BUDGET TRANSPARENCY

Jon BlondalDeputy HeadBudgeting and Management

Santiago, 29 January 2004

OUTLINE OF PRESENTATION

• Transparency - Background

• OECD Best Practices for Budget Transparency

• Limits of Transparency

Declaration of Human and Citizens Rights France - 1789

All citizens shall have the right to ascertain, personally or through their representatives, the need for public contribution, to consent it freely, to monitor its appropriation and to determine its rate, its assessment base, its collection and its duration.

Why the Increased Attention to Budget Transparency?

• Good Governance

• Fiscal Consolidation

• Non-transparency and vested interests

Essential Elements of Budget Transparency

• Release of budget data

• Effective role for the legislature

• Effective role for civil society– Citizens, media, NGOs

OECD Best Practices for Budget Transparency

• Part I - Budget Reports

• Part II - Specific Disclosures

• Part III - Integrity

Budget Reports

• The Budget

• Pre-Budget Report

• In-Year Reporting and Year-End Report

• Pre-Election Report

• Long-Term Report

Specific Disclosures

• Economic Assumptions• Tax Expenditures• Financial Liabilities and Financial Assets• Non-Financial Assets• Employee Pension Obligations• Contingent Liabilities

Integrity

• Accounting Policies

• Systems and Responsibilities

• Audit

• Parliamentary scrutiny

The Budget

• Government’s key policy document

• Comprehensive, encompassing all government revenue and expenditure

• Medium-term perspective

• Results-Oriented

• Submit to legislature 3 months in advance

Pre-Budget Report

• Presented to the legislature several months prior to the budget

• Focuses on aggregates and their link with economic impacts

• Serves to create appropriate expectations for the budget

In-Year Reports and Year-End Report

• Monthly Report

– Compare actual with planned levels of revenue and expenditures

• Mid-Year Report

– More comprehensive update

– Reassess economic assumptions

• Year-End Report

– Primary accountability document

– Audited

Pre-Election Report

• Objective– Inform Public Debate– Political Discipline

• Responsibility– Minister– Senior Civil Servant

Long-Term Report

• Assesses long-term sustainability of government programmes

• Captures impact of demographic changes (ageing populations)

Economic Assumptions

• Primary fiscal risk• Should be disclosed explicitly• Sensitivity analysis• Comparison with other institutions

Tax Expenditures

• Preferential treatment for specific activities• Alternative to “normal” expenditures• Needs to be integrated with annual budget process• Becoming more widespread

Financial Liabilities and Assets

• Liabilities disclosed by type– Short-term vs. long-term

– Fixed or variable rate of interest

– Currency denomination

• Assets disclosed by type– Cash

– Receivables

– Loans advanced• Default risk

– Investments in Enterprises

Non-Financial Assets

• Property and equipment• Disclosed as inherent part of accruals• Asset registers as supplementary information

Employee Pension Obligations

• Very significant obligations

• Difference between accrued benefits and contributions

• Disclose actuarial assumptions

Contingent Liabilities

• Guarantees, legal proceedings• Disclose explicitly• Default risk

Accrual Accounting?

• The ends vs. the means• Increasing rapidly, although practices vary• Be transparent regardless of which accounting

basis is applied

Audit

• Essential element of ensuring integrity

Role of the Legislature and Civil Society

• Budget formulation typically takes place “behind the scenes”

• Publication of fiscal reports is prerequisite for transparency, but not enough...

• …the reports need to be scrutinised by the legislature and by representatives of civil society

Conclusion

• Fiscal transparency does not automatically result in fiscal discipline

• It only means being open about the government’s fiscal actions…

• …which should foster fiscal discipline

Ruth RichardsonNew Zealand Minister of Finance

“[New Zealand’s fiscal responsibility legislation] places an onus on the government to be explicit about its fiscal strategy, but is neutral as to what that fiscal stance might be”

OECD Homepage

www.oecd.org/gov/budget