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Relationship between the Legislature and the Budget Office in the Budget Process

Relationship between the Legislature and the Budget Office in the Budget Process. Eastern Europe SBO Meeting Chung-Keun Park. 1. Background of this study. Two key players in the budget process Increasing demand for active legislative involvement in the budget process

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Relationship between the Legislature and the Budget Office in the Budget Process

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  1. Relationship between the Legislature and the Budget Office in the Budget Process Eastern Europe SBO Meeting Chung-Keun Park

  2. 1. Background of this study • Two key players in the budget process • Increasing demand for active legislative involvement in the budget process • OECD experts meeting in October, 2006 ; 9 countries with different power structure - Presidential : Mexico, U.S. - Semi-Presidential : France, Korea - Parliamentary : Italy, Japan, Netherlands, Sweden - Westminster Parliamentary : U.K.

  3. 2.Factors affecting relationship between the Legislature and the Budget office • Power structure - Presidential to Westminster Parliamentary • Party system - Strong, cohesive two party system / weaker two party or multiple party system • Structure of the legislature - Unicameral / bicameral • Structure of the budget - Comprehensive / fragmentary

  4. 3. Recent trends • Executive predominance in 20th century - Expansion of the government - Growth in technical complexity and bureaucracy - Rise of disciplined political party • Recent resurgence of legislative role in budgeting - To improve deteriorating fiscal balance - Demand for transparency and accountability - Change from disciplined to fragmented party

  5. 4. Increasing legislative role, positive or negative for budgetary goals? • Fiscal discipline - Feeble faith in their own institutional self restraint / greater fiscal responsibility • Allocation - Narrow purpose for local constituency / broader national priorities • Efficiency - Hamper administrative efficiency / provide sufficient flexibility • Accountability

  6. 5. Interaction between the Legislature and the Budget Office in the Budget Process

  7. (1) Budget preparation and submission • Deadline for submission - On average, 3 months before new fiscal year begins • Economic assumptions - MOF or shared responsibility of related ministries - Central Planning Bureau (Netherlands) • Legally independent body composed of 200 economists • Medium-term budget frameworks - 75% of OECD countries prepare MTBFs (survey, 2003) - Not legal requirement in most countries, but significant in top-down budgeting - Coalition Agreement in the Netherlands

  8. (2) Budget deliberation • Legislative committees - Budget committee / Sectoral committees • Most countries have budget committee but the U.K. • Increase of entitlements for sectoral committees - Recent trend emphasizing balanced role of the two committees • Legislative budget office - 3 out of 39 countries with more than 26 staffs(survey, 2003) - U.S. CBO (Congressional Budget Office) • Non partisan / 235 staffs with budgeting experiences • Providing legislative estimates and analysing proposal - Case of Korea, Italy and Sweden

  9. (3) Budget approval • Amendments - Presidential / Parliamentary • Two-stage budget approval in Sweden - Spring Budget Bill; aggregate expenditure limit - Budget Bill; 27 sectoral ceilings and appropriations • Earmarked provisions - Allocating resources for constituency / smoothing negotiation process in the legislature - Executive veto power; Line-Item Veto Act in the U.S

  10. (4) Budget execution • In-year report of budget execution to the legislature • Appropriations accounts; simple·programmatic / complex·administrative • Flexibility in execution process • Cancellation or postponement of appropriations is permitted under limited conditions • France (up to1.5%), U.S. (cancellation forbidden), Korea/Japan (supplementary budget) - End-year flexibility to avoid wasteful end-year surges • Audit - From financial audit to performance audit

  11. 6. Budget reform • Most reforms are initiated by the executive - They have more information and responsibility • Legislative role in budget reform - Top-down budgeting in Sweden - The Budget Enforcement Act in the U.S. - Italy’s budget reform • Requirements for successful budget reform - A common objective and co-operative attitude - Enacting the reform in a law as well as establishing it as a practice

  12. 7. Issues for discussion • Tradeoff of more involvement of the legislature - Negative (Fiscal discipline, Efficiency) / Positive (Accountability) • Issues to consider for strengthening budget process - Information sharing and collaboration of two bodies - Simplifying budget classification for transparency - Enhancing legislative capacity to analyze proposal - More utilization of performance information - Ensuring fiscal discipline in preparation for future fiscal risk (increasing entitlements, population ageing)

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