Financial flows in the education system: expenditures of the state, households and employers

Full text in Russian (pdf)

No. 3 (77), 2014 Author: Anna Kononova, Nikolai Schugal The total amount of expenditure on education is formed primarily out of three large financial flows: expenditure from the state budget, households (population) and enterprises (employers). The information database (though not quite exhaustive) of the budgetary expenditure on education is contained in the accounts of the Treasury of Russia on the execution of the state budgets of all levels, while an estimate of the amount of the budgetary funds allocated directly to education institutions may be obtained based on the federal statistical observation of education institutions’ activities.

             The total amount of expenditure on education is formed primarily out of three large financial flows: expenditure from the state budget, households (population) and enterprises (employers). The information database (though not quite exhaustive) of the budgetary expenditure on education is contained in the accounts of the Treasury of Russia on the execution of the state budgets of all levels, while an estimate of the amount of the budgetary funds allocated directly to education institutions may be obtained based on the federal statistical observation of education institutions’ activities.

As to data on expenditure of households and enterprises on education, there exist several information sources. Among them one should have in view the data of the federal statistical observation, in particular, educational statistics, statistics on paid services rendered to the population, market prices for goods and services, sample surveys of household budgets, as well as monitoring surveys – in the first place, monitoring of education markets and organizations and monitoring of the economic situation and health of the population of Russia. Below are the results of assessing the expenditure of households and enterprises (employers) based on the data of monitoring of education markets and organizations, as this source of data in particular allows taking into account, on the one hand, the most wide range of expenses (including those not reflected in the state statistics, e.g. payment for tutors’ services), and, on the other hand, all main levels of education.

What is considered to be expenditure on education?

When assessing expenditure on education, it is important to specify what is particularly included in this notion. One may estimate funds provided only for education institutions of the main levels: preschool, general, lower vocational, secondary vocational and higher education. In that case the budgetary funds which are not allocated by level of education[1] household expenditure on non-formal (supplementary) education of children, expenditure on private educational services, resources of enterprises allocated for training of employees outside education institutions are not considered. However in 2012 the household resources allocated to education institutions at the main levels of education constituted only 36%. Those expenses included the payment for the basic education, additional educational services, accommodation at a hostel of an education institution, financial support provided to an institution. The remaining resources were spent by households on private educational services, services provided by non-formal (supplementary) education institutions, etc.

It is important to consider that beyond the resources spent directly on education, the households (as well as organizations) bear the so called related expenses on procuring equipment, academic books, uniforms, transportation, accommodation and other. According to the obtained estimates for 2012, the related expenses constituted 31% of the total expenditure of households on education. Taking this into account, it is proposed to consider the assessment of expenditure on education in a broad sense, i.e. including all items of expenditure indicated above.

How much was spent on education in 2012?

According to estimates, in 2012 the expenditure related with getting education amounted to 3964.14 billion roubles, of which almost two-thirds (2558.36 billion roubles) being allocated from the consolidated budget of the Russian Federation (including state non-budgetary funds). The distribution of the total expenditure of the state budget, households and employers on education is presented at Figure 1. Is depicts the distribution of all expenditures related with getting education. The budgetary resources are also presented as a whole, including the resources which are not allocated by level of education.

Figure 1. Correlation of budgetary expenditure, expenditure of households and organizations on education, 2012

Distribution of budgetary expenditure

If the 2012 budgetary expenditure is considered by the main levels of education, their distribution may be presented as follows (Figure 2).

Figure 2. Distribution of budgetary financing, by main levels of education, 2012

The amount of resources allocated by the government for preschool, general, lower vocational? Secondary vocational, higher and postgraduate education amounted to 2306.31 billion roubles.

As far as the amount of the budgetary funds is concerned, the general education system is in the lead. The amount of the corresponding appropriations was equal to 1184.01 billion roubles in 2012. As can be seen from Figure 2, it is almost a half (46%) of the total budgetary expenditure. Second goes the system of preschool education in respect of the amount of budgetary expenditure. 469.60 billion roubles were allocated for the preschool education system in 2012. The third place is occupied by higher education: in 2012 the amount of the related allocation reached 464.04 billion roubles. The amount of budgetary funds allocated for secondary vocational education was equal to 130.31 billion roubles., for lower vocational education – 58.35 billion roubles.

Distribution of expenditure of households and enterprises

According to estimates based on the outcomes of the monitoring of education markets and organizations, the household expenditure related with education, in absolute terms, totaled 1336.31 billion roubles in 2012. The distribution of household expenditure in 2012 is presented in Figure 3.

Figure 3. Distribution of households’ expenditure, by level of education, 2012

The estimates take into account all items of expenditure, including the related ones. The expenditure needed to get a higher education was estimated to be 572.50 billion roubles (43% of all households’ expenditure on education). General education occupied the second place in respect of the proportion of the total household expenditure: the households of pupils spent 431.72 billion roubles in 2012. 150.67 billion roubles were spent on the education of children attending kindergartens. The households of students of lower vocational and secondary vocational education institutions spent 42.86 billion roubles and 138.57 billion roubles, respectively, per year on education.

If the households’ expenditure is considered from the viewpoint of a recipient of the money, 32% were allocated for state education institutions of all levels of education. Only 4% were allocated for private institutions. The main proportion of the expenditure (64%) is outside institutions of the main levels of education (including the expenditure on related goods and services, equipment, uniform, textbooks, stationery, etc.).

The diagram shows the total expenditure of students enrolled in professional education programmes  (for all forms of instruction) at state and private education institutions[2]. One should bear in mind that the category “additional paid services” includes both additional services provided by institutions implementing professional education programmes and educational services provided by institutions of non-formal (supplementary) education and tutors. The principal difference in the distribution of students’ expenditure concerns the proportion of the fee paid by students getting higher education: this item of expenses exceeds a third of the total expenses.

The average expenditure per student did not include the expenses on the preparation for entrance. According to estimates obtained, the maximum expenses are incurred by households of higher education students – 87.74 thousand roubles per year. It is appropriate mention here that households with full-time students spent on average 109.27 thousand roubles for 2012 and households with students of distant (correspondence) departments – only 67.39 thousand roubles.

According to estimates obtained, the enterprises’ expenditure related with education was equal to 69.46 billion roubles in 2012. Within the framework of monitoring of education markets and organizations not all expenditure of employers spent on the employee training can be aligned with a level of professional education, but the data of the survey allow evaluating the distribution of expenditure depending on the size of a company.

Figure ХХ. Distribution of enterprises’ expenditure depending upon the size of an organization, 2012

As shown in Figure 6, in 2012 almost two-thirds of the expenditure (43.41 billion roubles) was made by large enterprises. Small enterprises, including micro-enterprises, spent 24.54 billion roubles. The expenditure of medium enterprises constituted 1.51 billion roubles.

How has the expenditure on education changed since 2006?

The change of budgetary expenditure, as well as that of households and enterprises may be compared. Figure 7 presents the expenditure of all parties over the period from 2006 to 2012 in terms of 2012 prices, this allowing to compare the values for different years. The change in financing the education system is affected by many factors: priorities of the state policy, socio-economic situation, demographic trends.

Figure 7. Trend of expenditure of the government, households and enterprises allocated for education, billion roubles, at 2012 prices ( Budgetary expenditure and expenditure of households are indicated on the main axis, expenditure of enterprises – on the auxiliary axis.)

As shown in Figure 7, The growth of the budgetary financing of the education system at comparable prices which lasted in 2006-2008, changed to a decline in 2009-2010 by 7% if compared with the 2008 level. Beginning with 2011 the budgetary expenditure on education has been increasing. In 2012 as compared with 2011, the growth of the budgetary expenditure was primarily owing to preschool and general education – by 14% and 15% for those levels of education respectively. The growth of the total expenditure in preschool and general education took place at the background of an increase of salaries of the preschool and general education institutions’ personnel the legal basis of which were the decrees of the President of the Russian Federation dated 7 May 2011. For example, in 2012 the fund of teachers’ labour remuneration increased by 26% as compared with 2011. At the same time in 2012 the number of teachers decreased by 4%, while the average teacher’s salary increased by 31%. For reference the growth of the fund of teachers’ labour remuneration, as compared with 2010, was only 11%.

The total household expenditure on education, in terms of 2012 prices, after having grown by 7% in 2007, as compared with 2006, tended to fall down up to 2012. The reduced spending was related with household expenditure on professional education.

As compared with 2006, the expenditure of education of students enrolled in lower vocational education programmes decreased by 35% (at comparable prices), those of students in secondary vocational education – by 6%, and those of students studying at higher education institutions – by 14%. The expenses related with school studies were stable, while the spending on preschoolers increased by 37% (at comparable prices) in the period from 2006 to 2012. The stable lowering of the gross expenditure is largely due to the demographic decline within the age groups from 10 to 23 years in the period from 2006 to 2012. The number of the population of this age interval reduced by 22% in the period from 2006 to 2012. The reduction of the number of the population was highest for the age of 16 to 18 years, namely 37% over this period. If one considers the age cohorts corresponding to the age of getting professional education of each level, the population ageing 15-17 years (the age of getting lower vocational education) decreased by 36%. The number of the population at the age corresponding conditionally to secondary vocational education (15-19 years) decreased by 36 over the same period. Finally, the age cohorts from 17 to 23 years (the age of those studying at higher education institutions) decreased by 22% total.

One more factor of the change in the enrolment and, hence, in the gross expenditure on education of a corresponding level of education is the change in the structure of preferences. Thus, the attraction of lower vocational education was falling, while higher education, on the contrary, was gaining popularity. This is confirmed by a difference in the trend of enrolment in institutions of each level of education and in respective age cohorts, the lower vocational education enrolment declining significantly faster (by 54%) than the number of students of the respective age group in the period from 2006 to 2012. The secondary vocational education enrolment and higher education enrolment declined only by 17%. It is important to note that the reduction of enrolment in higher education institutions was caused mainly at the expense of full-time enrolment: in this period the enrolment of the respective contingent fell by 25%, while the full-time enrolment declined only by 7%. It should be noticed that the total annual expenditure of a correspondence student is almost twice as lower than that of a full-time student. Thus, not only a change in enrolment, but a distribution of enrolment as well, may affect the value of the total expenditure of the population.

The enterprises’ expenditure on education are affected utmost by the change of the economic situation, as compared with the government expenditure and that of the households. According to assessments obtained the value of this item of enterprises’ expenses decreased in 2008 and in the subsequent years it did not reach the 2007 level at comparable prices. Probably, such a reduction was due to the 2008 economic crisis.

Prepared by Nikolay Schugal.

[1] I.e. the budgetary expenditure which is not included in the expenditure of the main levels of education presented in the budget execution report.)

[2] For lower vocational education programmes there is a possibility of obtaining the estimates only for students of state (municipal) education institutions.).