Transcript Session 1 - International Monetary Fund

Session 5
May 29 morning (1)
Legal framework for
Accountability and
Responsibility of actors in
budget processes
Topics Covered
1. Responsibility of Parliaments in budget
processes of OECD countries.
2. Responsibilities delegated from
Parliament to the Executive.
3. Responsibilities delegated to the
Minister of Finance & other ministers.
4. Experience with Fiscal Responsibility
Laws in OECD and other countries.
Responsibilities of Parliaments in
budget processes
•Is Parliament supreme in budget matters?
•In all OECD Countries, Parliaments adopt
annual budgets and “hold the executive to
account” by reviewing budget outcomes.
•However, in practice, Budgetary Powers of
Parliaments in highly variable in OECD
countries. Budget “power” criteria include: (1) adopting a
MTBF; (2) budget amendment rights; (3) time allowed for budget
discussion in Parliament; (4)technical support to Legislature; (5)
restrictions on in-year budget adjustments by Executive.
Budgetary Powers of Parliaments
Source: IMF WP/05/115
Responsibilities delegated from
Parliament to the Executive
•Budget preparation e.g., “the President [Minister of
Finance] shall prepare a draft annual budget and submit it by
[date] ...in a format prescribed (or decided) by ”... the Budget
System Law? The Legislature? The Executive?
•Budget Execution. The Government – and its
ministries/agencies – are expected to execute the budget as
adopted by Parliament. Some up/down flexibility in most
countries, to exceed budget appropriations, in case of
emergencies or withhold spending when needed (not USA).
•Preparation of Reports -- or draft Laws -- on Budget
Execution. The BFMSL usually delegates to the Government
the requirement to prepare annual accounts and, in some
countries, draft Budget Execution Laws, which are formally
adopted by Parliament (e.g., France, Germany, Italy).
High-level Delegation of
Responsibilities within the Executive
Presidential Systems of Government. Choices:
Laws often refer to “the President shall...”. He/she issues
Presidential Orders/Decrees. E.g., USA, Brazil, Mexico.
Budget/Treasury Laws may refer to the “minister of finance”
(not the President) for specific budget or FM responsibilities e.g.,
Indonesia.
Parliamentary Systems.
Collective responsibility. The Government – or Cabinet of
Ministers – is responsible e.g., Japan’s 1946 Constitution and PF law
Individual Ministers are responsible, e.g., UK etc.
Both individual and collective responsibility. e.g., France OBL
“under the authority of the Prime Minister, the minister in charge of finance
prepares the draft budget bill, for deliberation in the Council of Ministers”.
Law or Government Decrees Need to Clarify the Delegation
of Responsibilities from the Head of Government to the
Minister of Finance (and of Budget/Plan).
USA: Delegation Powers of
President—extract from US Code
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TITLE 3--THE PRESIDENT
CHAPTER 4--DELEGATION OF FUNCTIONS Sec. 301.
General authorization to delegate functions;
The President of the United States is authorized to designate and empower
the head of any department or agency in the executive branch, or any official
thereof who is required to be appointed by and with the advice and consent
of the Senate, to perform without approval, ratification, or other action by the
President (1) any function which is vested in the President by law, or (2) any
function which such officer is required or authorized by law to perform only
with or subject to the approval, ratification, or other action of the President....
Transfer of Functions
Functions vested by law (including reorganization plan) in Bureau of the
Budget or Director of Bureau of the Budget transferred to President by
section 101 of 1970 Reorg. Plan No. 2, eff. July 1, 1970, 35 F.R. 7959, 84
Stat. 2085. Section 102 of 1970 Reorg. Plan No. 2, redesignated Bureau of
the Budget as Office of Management and Budget and Director of Bureau of
the Budget as Director of Office of Management and Budget. See
Reorganization Plan No. 2 of 1970, set out in the Appendix to Title 5,
Government Organization and Employees.
USA: Responsibilities of OMB,
Department of Treasury, the CEA
Office of Management and Budget (OMB)
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OMB was established by the 1921 Budget and Accounting Act
assists the President to oversee federal budget preparation and supervise its
administration
evaluates the effectiveness of federal agency programs, policies, and procedures
assesses competing funding demands among agencies and sets funding priorities
ensures that agency reports, rules, regulations, testimony, and proposed legislation
are consistent with the President’s budget and with the administration’s policies.
Department of the Treasury
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created by an Act of Congress in 1789 (codified in Title 31 US Code, Chapter 3).
Competencies for fiscal management are shared
primary responsibility for tax policy and tax estimates, revenue administration,
government accounting, cash management and public debt management
Council of Economic Advisors
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established by the Employment Act of 1946
provides the President with objective economic analysis and advice on a wide range of
domestic and international economic policy issues.
plays an important role in formulating fiscal policy and economic forecasts in
collaboration with the Treasury and the OMB.
Responsibilities of the Minister
of Finance & other ministers
•The President, Prime Minister and Cabinet of Ministers are
responsible collectively for overall government policies.
•Law may specify the Minister of Finance’s specific
responsibilities, including for:
preparation of the (consolidated) State budget
execution of the budget
preparation of annual accounts and in-year reports pertaining to the
National Budget
management of government assets and financial liabilities
•Government Decrees may specify other Ministers’
responsibilities, notably for policy proposals and budget
management in his/her department.
•Ministers are responsible before Parliament (especially,
but not only, the Budget and/or Public Accounts Committees)
and the public.
Responsibilities of Ministers
versus Civil Servants in
budget/FM management
Budget and FM responsibilities may be laid out in:
•Law: in contractual terms e.g., NZ State Services Act 1988
•Law/Regulations: in generic functional terms e.g.,
France 1962 Public Accounting Regulations, which importantly, specify the
role of Ordonnateurs (Ministers) and public accountants.
•Law/Regulations: for specific positions or
entities e.g., USA Inspector General Act 1978 and Chief Financial
Officers Act 1990; France: Inspection Generale des Finances, gov’t decree.
•Informal. E.g., UK letters of appointment by Treasury of “Accounting
Officers”, who are responsible for overall organization, management, and staffing of
his/her department. However, the Gov’t Resources and Accounts Act 2000 requires
AOs to prepare resource (accrual-based) accounts.
NZ State Sector Act 1988—
specifying “contractualism” in law
• Responsibilities of “chief executives” -- heads of
government departments. They must: (a) manage
inputs, including staff and their remuneration; (b) determine
the most efficient way of producing the government services
for which they are responsible.
• Purchaser-Supplier Contracts. Individual budget
managers supply services to government ministers, who
purchase these services. Contracts specify the quality,
quantity, timing and price of the agreed services.
• Personal accountability of chief executives, who
has a personal performance agreement with the appropriate
minister, accompanied by a purchase agreement that
specifies the outputs to be supplied by the department to the
minister. Chief executives also appear at hearings of
parliamentary committees.
Fiscal Responsibility Laws (FRLs)
Aims:
•Stability: to promote fiscal discipline in a credible and
predictable manner. In some cases, to include fiscal rules
in law.
•Transparency: to require governments to declare and
commit to a medium-term fiscal policy and budget/debt
strategy that can be monitored – hence FRLs require
regular reporting to the public.
•Accountability and performance: to enhance the
government’s accountability to parliament and the public
for responsible (and improved) fiscal management and
budget performance.
Experience with FRLs in OECD
and other countries
•FRLs: have been adopted in only a few OECD
countries, notably NZ FRL 1994; Australia, Code of Budget Honesty,
1998; UK, 1998 Law + Code of Fiscal Stability, but not Canada....
“Successful” FRLs --fiscal performance has improved since
adoption. But is adoption of the FRL the reason for this?
•More recently, FRLs have been adopted in several
Latin America countries, India, Sri Lanka, and
Nigeria.
Mixed records: Failures in Argentina, Colombia, Ecuador,
Panama, Peru – quantitative rules were not met. In India, Sri
Lanka quantitative target implementation postponed. Brazil:
quantitative debt targets are not included in this successful law.
Fiscal Responsibility Law—Brazil
• Maximum limits on the level of debt of central and subnational governments (levels are set annually, in Budget
Directives Laws, for 3 years ahead).
• Maximum limits on personnel expenditure, as a
proportion of net current revenues. These are specified for
each of the three levels of the government (federal: 50%,
states: 60% and municipalities: 60%).
• New medium-term expenditure has to be “affordable”
e.g., new mandatory expenditure possible only if there is a
reduction in other expenditure or new taxes.
• Monitoring and reporting of budget implementation :
extensive provisions : 2-monthly, 4-monthly, annual
reports.
• Budget documents: must include Fiscal Risk statement.
• Sanctions for breaches of the law.
Fiscal Responsibility Laws—
General Lessons
• FRLs require broad political consensus and are not a substitute for
firm commitment to fiscal discipline.
• The design of a FRL, like any law, should address country-specific
weaknesses.
• FRLs could be integrated with existing laws.
• Sufficiently developed public financial management systems are
needed to support the implementation of FRLs.
• Procedural rules – non quantitative targets – are preferable to
quantitative targets.
• FRLs should cover all relevant fiscal (and quasi-fiscal) operations and
entities.
• Weak institutions and poor capacity may undermine the credibility
effort.
• Independent monitoring and oversight is necessary.
• Sanctions should be credible and enforceable.