1. 1 PEMPAL Plenary Meeting of Budget Community of Practice (BCOP) Program budgeting - the EU approach: from theory to practice Grzegorz Orawiec Slovenia 27-29 March 2012

2. 2 2 Desirable features Comprehensive coverage Comprehensive coverage A rules based approach A rules based approach A multiannual approach A multiannual approach An important role to independent national budget institutions An important role to independent national budget institutions Appropriate organization of the budget process Appropriate organization of the budget process Transparent and effective control and enforcement mechanisms Transparent and effective control and enforcement mechanisms Strong political commitment through effective communication Strong political commitment through effective communication Adaptability to new challenges Adaptability to new challenges Preconditions of budgetary frameworks Preconditions of budgetary frameworks (sufficient standards of accounting, forecasting and monitoring)

3. 3 3 Questions What are the main elements that have proven to be most successfully in planning and implementation of budgetary policies ? What are the main elements that have proven to be most successfully in planning and implementation of budgetary policies ? How the desirable features are applied in the “best pupils” cases, trends-based budgetary policy ? How the desirable features are applied in the “best pupils” cases, trends-based budgetary policy ?

4. 4 4 The legal framework for improving public finance Fiscal rules Fiscal rules Consolidation of fiscal sector Consolidation of fiscal sector Multi-annual planning Multi-annual planning Independent public institutions Independent public institutions Performance-based budgeting Performance-based budgetinghttp://ec.europa.eu/economy_finance

5. 5 5 EU & macroeconomic stabilization policy Fiscal policy: government spending and taxes. Fiscal policy: government spending and taxes. Fiscal policy Fiscal policy The framework for fiscal policies of EU Member States is intended to monitor and supervise the deficits and debts of each MS - the aim of sound public finances in the context of deeper economic integration (EC). The framework for fiscal policies of EU Member States is intended to monitor and supervise the deficits and debts of each MS - the aim of sound public finances in the context of deeper economic integration (EC). The aim is to achieve balanced budgetary positions in the medium term (3-5 years): The aim is to achieve balanced budgetary positions in the medium term (3-5 years): Fiscal rules: The size of the deficit (max. 3% of GDP ), public debt (max. 60%) Fiscal rules: The size of the deficit (max. 3% of GDP ), public debt (max. 60%) Fiscal r Fiscal r Tax policy: The taxes – variety of rates Tax policy: The taxes – variety of rates Tax policy Tax policy Government spending – different strategies e.g. PBB Government spending – different strategies e.g. PBB Government spending Government spending Monetary policy controls the value of currency. It is concerned with the amount of money in circulation (inflation). Monetary policy controls the value of currency. It is concerned with the amount of money in circulation (inflation). Monetary policy moneyinflation Monetary policy moneyinflation Interest rates - set by NCB / ECB Interest rates - set by NCB / ECB Interest rates Interest rates Reserve requirements Reserve requirements Reserve requirements Reserve requirements  EU: common monetary policy ^ national but coordinated fiscal policy - (e.g. Poland – Constitution – Art. 126: 3/5 GDP)

6. 6 Performance budget Goals (allocation) Performance Budget Specific objectives Concrete actions (subdivision) Results (indicators) PBB sets the goals, to which money is “connected” (allocated) From these goals, specific objectives are delineated and funds are then subdivided among them.

7. 7 Performance-based budgeting Performance budgets use goals, objectives and indicators (measured results) to explain why the money is being spent. Performance budgets use goals, objectives and indicators (measured results) to explain why the money is being spent. The key word “result” The key word “result” The entire planning and budgeting framework is result oriented. There are objectives and activities to achieve these results. The entire planning and budgeting framework is result oriented. There are objectives and activities to achieve these results. Performance budgeting comprises three elements: Performance budgeting comprises three elements:  strategy (different ways to achieve the final result)  activity/outputs (what will be done to achieve the final result)  result → concrete measures (indicators) PBB – only one (rather final) puzzle of modern public finace

8. 8 8 Performance-based budgeting – the legal base The is no single model of performance-based budgeting: The is no single model of performance-based budgeting: - PSA (GB), VBTB (the Netherlands)  National ↔ Regional ↔ Local level (administrative division) Countries which directly adopted foreign models later had adjust these models or reconstruct them completely with respect to: Countries which directly adopted foreign models later had adjust these models or reconstruct them completely with respect to: - specifics of their own public finances - national priorities - social-economical circumstances

9. 9 9 Legal base for economic EU policy: Articles 121 and Articles126 of the Treaty on the Functioning of the European Union (the basis for the stability and convergence programmes & the Excessive Deficit Procedure Stability and Growth Pact (SGP) - the key instrument for fiscal policy coordination: “national budgetary rules should be complementary to the member States’ commitments under the Stability and Growth Pact”  Council Regulation (EC) no 1466/97 on the strengthening of the surveillance of budgetary positions and the coordination of economic policies (referred to as preventive part)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (referred to as corrective part)  These Regulations were amended in 2005 by Regulation (EC) No 1055/2005 and Regulation (EC) No 1056/2005 and complemented by the Council Report of 20 March 2005 on ‘Improving the implementation of the Stability and Growth Pact’ EU – basic legal regulations (1/2)

10. 10 Stability and Growth Pact (SGP) – cont:  Protocol (No 12) on the excessive deficit procedure annexed to the Treaty Protocol (No 12) on the excessive deficit procedure Protocol (No 12) on the excessive deficit procedure (the details of the excessive deficit procedure referred to in Article 126 )  Council Regulation (EC) 479/2009 on the application of the Protocol on the EDP Council Regulation (EC) 479/2009 Council Regulation (EC) 479/2009 (e.g. rules of reporting – period, quality of data – used methods)  Code of conduct - "Specifications on the implementation of the Stability and Growth Pact and guidelines on the format and content of stability and convergence programmes", endorsed by the ECOFIN Council on 7 September 2010 Code of conduct Code of conduct (e.g. Medium term budgetary objective, correction of an excessive deficit)  October 2006 ECOFIN Council conclusions on the quality of public finances October 2006 ECOFIN Council conclusions October 2006 ECOFIN Council conclusions  October 2007 ECOFIN Council conclusions on improving the effectiveness of the Stability and Growth Pact October 2007 ECOFIN Council conclusions October 2007 ECOFIN Council conclusions (e.g. reform of public finance, administration, financial markets) EU – basic legal regulations (2/2)

11. 11 EU – new legislative package ”Hot” discussion in EP on legislative package on: EU economic governance and discipline of public finance of MSs ”Hot” discussion in EP on legislative package on: EU economic governance and discipline of public finance of MSs made up of six pieces of legislation: made up of six pieces of legislation: - new proposals deal with fiscal issues, including a wide-ranging reform of the Stability and Growth Pact (SGP) - new concept of prudent fiscal policy-making (MTO) - debt developments = deficit developments (penalty procedures e.g. cutting money from EU funds) - establishing national fiscal frameworks of quality (e.g. consistent accounting ) - new requirements for the budgetary framework of the Member States, - preventing and correcting macroeconomic imbalances (EC→MS specific analysis and recommendations for E. Council + early warning → MS) - new set of gradual financial sanctions for euro-area Member States (e.g. non-interest bearing deposits which would be converted to fines)

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13. 13 Reform of public finance in Netherlands Complex actions Expenditure rule: real expenditure ceilings, set for entire government period (4 years coverage), Expenditure rule: real expenditure ceilings, set for entire government period (4 years coverage), Independent macroeconomic projections, as basis for budget, are provided by the Netherlands Bureau for Economic Policy Analysis (CPB), Independent macroeconomic projections, as basis for budget, are provided by the Netherlands Bureau for Economic Policy Analysis (CPB), Medium-term budgetary framework (MTBF): Medium-term budgetary framework (MTBF): o Four years coverage o Link between annual budget and MTBF o Main target= general government balance at the end of coverage, Budgetary procedures: Budgetary procedures: Transparency, centralization of the budget process at planning stage, top-down budgeting, performance budgeting Transparency, centralization of the budget process at planning stage, top-down budgeting, performance budgeting

14. 14  Poland currently has a traditional budget system that is based on organisational units and control of inputs.  But also – Poland in the process of introducing a new budget system, the performance-based budgeting system  The aims:  Improve public finance management (rational use of resources: money → tasks)  More universal and competent supervision of public funds spending (indicators),  Multi-year budgeting (analysis of different scenarios)  Transparency and accountability (improvement of effectiveness of public administration)  ”step by step” scenario → 2013: national budget prepared parallel in traditional & performance-based methods The performance budget in Poland

15. 15 Debt / Revenue relation Local self-government level Operational surplus index Information since 2011 → obligation since 2014 Based on budgetary data from 3 previous years Old rule = max 15% Increasing debt possible only if: - - surplus in current section of the budget (revenue ↔ expenditures) v revenue from sale of public (council) property - - no matter for free sources and surplus in property section for last three budgetary years

16. 16 Program budgeting – EU approach Always remember that: Step by step attitude (e.g. fiscal rules, consolidation of fiscal sector) Step by step attitude (e.g. fiscal rules, consolidation of fiscal sector) Complex team work + time Complex team work + time - system of independent public institutions, audit & control Need for planning Need for planning - Medium-term budgetary frameworks - National public finance reform  One mission → one team Don’t afraid – May the Force be with you

17. 17 ”Men build too many walls and not enough bridges” Isaac Newton Isaac Newton Thank you for your attention Grzegorz Orawiec