Publications

• Government finance statistics – summary tables

Main tables

• Government statistics (t_gov)

Database

• Title of top Database folder, see:

Dedicated section

• Government Finance Statistics

Methodology / Metadata

• General government expenditure by function (COFOG) (ESMS metadata file - gov_a_exp_esms)
• Manual on sources and methods for the compilation of COFOG statistics - Classifications of the Functions of Government - 2011 edition

Source data for tables (MS Excel)

• Tables COFOG

[[Category:<Government statistics>|Evolution of government expenditure by function]] [[Category:<Statistical article>|Evolution of government expenditure by function]]