Best practices for legislative budgeting - Lisa Von Trapp, OECD
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DEVELOPING BEST PRACTICES FOR PARLIAMENTARY BUDGETING Lisa Von Trapp Senior Policy Analyst, OECD 9th Annual Meeting of Parliamentary Budget Officials and Independent Fiscal Institutions Edinburgh, Scotland
DEVELOPING BEST PRACTICES FOR PARLIAMENTARY BUDGETING
Lisa Von Trapp
Senior Policy Analyst, OECD
9th Annual Meeting of Parliamentary Budget Officials and Independent Fiscal Institutions
Edinburgh, Scotland
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Ten OECD principles of Good Budgetary Governance
Presenter
Presentation Notes
The budget is the central policy document of government, it’s a contract between citizens and state showing how resources will be raised and allocated for the delivery of public services. Experience of recent years has underlined how important good budgeting is to have trust between states and citizens. Against this background, the OECD Council adopted ten principles of good budgetary governance. These provide a concise overview of good practices across the full spectrum of budget activity. The overall intention is that they can give clear guidance for policy-makers and practitioners who are designing, implementing and improving budget systems. What do the Principles say on parliamentary budget oversight?
What these principles say on parliamentary budgeting
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“Countries should provide for an inclusive, participative and realistic debate on budgetary choices, by offering opportunities for the parliament and its committees to engage with the budget process at all key stages of the budget cycle, both ex ante and ex post”
OECD Principles of Good Budgetary Governance
Presenter
Presentation Notes
Well, the recommendation states that countries should provide for an inclusive, participative and realistic debate on budgetary choices, by offering opportunities for the parliament and its committees to engage with the budget process at all key stages of the budget cycle, both ex ante and ex post.
• set-piece events engagement through the year
• financial focus integration of performance info.
• general research support support from specialised units
• written briefing social-media friendly analysis
• fiscal stability heightened focus on fiscal risks
• Member driven greater engagement of citizens
• national focus budgeting across levels of government
• Executive dominance parliament as a partner
Trends in parliamentary budgeting
Presenter
Presentation Notes
One of the challenges that we face is that the role of the legislature in the budget process varies greatly in OECD member countries. In addition, we are seeing a number of changes to the way budget oversight is undertaken. For example: The budget is moving from being a set piece event to being considered by the parliament at different stages throughout the year. For example, in France there is a legislative debate on budget priorities that feeds into the government’s preparation of the draft budget. Many parliaments are moving from having a financial focus to having a focus on performance and results as well – something that parliaments in the Netherlands and Austria do particularly well. We are seeing the growth of financial scrutiny units and parliamentary budget offices to support budget oversight. We are also seeing these units and others change the way they deliver their services in response to the demand for social-media friendly analysis. Prior to the global financial crisis there was a prolonged period of fiscal stability, but since the crisis, there is heightened focus on fiscal risks and ensuring longer term fiscal sustainability. Given the loss of trust since the crisis, there is also more focus on engagement with citizens. The trend for fiscal decentralisation over the last 20 years also means that there is increased focus on budgeting across levels of government. And last, but not least, we are seeing countries slowly but surely realising that an effective legislature is critical to promoting fiscal transparency and accountability and improving fiscal discipline. So the general trend is for the legislature to take a more active and responsible role in the budget process.
• Recent reviews have exposed a need for principles to ensure strength of parliamentary budget oversight.
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A need for principles to guide parliamentary reform
Presenter
Presentation Notes
Some of these changes have been brought about by step by step, for example in Canada and the UK. In other countries, these changes have been brought about as a result of larger scale reforms, for example in the reform of the organic budget law in France in 2001, the comprehensive federal budget reforms in Austria in 2007 and the ongoing reforms in Ireland. These reforms in Ireland, together with other reforms happening at the moment across the UK have exposed the need to have principles to ensure the strength of parliamentary budget oversight.
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Step 1. Identify broad areas of coverage
Towards OECD Best Practices for Parliamentary Budgeting
Presenter
Presentation Notes
Like all of our principles, we want to have them grounded in country experiences, and so the first stage of the process is liaising with the OECD networks, analysing out surveys, looking over our country reviews and other work from the IMF, the World Bank and the CPA etc to identify the broad areas where it appears that principles in relation to parliamentary budget oversight would be necessary. We have undertaken this exercise and are now at the stage of honing the exact principles in each area by talking with key stakeholders in parliaments, governments and international institutions. Once we have a consensus on these, we will be able to draft an OECD publication in this area for approval and launch.
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Step 1: Identifying broad areas of coverage
Review… • Existing standards from OECD, IMF,
World Bank, CPA, OBP, GIFT, Wehner, Lienert, etc.
• OECD surveys • Country reviews • Studies and analysis • Gathering and exchanging knowledge
… and supplement this with the experiences of practitioners across OECD countries…
Presenter
Presentation Notes
These show where different aspects have appeared in codified standards, with different levels of legitimacy (consultation process, etc) and specificity The OECD has data on most of these aspects, from country reviews and database, very under-used, even by ourselves. This will inform as well
Towards OECD Best Practices for Parliamentary Budgeting
Step 4. OECD approval and launch of Best Practices
Potentially in the future…. develop Best Practices into Principles for Parliamentary Budgeting
Current stage
Presenter
Presentation Notes
Like all of our principles, we want to have them grounded in country experiences, and so the first stage of the process is liaising with the OECD networks, analysing out surveys, looking over our country reviews and other work from the IMF, the World Bank and the CPA etc to identify the broad areas where it appears that principles in relation to parliamentary budget oversight would be necessary. We have undertaken this exercise and are now at the stage of honing the exact principles in each area by talking with key stakeholders in parliaments, governments and international institutions. Once we have a consensus on these, we will be able to draft an OECD publication in this area for approval and launch.
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Key areas of best practices
Budget formulation
Budget approval
Budget implementation
Audit
Organisation and resources
Public engagement
OBSERVATIONS FROM ACROSS THE OECD
Presenter
Presentation Notes
So, you’ve now got an idea of the type of indicators we will be using to assess the strength of parliamentary budget oversight. Now for a look at how countries across the OECD fare in some of these areas.
Budget formulation
Source: OECD Budget Practices and Procedures Database (2012).
Fiscal rules approved by parliament
0%5%
10%15%20%25%30%35%40%45%50%
2007 2012
% o
f fisc
al ru
les in
OEC
D co
untrie
s ba
sed o
n nati
onal
legisl
ation
Who approves the MTEF?
4%
52% 37%
7%
MoFCabinetLegislatureOther
Presenter
Presentation Notes
As I mentioned, parliaments are increasingly involved in the ex ante budget phase. Also seeing an increasing number of countries with a MTEF.
Is a pre-budget report submitted to the legislature?
Budget formulation
Source: OECD Budget Practices and Procedures Database (2012)
53%
47% Yes
No
Timing of pre-budget report No. of OECD countries
Submitted 1 month or more before the budget is presented to legislature 11
Submitted less than 1 month before budget is presented to legislature 7
Presenter
Presentation Notes
As I mentioned, parliaments are increasingly involved in the ex ante budget phase. This chart shows that almost half of national parliaments across the OECD are now provided with a pre-budget report upon which they can debate forward-looking spending plans. Often presented in the Spring, a pre-budget report serves to encourage debate on the budget aggregates (revenue, expenditure, surplus/deficit and debt) and how they interact with the economy. As such, it also serves to create appropriate expectations for the budget itself. Such reports state the government’s long-term economic and fiscal policy objectives and the government’s economic and fiscal policy intentions for the forthcoming budget year(s).
No.of months budget presented before start of FY No.of months for legislative debate
3 months or more Less than 3 months
Budget approval
Timetable for presentation of budget and legislative debate
% of
OEC
D co
untrie
s
Source: OECD Budget Practices and Procedures Database (2012).
Presenter
Presentation Notes
Legislatures require a properly timed budget process to participate effectively in decision making. Time for budgetary scrutiny is a proxy for the quality, intensity and impact of parliamentary engagement. In addition, the timing of the budget approval has a strong role to play in motivating parliamentarians to engage in meaningful oversight.
In the budget approval phase, the principles are likely to focus on the provision of budget documentation to the legislature. This chart shows the percentage of OECD countries which include different elements in their budget documentation. We can see that the vast majority of governments provide information on each of these elements. MTFPO – no, other countries would specify surplus/deficit and borrowing/debt targets (in Scotland’s context, up until now not really needed, but could expect more on borrowing/debt in coming years). Budget priorities – Yes, have strategic context for entire budget and priorities for each portfolio, linked to NPF. Appropriations linked to administrative units (opposite of programme budgeting) – Yes, spending linked to institutions in budget. MTR&E – Depends on the year Non-financial performance target – Priorities for each portfolio, but not performance targets as in the case of Austria
Citizens budget Long term perspective on total revenue andexpenditure (10 or more years)
Source: OECD Budget Practices and Procedures Database (2012).
Presenter
Presentation Notes
Increasingly we are also seeing governments publish citizens budgets and long term sustainability reports alongside the budget. Another area where governments are increasingly providing more information is on fiscal risks. Long-term fiscal sustainability report – Monitoring of Long-Term Investment Commitments in Draft Budget, but not LT report as such �Also fiscal risks
Sources: OECD Budget Practices and Procedures Database (2012) and OECD Survey on Parliamentary Committee Structures for Budget Approval & Oversight (2011).
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Model 1 Model 2 Model 3 Model 4 Model 5
Numb
er of
OEC
D co
untrie
s
Committee structures for dealing with the budget
Model 1 A single Budget/Finance Committee coordinates a process in which sectoral committees make recommendations to the Budget/Finance Committee.The Budget/Finance Committee then reviews and accepts or rejects these recommendations and formally considers all budget-related matters.
Model 2 A single Budget/Finance Committee formally considers budget aggregates (total level of revenue and spending and their allocation to each sector) and sectoral committees formally consider spending for sector specific appropriations.
Model 3 A single Budget/Finance Committee formally considers the budget, but members from sectoral committees attend meetings of the Budget/Finance Committee when expenditures in their specific areas are discussed.
Model 4 A single Budget/Finance Committee alone is responsible for reviewing the budget, although it may call on sectoral committees for input
Model 5 No Budget/Finance Committee is in place, but sectoral committees formally consider appropriations
This chart shows the key areas which the OECD have identified the best practices will mostly likely cover and I will go through each of them one by one to explain what each means. Firstly, the ex-ante budget phase, or in other words, the budget preparation stage. It is likely that we will outline here that Parliaments should have approval of fiscal frameworks, including aspects such as fiscal rules and arrangements for sub-national financing. Parliaments should also have the opportunity to approve the medium term expenditure framework, including budget aggregates for at least three years, economic and fiscal forecasts and the debt strategy of government. It is also an emerging practice that parliaments should be involved in some way with the debate on key budget priorities. Secondly, the budget approval phase. It is likely that this will stipulate: The key documents that should be presented to the legislature, their nature and the integration of performance information. That parliaments and those who provide analytical support to parliaments, should have access to additional budget information The emerging consensus on how committees should be organised – with a strong budget committee co-ordinating the work of sectoral committees. The extent to which parliaments should have amendment powers and the time that should be available for scrutiny. In this respect there is a strong emerging consensus that parliaments should have at least 3 months to scrutinise the budget and that the budget should always be approved before the start of the fiscal year. Thirdly, the budget implementation phase. The principles will likely state that: The parliament should be provided with interim financial reports to allow scrutiny of budget execution. That governments should have flexibility in re-allocating monies during the year but significant changes should be subject to approval by the parliament. Fourthly, the ex post budget phase. Here, the key thing is that there is parliamentary scrutiny of audit findings and that these feed into subsequent years budget decisions. Lastly, as shown in the middle, we have cross-cutting pillars. These principles will look to ensure that: Parliaments control their own budget That they engage with the public and that they have access to independent analytical capacity.
