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Why Should a Government Invest in the Internet? The Experience of the Ministry of Economy and Finance of Spain

Juan A. ZAPARDIEL L. <juan.zapardiel@inspeccion.meh.es>
Fernando GARCÍA V. <fernando.garcia@inspeccion.meh.es>
Ministry of Economy and Finance


This paper analyzes the economic and social benefits derived from the presence of public administrations on the Internet. The study, focused on the experience of the Ministry of Economy and Finance of Spain (MEFS), quantifies, in monetary terms, the public savings generated by a government agency that uses the Internet. In addition, the work attempts to value, in terms of utility or satisfaction, the new services received by taxpayers.

During the past five years, the phenomenon of the Internet has influenced the behavior of government institutions in the main Organization for Economic Cooperation and Development countries. However, the increasing access of social agents such as families, private companies, and education centers to the Internet has created a demand for services that largely exceeds the administration's supply. A government cannot neglect the opportunity to take advantage of this source of economic and social gains.

The MEFS, one year after launching on the Internet (http://www.meh.es), has begun to experience these impacts, as have the other social agents in Spain. Contrary to the usual conduct of external contracts, the MEFS's project supports the capabilities of civil workers who have made an important effort in self-education and coordination, together with a technological innovation unknown to date. The improvements noticed in the process, along with the potential gains in the near future, can be analyzed from two points of view: economic and social.

Economic Analysis. The simplification of a great number of ordinary negotiations through the Internet becomes an important source of savings for the administration. Media campaigns, such as those about taxes, government bond issues, the European currency, and so on, can be widely diffused by means of the Internet. The paper includes a monetary estimate of this saving.

Social Analysis. Taxpayers develop a friendlier relationship with government agencies; the feeling of hostile treatment is reduced. Now, they appreciate the rapid response they get from public offices by using electronic mail; they have access to a great deal of fresh information about the current economic situation, which allows them to enjoy a certain amount of power. As an example, it is worth citing the great expectation created by the publication of the Spanish budget (project) at the very same moment as its presentation in the Congress by the government. This paper evaluates the increment in the level of social satisfaction.

The consultations addressed to the webmaster's e-mailbox demand a bigger commitment of the government to the new telecommunication technologies. Taxpayers ask for official documents or help to fill in their tax forms through the Internet. To be able to respond to this demand, the MEFS has become involved in an ambitious project called PCET (Public Certification of Electronic Transactions). The project's main objective is the establishment of a Public Authority of Electronic Certification in Spain in order to offer the necessary services to secure the realization of electronic acts and documents among citizens, private companies, and government agencies on the Internet and other value-added networks. The potential benefits resulting from putting together the infinite advantages offered by the Internet, and the possibility of having an authority certifying the operations, are statistically studied in the paper.



The development of the Internet in Spain has accelerated remarkably during the past two years, in the same way it has happened in the rest of countries of the Organization for Economic Cooperation and Development. The published data from the last General Media Study (EGM) [1], corresponding to October/November 1998, show increasing access to the Internet on the part of the Spanish population older than 14 years old, which means an increase of 500 percent between 1996 and 1998. Figure 1 shows a detailed analysis of the social importance of the phenomenon with respect to age groups.

Figure 1. Percentage of population with access to the Internet in Spain. Distribution by age groups. Source: EGM

As it can be observed, in some cases, the number of Internet users reaches significant percentages, with the age group 25 to 34 years old, the most numerous among the Spanish population, standing out with 35.9 percent of users.

The Ministry of Economy and Finance of Spain (MEFS), like other agencies of the Spanish Administration, has understood the need to establish a presence on the Internet to speed up and increase the effectiveness and efficiency of its relationships with the taxpayers. This initiative tries to bring closer the concepts of taxpayer and client, reinforcing the importance of the attention given to them.

Social interest of the contents of the MEFS Web site

Since the institutional incorporation of the MEFS [2] to the Internet in December 1997, several studies have been carried out on the thematic preferences of the users. These studies have considered the number of accesses to the different sections of the Web site, along with the numerous e-mail messages addressed to the webmaster's mailbox, with the results shown in figure 2.

Figure 2. Information asked of the MEFS Web site. Distribution by subjects. Source: MEFS

Obviously there is a high-priority interest in the tributary area, especially significant at times of income tax (IRPF) [3] campaigns. Most of the inquiries relate to whether the income tax return has been fulfilled yet, and are answered by the Directorate of Tributes and the State Agency of Tributary Administration (AEAT) [4]. Once the process of delivering income tax returns has finished, the taxpayers' questions focus on verifying the state of possible tax refunds.

The experience of these years shows that the relationship between taxpayers and AEAT takes place in a much more informal and familiar atmosphere than telephone conversations or personal visits to the administrative offices provide. The accesses through the Internet in 1998 asking for aid in this area have approached 8 million, an increase of nearly a 700 percent compared with 1997. This massive flow of tributary information through the Internet has significantly decreased the number of telephone inquiries asking for the same type of information.

Many questions related to economy and commerce subjects also are asked via the Web site. In this section the study finds inquiries about macroeconomic aspects, regional economic incentives, subventions to companies, restrictive practices, and so on. The introduction in the Web site of all the resolutions of the Restrictive Practices Court (TDC) [5] has decreased work for this agency. Most of the questions regarding these subjects, formerly submitted by telephone or mail, can be answered in a moment through the Internet. Consider the information regarding assistance to Spanish companies abroad, with the purpose of fomenting their exports and foreign implantation. This work is the responsibility of the Spanish Bureau of Foreign Trade (ICEX) [6], an agency dependent on the MEFS, which designs and executes programs of promotion and foreign investment and spreads information about the Spanish commercial supply and the foreign markets. On the ICEX Web site, users can find information related to the international and Spanish commercial fairs, or gain access to its databases containing data from associations of manufacturers and Spanish exporters and statistics of foreign trade that can be consulted using common gateway interface (CGI) applications.

Lotteries constitute one of the main attractions of the MEFS Web site. In Spain, the National Agency of Lotteries and Bets manages the lotteries and bets of the Spanish state [7]. The results of all the drawings (lotteries, lotto, sport bets) are published in a minimum time after their conclusion. Nevertheless, despite the success of this area of the Web site, the ludic and commercial components of gambling are considered as incongruous with the rest of its contents. So the MEFS is working to establish an independent Web site with commercial features that contains all the information related to gambling, the income from which is part of the national budget.

Questions related to job searches or setting up a business are also some of the most frequent questions asked. Considering that the unemployment rate in Spain is about 18.5 percent of the active population, this is not surprising.

As in the rest of the European Union (EU), questions referring to the European single currency (euro) are common among among the Spanish population. The MEFS Web site contains an area exclusively dedicated to the euro [8]. Given the importance of this subject, the MEFS has decided to design an independent Web site that contains all the information about the euro [9]; the advertising campaigns of the Treasury for the transition to the new currency are included here.

Data about economic trends and the financial data and information derived from economic studies [10] are highly demanded by the society. Requests for electronic acquisitions of products or services from the MEFS, references to the Spanish budget, and offers from companies trying to deal with the administration complete the group of most frequently accessed items within the MEFS Web site. The section "Others" includes inquiries about insurance, retirement plans, accounting, economic fairs, and administrative procedures.

The MEFS works to give an answer to these social preferences. In the tributary environment, the AEAT, dependent on the MEFS, develops Internet applications that seek a tighter approach to the taxpayer. At the moment, the taxpayer may inquire about the state of his or her income tax return, as well as the resolution of innumerable tributary inquiries addressed to the administration, through CGI applications. Nevertheless, the main barrier in the relation between the Tributary Administration and the taxpayer is the need of security in the information transference. In order to surpass this barrier and to give greater agility to the relations between the administration and the taxpayers, the MEFS has been involved in the Public Certification of Electronic Transactions (PCET) project.

PCET project: Public certification of electronic transactions

The PCET project [11], in which the MEFS participates, tries to constitute a public authority of electronic certification (PAEC), according to the proposal of Directive of the European Parliament [12] that promotes the use and legal recognition of the electronic signature in the EU. The PAEC, as third reliable party, will offer services addressed to secure the electronic acts and documents among citizens, companies, and public administrations. PCET works with techniques and cryptographic algorithms based on the public key system. These techniques have two basic characteristics: 1) The user's identity, as well as his or her capacity of authorized signature, is stored in a smart card that can be accessed only by its owner when he or she introduces the personal identification number, similar to a credit card key; 2) The system is completely transparent to the user, that is to say, it is not necessary to know any cryptographic technique to make or to verify an electronic authorized signature or to code or decode a message. The performance of the PCET project will allow fluid communication between taxpayers and the administration that will simplify a great number of administrative operations, resulting in savings for the administration and increased satisfaction for the taxpayers.

The PAEC will provide users with two keys (public/private) that will allow them to sign messages and to authenticate themselves for any receiver (authenticity key), and two keys (public/private) that will serve as support to secure their communications through coding mechanisms (confidentiality key). These keys will be generated by using physically safe devices of random seeds generation, which will be used for getting the definitive keys. The pairs of authenticity keys and confidentiality keys will have a minimum of 1,024 bits, and will use RSA public key algorithm.

The PAEC will contemplate diverse elements: 1) the user's titles, which guarantee the integrity of the association between a pair of keys and a user identified through the registry of users; 2) the certificates of confidentiality, which give support to the information interchange; 3) the certificates of attributes, which guarantee the integrity of the association between a user's title and a group of additional attributes corresponding to the identified user.

The user's titles will fulfill the requirements defined by the International Telecommunication Union (ITU), Telecommunication Standardization Sector (TSS), in Recommendation ITU-T X.509 [13], Version 3 or later.

The PAEC will publish the user's titles in a directory, keeping a service of telematic public access, universal and widely available, for consultation on the user's titles issued. The directory will remain physically in the technical infrastructure of PAEC, which will update it online and will provide an online advisory service to all the users.

The directory will fulfill the ITU requirements, TSS, in recommendation ITU-T X.500 [14], Version 1993 or later, or its equivalent International Organization for Standardization (ISO)/International Electrotechnical Commission (IEC) 9594 [15]. The control of access will be basic, the security levels will be maximum, using strong authentication, and support to all the protocols specified in the recommendation (Directory Access Protocol [DAP], Directory Information Shadowing Protocol [DISP], Display System Protocol [DSP], and Directory Operational Bindings Management Protocol [DOP]) will be contemplated. Support of protocol of access to Lightweight Directory Access Protocol (LDAP) will be kept, according to the Internet Engineering Task Force recommendations RFC 1777 [16], Version 2, and RFC 2251 [17], Version 3 or later.

Public savings derived from the presence of the MEFS in the Internet

To obtain potential public savings in the short term, the possibility of Spanish taxpayers filing their IRPF returns online through the Internet with absolute security has been considered. The aid program PADRE, which calculates the return results by introducing the contributor's personal data, can be downloaded from the Internet [18]. The beginning of PCET will mean that this information will be available to be sent via the Internet to the tributary authorities. So the later computer recording of forms (returns) by administrative civil employees will be eliminated, resulting in significant public savings.

In 1998 approximately 15 million annual income tax returns were processed by the Spanish Tributary Administration. Considering that the cost of recording one of these forms is an estimated 1.2 euros [19], a probable initial percentage of 10 percent of tax returns filed through the Internet would mean an average saving of about 1.8 million euros. Estimates show that in two to three years, half the returns could be transacted via the Internet, increasing the public saving to 9 million euros.

At the moment, the MEFS has managed to get 400 of the main companies of the country to file their value-added tax returns (IVA) [20] and their tax withholdings through the Internet. This measure reduces the administrative costs and shortens the waiting time for the IVA refund by one month. This model of electronic return, which will extend in the future to smaller companies on a voluntary basis, tries to eliminate the traditional system which required the company to enclose its return in an envelope and deposit it in a bank branch. Then that branch had to send it to the Tributary Administration. The AEAT has installed a telematic presentation system of tax returns for major companies (those with annual invoicing greater than 6 million euros).

This initiative affects the IVA and IRPF returns. In both cases, the process begins with requesting through the Internet the CRN (complete reference number) that the AEAT sends by certified mail to each company. With the operation of the PAEC, the electronic authorized signature will allow the senders to secure their identities, and the dispatch of the CRN will be made via Internet. Because the CRN renews in each presentation, the CRN used in a transmission is not usable for later transmittals. The filing of these forms is made by means of the secure hypertext transfer protocol (HTTP), used to securely transmit private information. During the past year, the telematic transmission process has had optional character, being obligatory from January 1999. The CRN generation procedure can be seen in figure3.

Figure 3. CRN (complete reference number) generation

The requirements of the EU with respect to the budget deficit of its members turn the public saving into an instrument of vital importance. Operations that have historically meant a significant fixed cost difficult to decrease, such as the publication of reports or memories of interest to various social agents, can be published on the Internet at no cost. Some of these publications that are mainly destined for libraries, professional offices, or managers caused a fixed loss, because in most cases no income was obtained from sales. For example, Memory of the Tributary Administration, an annual publication, has a printing cost of 12 euros per volume. A minimum edition of 2,000 units would cost of 24,000 euros; its publication on the Internet, in portable document format (PDF), identical to the original document, has no cost. The same happens with informative brochures on current events, such as the ones related to the euro.

Increase in the level of social satisfaction

From the taxpayer's point of view, the development of these new services remarkably increases the level of social satisfaction, generally reflected in saving money and time. The traditional method of filing the IRPF returns requires several steps: 1) acquiring documentation with the return forms, and the aid software PADRE (optional). 2) filling in the taxpayer's tributary data, by duplicate; 3) delivering those documents to an office of the Tributary Administration or to a bank branch; and 4) paying the corresponding money amount if the returns were positive to the Tributary Administration or bank branch.

Using the new technologies, the taxpayers may download the PADRE software from the Internet, at no cost (in force). In the short term, with the beginning of PCET, they will be able to send that electronic document to the Tributary Administration from home or work, with no need to send it to bank branches. In the last IRPF campaign, half of the returns were made by means of PADRE. If the result is positive, the taxpayer can make a money entrance carrying out an electronic transfer from a PC, using the Internet services of banking organizations widely developed in Spain. The average time saving is 12 to 14 hours, and the estimated average money saving (in case of needing the aid of a fiscal adviser) is about 30 euros.

Not only do individual taxpayers obtain an increase of social utility from these services, but so do corporate taxpayers. For example, the application designed by the MEFS using ASP (active server pages) technology allows the creditor companies (waiting for the payment of their services) to consult the state of the payments of the Treasury [21] simply by accessing a restricted database. Therefore the annoyance of innumerable telephone calls or visits to information counters is avoided. The main objective of this application consists of providing the creditor with information online about the situation of the payment slope of the Treasury and avoiding consultants having to go personally to the administrative offices to ask for this information. All companies or organizations with any kind of economic relationship with the Spanish state, either contractual or acting as a bidder, can ask for access to the system, whenever some type of deposit or guarantee previous to the awarding of a process of official submission for tenders has been provided. A creditor who wishes to gain access to the system must ask for the creation of two access keys and fill in and sign the corresponding contract of confidentiality.

Other applications supported in ASP allow the taxpayer to consult all the administrative procedures related to the MEFS that he or she must know, including the object of the procedure, the legislation related to it, and the terms of resolution. Another one offers 8,000 series of data about the Spanish economy by subscription, and allows the consultation of the balance sheets of all the insurance agencies that operate in Spain. Many of the Spanish universities, banks' research departments, and private companies are clients of the database of economic time series, given the great ease of immediate downloading of this information for its posterior processing using specialized software for economic forecasting. Having this ample assembly of information in a single source eliminates time and effort spent consulting manifold sources.

The increasing number of requests for statistical information by the different social agents has implied that the other organization of the MEFS, the National Bureau of Statistics (INE) [22], has decided to establish in Madrid (Spain) a data shop service, in collaboration with the European Office of Statistics (EUROSTAT). Through this service the user can order, through the Internet, personalized extractions from social and economic databases, paper publications, and electronic publications. In 24 hours, the data shop searches for the statistical data corresponding to the request, and proposes a supply for the client. After the supply is accepted, the information is extracted and the results are sent using the desired support and means of transmission. The data shop sends an invoice to the client according to the type of service provided and the amount of statistical data given. The average price of a statistical table with data of the 15 state members of the EU and aggregate EUR 15 for an indicator made up of several variables is 46 euros. This cost is far below what an isolated search by the interested user would cost, taking into account that the user would have to consult diverse databases or publications, sometimes difficult to obtain.

As an example of the service offered by the data shop, a possible request of a company can be considered. That company may be interested in knowing the harmonized statistics for a period of 15 years on the wage costs and the rates of unemployment in the industrial sectors of the main European countries, the United States, and Japan. The social utility of this service can be analyzed by observing the social distribution of its users. The experience shows that the main clients are private companies (55%), followed by educational institutions such as universities and high schools (18%), public administrations (6%), mass media (5%), European institutions (3%), citizens (3%), and other information services (10%).

The subjects related to the present economic situation are immediately published on the Internet. One of the sections of the MEFS Web site contains all the press notes issued by the Minister of Economy and Finance and by the Secretaries of State and Undersecretary of the Department [23]. In that way, the mass media are permanently informed about any opinion or reports on economic matters released by the government; in addition, any citizen can obtain access to the same information.

Subjects of special social interest receive a specific processing, having an independent section to which exhaustive attention is dedicated. Thus, the project of the Spanish budget for 1999 was published for the first time on the Internet at the same moment as its presentation to the political groups in the Congress [24]. The new Law of IRPF and the Program of Economic Stability for 1999-2002 have also been included on the Web site.

An aspect much welcomed by the society has been the publication of the Annual Memory of the Tributary Administration corresponding to the years 1996 and 1997. All the chapters of the Memory have been turned into PDF format, to facilitate access by all the professional agents whose work deals with the tributary environment (attorneys' offices, university departments of law, etc.). So, a publication of more than 800 pages, to which access was complicated until now because of its reduced number of units, is now easily accessible by any citizen interested in tax matters.

The information related to job applications in the MEFS is widely requested by the society. Some pending initiatives to promote the contents of the processes of selection of public workers have been developed. The Treasury has designed an application [25] based on ASP by means of which the candidates for public selling agents can consult the complete bases of the call and verify if they have been accepted in the initial process of admission and the later tests of access.


The many possibilities of communication offered by the Internet constitute a solid and versatile base for the establishment of a fluid relationship between public administrations and taxpayers. From their Web sites, the public organizations have been able to eliminate many bureaucratic barriers, allowing relations with the contributors to be much more dynamic. This opening factor is translated, on the part of the administration, into an automatic lessening of costs, necessary when the reduction of the budgetary deficit has special importance.

On the other hand, the social answer in satisfaction terms is immediate from three points of view. First, the environment where the relationship takes place becomes more reasonable and familiar to the contributor. Second, the gain in terms of time is evident, when the delays at information windows or telephone calls are avoided. Finally, some monetary flows from the taxpayer to the administration or the taxpayer to third parties (for example, fiscal advisers) are eliminated, a circumstance that also contributes to private saving.

The creation of a PAEC is the departure point to turn the Internet into an essential tool for the daily transactions among the social agents of a country. That authority grants absolute security to the transmission of information through the Internet among the administration, individual taxpayers, and corporate taxpayers. The case of the MEFS can be extrapolated to any department of the administration in charge of taxes from other countries.


  1. Since the beginning of 1996, the EGM (Estudio General de Medios - General Media Study; http://www.aimc.es) has analyzed the evolution of the use of the Internet in Spain. The study uses a probabilistic and representative sample of the Spanish population 14 years old and up, with more than 13,000 interviews by wave, which means 40,000 interviews in a year.
  2. Ministerio de Economía y Hacienda - Ministry of Economy and Finances (MEFS). The Web site that institutionally represents the MEFS as a whole is at http://www.meh.es. Other Web sites of organizations pertaining to the MEFS are also mentioned in this paper.
  3. Impuesto sobre la Renta de las Personas Físicas - Income Tax (IRPF). MEFS.
  4. The specific tributary information is managed by an organization dependent on the MEFS, the Agencia Estatal de Administración Tributaria - State Agency of Tributary Administration (AEAT). Its Internet address is: http://aeat.tsai.es
  5. Tribunal de Defensa de la Competencia - Restrictive Practices Court (TDC). http://www.meh.es/TDC
  6. Instituto Español de Comercio Exterior - Spanish Bureau of Foreign Trade (ICEX). http://www.icex.es
  7. Organismo Nacional de Loterías y Apuestas del Estado - National Agency of Lotteries and Bets (ONLAE). http://www.meh.es/ONLAE
  8. European Single Currency. EURO. http://www.meh.es/comun/foros.htm
  9. The MEFS has created the Web site at http://www.euro.meh.es, which updated information about the euro.
  10. Data included in the Web site of the Subdirección General de Previsión y Coyuntura - General Subdivision of Forecast and Current Economic Trend: http://www.meh.es/SGPC
  11. Proyecto CERES - PCET Project. http://www.fnmt.es/ceres/pceres.htm
  12. Official Journal of the European Communities. 23 October 1998.
  13. http://www.itu.int/itudoc/itu-t/rec/x/x500up/x509_27505.htmlX.509. Information technology. Open Systems Interconnection. "The Directory: Authentication framework." August 1997.
  14. http://www.itu.int/itudoc/itu-t/rec/x/x500up/x500_27607.htmlX.500. Information technology. Open Systems Interconnection. "The Directory: Overview of concepts, models and services." August 1997.
  15. RFC2251. "Lightweight Directory Access Protocol (v3)." M. Wahl, T. Howes, S. Kille, December 1997.
  16. RFC1777. "Lightweight Directory Access Protocol." W. Yeong, T. Howes, S. Kille, March 1995.
  17. Programa de Ayuda para la Declaración de la Renta - Income Tax Return Aid Program. PADRE (software) http://aeat.tsai.es/aeat/soporte.htm
  18. S.I.M.O. Sistema de Información de Medios y Objetivos. Delegaciones de Economía y Hacienda. Report on Means and Objectives of the Provincial Delegations of the MEFS. Annual since 1987.
  19. Impuesto sobre el Valor Añadido - Value Added Tax (IVA)
  20. Dirección General del Tesoro - Spanish Department of Treasury. http://www.meh.es/TESORO
  21. Instituto Nacional de Estadística - National Bureau of Statistics (INE). http://www.ine.es
  22. Press notes. Minister's Cabinet. MEFS. http://www.meh.es/noticias.htmhttp://www.meh.es/GABINETEP/noticias.htm
  23. Spanish Budget (Project). http://www.meh.es/pge/PORTADA.htm
  24. Public Selling Agents. Selection Process. http://www.meh.es/TESORO/corredores.htm

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