Transcript Applying Accrual Concepts for Budgeting March 2008 Pål Ulla Deputy Director General Budget Department Norwegian Ministry of Finance Topics The government-appointed commission’s recommendation for accrual budgeting Are accruals used.

Applying Accrual Concepts for
Budgeting
March 2008
Pål Ulla
Deputy Director General
Budget Department
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Norwegian Ministry of Finance
Topics
The government-appointed commission’s
recommendation for accrual budgeting
Are accruals used for some agencies today?
Long-term liabilities
Budgeting and financial statements
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Norwegian Ministry of Finance
What are we talking about?
Norway has well established National Accounts for
macroeconomic analytical purposes. The public
government statistics are given both in cash and
accrual bases (GFSM2001).
All the revenue estimates used in the budget
formulation are first calculated in accrual terms and
then transformed to cash flows. This is mainly for
tax estimates.
Norway has however chosen that the parliament’s
approval of the budget shall be on cash base.
It is the budget approved by the parliament that I
discuss in this presentation.
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Norwegian Ministry of Finance
The government appointed
commission’s recommendation for
accrual budgeting
The choice of cash and accrual depends on how the
government wants to control the individual agency.
The impressions in the Ministry of Finance are:
• Cash is best when the control of the budget
execution is based on input control (transactions)
• Approval of the largest investment programs are
important for formulation of some of the policies
approved by the parliament (infrastructure,
weapons programs)
• Accrual is best on performance based budgeting
where the responsibility for the most efficient
executions are decentralised to the individual
agencies (in a total individual spending limit
including reinvestments)
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Norwegian Ministry of Finance
The discussion concluded that the main principle
still should be cash based budgeting.
Why:
• The principle was chosen because most of the
agencies are and will be regulated through control
of inputs.
• New programs and agencies depend on approval of
investment appropriations from the parliament.
(Including appropriations for the largest projects
which are policy related; infrastructure, weapon
systems.)
• It is the line-ministries that decide what to perform
with little influence over output or outcome by the
Ministry of Finance.
• There was/is little trust in the possibility to create a
accurate performance based budgeting because
outputs and outcomes are difficult to measure.
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Norwegian Ministry of Finance
Value for money
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•
To introduce accrual budgeting is costly. There is a
need to measure all fixed capital in both central
and local government.
•
One conclusion was that introducing accrual
accounting will not produce Value for money.
Norwegian Ministry of Finance
Are accruals used for some agencies
today?
Formula based budgeting is used for universities and
high schools. They use accrual budgeting internally.
However they want more resources for research
still they have large amount in the TSA.
Appropriations for hospitals are based on performance
targets. However actual spending each year
exceeds targeted appropriations.
Use of accruals is not the problem but neither has it
been the solution.
A project where 10 institutions are allowed to have
their internal budgets on accrual base but report to
the fiscal budget on cash base
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Norwegian Ministry of Finance
Long-term liabilities
In Norway we use long-term projections to check for
fiscal sustainability
In a pay-as-you-go pension system you must include
the contributions from taxes to pay for the future
pensions to see if the system is sustainable.
The future sustainability problem can not be solved
only with earmarked pension savings today. There
must also be pension reform.
Because of the uncertainties accrual budgeting based
on the present pension regulations will not give the
right answer.
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Norwegian Ministry of Finance
Budgeting and financial statements
One argument for having financial statement in a
different accounting base than the budget is that
this will create more (better?) background
information for the prioritizing in the budget
process
In the Ministry of Finance in Norway it is seen to be
most important to control budget appropriations
as set by the parliament.
In addition two different principles will be confusing
when formulating fiscal rules
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