If they were unaware of it before, the recent hoopla about the cuts that were made to the 2012 budget by the opposition has certainly enlightened the citizenry as to the limitations on the role of the National Assembly in the budget process. The post-November 2011 dispensation, however, now gives us the opportunity to make changes that will allow future parliaments, even of a majoritarian nature, to make a more meaningful contribution.
Much of what I will present in this article was taken from the International Monetary Fund 2010 study “Role of the Legislature in Budget Processes” by Ian Lienert, which I mentioned last week as seeking to establish applicable international best practices. We should keep in mind that the study is of OECD parliaments of some long tradition. Nonetheless, perhaps for this very reason it provides good benchmarks of what is possible.
One innovation that may be considered is the adoption of pre-budget debates that take place about the middle of the year preceding the budget. There are two main purposes for such debates. Firstly, to provide parliament with information about the government’s fiscal intentions: here the government presents its updated annual and medium-term budget strategy and policy priorities. And secondly, to provide parliament with hard multiyear fiscal targets and spending ceilings, which the government must adhere to when preparing the detailed spending estimates for the impending budget.
For example, by end-June of each year the Brazilian congress adopts a budget guidelines law after a debate on the budget aggregates. It sets out expenditures that are considered mandatory for the coming year, i.e. the programmes that will be exempt from any reductions during budget implementation, and formalises the main assumptions and budget targets for the upcoming year.
According to Lienert, good practice suggests that governments should submit a draft annual budget to parliament two to four months before the beginning of the new fiscal year, giving sufficient time for it to be scrutinised, debated, and alternatives considered before the new fiscal year begins. Following the Westminster tradition, our parliament gives as little as two weeks for parliament to consider the budget.
Most parliaments also have arrangements in place to prevent the shutdown of the government that could result from lengthy political wrangling. If the budget is not approved by the stipulated date, the executive may be given the authority to spend on a monthly basis, perhaps at one twelfth the annual budget of the previous year. Although a rule such as this may to some degree avoid the last minute rush and tumble we saw during our last budget process, it could however also make the executive less willing to make concessions.
We have lived through a ruinous debt burden and yet again the increasing level of our public debt is giving cause for concern. The IMF study suggests that “When fiscal sustainability is under threat and/or after fiscal consolidation has begun, adoption of fiscal rules by the legislature can be helpful to support achieving agreed objectives for sustainable medium-term fiscal and debt positions.” However, quantitative fiscal rules should only be adopted if the targets are realistic, political commitment is adequate and there are functioning compliance mechanisms for achieving them. “Further the legislature should review and endorse the government’s annual debt management action plan (or better, its asset-liability management plan), consistent with agreed medium-term objectives for gross and net debt.”
The power to amend and propose alternative budgets has become an important benchmark of what constitutes a modern parliament. Our parliament does not have such authority, but perhaps should consider acquiring the ability to make amendments to budgets independent of the executive. Thirty OECD countries have unlimited legal power to amend the draft budget. In some countries, expenditures may be increased provided the legislature also raises additional revenues to finance higher spending. In others, total expenditure cannot be increased beyond that proposed by the executive and the legislature is only permitted to reallocate between expenditures. This kind of deficit-neutral amendment is intended to mitigate the effects of pork-barrel politics, where legislators, with their eye firmly on their constituencies and the next elections, are tempted to increase the budget balances.
In previous articles I spoke of the importance of committees in the parliamentary budgetary process and most of the countries in the study have budget committees to deal with specific issues, such as health, agriculture, education, etc., and best practice requires the establishment of “a budget committee …. charged with setting (or endorsing) aggregate spending targets and sectoral allocations. Such a committee can be responsible for scrutinizing the government’s proposed ex ante budget, as well as ex post budget execution. The work of sectoral parliamentary committees should be subject to spending ceilings proposed by the budget committee.” The budget committee must be provided with strong powers and adequate analytical support to enforce budget spending discipline on sectoral committees.
Since it is generally recognised that parliament must be properly supported if it is to be effectively involved in the process, the parliaments of countries in the study have established non-partisan budget offices to: “Provide budget analysis and independent advice to parliamentarians from both the majority and minority parties represented in the legislature. Provide the legislature with medium-term fiscal projections and scenarios that may differ to those prepared by the government. Quantify the impact of alternative new taxes or spending policies, especially (but not exclusively) on the budget for the forthcoming fiscal year. Remedy the lack of time and analytical capacity that elected representatives have to analyze the details of draft budgets and to propose alternative budget policies.”
According to the report, parliament can only perform an effective role if it is adequately funded and has autonomy in the preparation of its own operational budget. “Many OECD countries legislatures prepare their own budgets, which typically are not altered by the executive.” However, while good practice requires autonomy, parliaments should be subject to the same general procedures for executing and reporting on spending and “should not abuse their powers by increasing parliament’s operating and investment expenses.”
Finally, given the controversy that now surrounds NICIL, on the issue of extra-budgetary expenditures, the study claims that best practice suggests that: “Parliament should avoid approving laws that authorize off-budget spending unless there are highly transparent arrangements for recording, monitoring, reporting, and auditing all financial transaction associated with them. …. Parliament should require the government to provide full and regular reports on all extra-budgetary spending, contingent liabilities, and quasi-fiscal activities.”
