The Role of Parliament in approving the budget World Bank Institute’s Parliamentary Staff Training Program

Overview Constitutional framework Timing of the budget The role of parliamentary committees Access to budgetary information Political dynamics

Constitutional Framework Legislative restrictions on right to introduce financial legislation; Restricted legislative legal powers to amend financial legislation; Sometimes executive veto authority requires majorities to be overridden by parliament: Package Veto: President can veto entire legislation, E.g. US. Line Item or Partial Veto: President can delete individual items in a financial bill. This allows for greater selectivity. E.g. Chile.

Legislative Powers to Amend the Budget

Timing of the Budget Experience suggests three month minimum for meaningful legislative analysis and scrutiny (OECD Best Practices). Budget should be tabled sufficiently in advance of fiscal year. When timely passage of budget impossible constitution or legislation define reversionary budget.

How far before fiscal year does executive present its budget to the legislature?

Role of parliamentary committees Legislative committees legislatures ‘engine’ Underdeveloped committee stage weak budgetary role Several models: Single Budget Committee: decisions without other committee input; Two-Tier System: expenditure totals decision by budget committee and departmental budgets by sectoral committee No Budget Committee: Sectoral committees scrutinize departmental budgets.

What best describes the committee structure for dealing with the budget?

Case study: a new role for committees in the Swedish Parliament Budget process before 1990 focus on individual appropriations little consideration of aggregate effect of parliamentary action Early 1990s Parliament recognized the need for change during a fiscal crisis Established commission for reform The reform process has three key steps: 1. Fix aggregate expenditures & revenues, tabled in April approved in June. 2. Finance Committee discusses & recommends allocations for 27 ‘expenditure areas’ 3. Sectoral committees allocate funding in expenditure areas & are permitted to change the composition of appropriations within agreed total expenditure The budget is approved one month before beginning of fiscal year

Access to information Legislative decision making: Based on comprehensive, accurate, appropriate and timely information; Budget document: Contains little narrative outlining policies underlying tax and spending proposals; Policy Objectives: Often not sufficiently related to expenditures; Parliamentary budget offices: Important sources of independent expertise; Best Practices: Developed by OECD for Budget Transparency dealing with the availability of budget information.

OECD Recommendations A comprehensive budget: performance data, medium term projections. A pre-budget report: government’s long-term economic & fiscal policy objectives, economic assumptions and fiscal policy intentions for medium term. Monthly reports: show progress in implementing budget, including explanations of differences between actual and forecast amounts. Mid-year report: Comprehensive update on implementation of budget, including updated forecast of the budget outcome for the medium term. Year-end report: Audited by audit institution and released within six months of the end of the fiscal year. Pre-election report: illuminates the general state of government finances immediately before an election. A long-term report: assesses the long-term sustainability of current government policies.

Specialized budget research organization attached to legislature conducting analyses of the budget?

Political dynamics Budgeting occurs in a broader political context. Legislative majorities enhance predictability of voting outcomes. Minority & coalition governments make more concessions to ensure legislative support. Party majorities ensure predictability of legislative voting behavior when matched with party discipline. Role of electoral system.

Concluding remarks Many factors determine role and impact of legislature in approval stage of the budget process. A legislature needs sufficient constitutional powers over budgets, esp. amendment powers. Thorough review of financial proposals requires time for scrutiny and properly timed budget process, where the budget is tabled sufficiently in advance of the beginning of the fiscal year. Parliamentary expertise on the budget is most likely to develop in specialized committees. Legislative decision making also should be based on full access to relevant and high quality information Formal powers may not be utilized unless the legislature has a degree of political independence from the executive.