1. BUDGET TRANSPARENCY Jon Blondal Deputy Head Budgeting and Management Santiago, 29 January 2004

2. OUTLINE OF PRESENTATION Transparency - Background OECD Best Practices for Budget Transparency Limits of Transparency

3. 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.

4. Why the Increased Attention to Budget Transparency? Good Governance Fiscal Consolidation Non-transparency and vested interests

5. Essential Elements of Budget Transparency Release of budget data Effective role for the legislature Effective role for civil society –Citizens, media, NGOs

6. OECD Best Practices for Budget Transparency Part I - Budget Reports Part II - Specific Disclosures Part III - Integrity

7. Budget Reports The Budget Pre-Budget Report In-Year Reporting and Year-End Report Pre-Election Report Long-Term Report

8. Specific Disclosures Economic Assumptions Tax Expenditures Financial Liabilities and Financial Assets Non-Financial Assets Employee Pension Obligations Contingent Liabilities

9. Integrity Accounting Policies Systems and Responsibilities Audit Parliamentary scrutiny

10. 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

11. 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

12. 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

13. Pre-Election Report Objective –Inform Public Debate –Political Discipline Responsibility –Minister –Senior Civil Servant

14. Long-Term Report Assesses long-term sustainability of government programmes Captures impact of demographic changes (ageing populations)

15. Economic Assumptions Primary fiscal risk Should be disclosed explicitly Sensitivity analysis Comparison with other institutions

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

17. 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

18. Non-Financial Assets Property and equipment Disclosed as inherent part of accruals Asset registers as supplementary information

19. Employee Pension Obligations Very significant obligations Difference between accrued benefits and contributions Disclose actuarial assumptions

20. Contingent Liabilities Guarantees, legal proceedings Disclose explicitly Default risk

21. Accrual Accounting? The ends vs. the means Increasing rapidly, although practices vary Be transparent regardless of which accounting basis is applied

22. Audit Essential element of ensuring integrity

23. 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

24. 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

25. Ruth Richardson New 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”

26. OECD Homepage www.oecd.org/gov/budget