- •Table of Contents
- •Foreword
- •OECD Journal on Budgeting
- •Board of Advisors
- •Preface
- •Executive Summary
- •Sharp differences exist in the legal framework for budget systems
- •Public finance and legal theories do not explain inter-country differences in budget system laws
- •Political variables and legal culture help explain the inter-country differences
- •Norms for budget systems have been issued and many should be in budget system laws
- •Budget system laws are adopted to strengthen the powers of the legislature or the executive
- •Country studies reveal a multiplicity of reasons for adopting budget-related laws
- •Conclusions
- •1. Introduction
- •2. Budget processes
- •2.1. Budgeting: a five-stage process
- •Figure I.1. The roles of Parliament and the executive in the budget cycle
- •2.2. How are the different legal frameworks for budget systems organised?
- •Figure I.2. Different models for organising the legal framework of budget systems
- •3. Can economic theory explain the differences?
- •3.1. New institutional economics
- •3.2. Law, economics and public choice theory
- •3.3. Constitutional political economy: budgetary rules and budgetary outcomes
- •3.4. Can game theory help?
- •4. Can comparative law explain the differences?
- •4.1. Families of legal systems and the importance of the constitution
- •Box I.2. Purposes of constitutions and characteristics of statutes
- •4.2. Absence of norms for constitutions partly explains differences in budget system laws
- •4.3. Hierarchy within primary law also partly explains differences in budget-related laws
- •Box I.3. Hierarchy of laws: The example of Spain
- •4.4. Not all countries complete all steps of formal law-making processes
- •Box I.4. Steps in making law
- •4.5. Greater use is made of secondary law in some countries
- •Table I.1. Delegated legislation and separation of powers
- •4.6. Decisions and regulations of the legislature are particularly important in some countries
- •4.8. Are laws “green lights” or “red lights”?
- •5. Forms of government and budget system laws
- •5.1. Constitutional or parliamentary monarchies
- •5.2. Presidential and semi-presidential governments
- •5.3. Parliamentary republics
- •5.4. Relationship between forms of government and budget system law
- •Table I.2. Differences in selected budgetary powers of the executive and the legislature
- •Figure I.3. Separation of powers and the need to adopt budget-related laws
- •Notes
- •Bibliography
- •1. Introduction
- •Figure II.1. Density of legal framework for budget systems in 25 OECD countries
- •Table II.1. Legal frameworks for budget systems: 13 OECD countries
- •2. Different purposes of the legal frameworks for budget systems
- •Box II.1. Purposes of budget system laws
- •2.1. Legal necessity?
- •Figure II.2. Budget reforms and changes in budget laws
- •2.2. Budget reform: when is law required?
- •2.3. Elaborating on the budget powers of the legislature vis-à-vis the executive
- •3. Differences in the legal framework for the main actors in budget systems
- •3.1. Legislatures
- •3.2. Executives
- •Box II.2. New Zealand’s State Sector Act 1988
- •3.3. Judiciary
- •3.4. External audit offices
- •Table II.3. External audit legal frameworks: Selected differences
- •3.5. Sub-national governments
- •3.6. Supra-national bodies and international organisations
- •4. Differences in the legal framework for budget processes
- •4.1. Budget preparation by the executive
- •Table II.4. Legal requirements for the date of submission of the budget to the legislature
- •Box II.3. France: Legal requirements for budget information
- •4.2. Parliamentary approval of the budget
- •4.3. Budget execution
- •4.4. Government accounting and fiscal reporting systems
- •Box II.4. Finland: Legal requirements for annual report and annual accounts
- •Table II.5. Legal requirements for submission of annual report to the legislature: Selected countries
- •Notes
- •Bibliography
- •1. Have standards for the legal framework of budget systems been drawn up?
- •1.1. Normative and positive approaches to budget law
- •1.2. Limited guidance from normative constitutional economics
- •2. Who should set and monitor legally binding standards?
- •2.1. Role of politicians and bureaucrats
- •2.2. International transmission of budget system laws
- •2.3. International organisations as standard setters
- •Box III.1. The OECD Best Practices for Budget Transparency
- •Box III.2. Constitutional norms for external audit: Extracts from the INTOSAI “Lima Declaration”
- •2.4. Monitoring standards
- •3. Principles to support the legal framework of budget systems
- •Box III.3. Ten principles for a budget law
- •3.1. Authoritativeness
- •Table III.1. Stages of the budget cycle and legal instruments
- •3.2. Annual basis
- •3.3. Universality
- •3.4. Unity
- •3.5. Specificity
- •3.6. Balance
- •3.7. Accountability
- •Box III.4. Possible minimum legal norms for budget reporting
- •Box III.5. Ingredients of legal norms for external audit
- •3.8. Transparency
- •Box III.6. Ingredients of legal norms for government agencies
- •3.9. Stability or predictability
- •3.10. Performance (or efficiency, economy, and effectiveness)
- •Notes
- •Bibliography
- •1. Overview
- •1.1. The legal framework governing budget processes
- •Box 1. Canada: Main budget system laws
- •1.2. Reforms of budget system laws
- •Box 2. Canada: Main provisions of the Spending Control Act 1992
- •2. Principles underlying budget system laws
- •3. Legal basis for the establishment and the powers of the actors in the budget system
- •3.1. The executive and the legislature
- •3.2. Roles and responsibilities of sub-national governments
- •Box 3. Canada: Major transfers from the federal to the provincial governments
- •4. Legal provisions for each stage of the budget cycle
- •4.1. Budget preparation and presentation by the executive
- •Box 4. Canada: Key steps in the annual budgeting process
- •Box 5. Canada: Major contents of the main estimates
- •4.2. Budget process in Parliament
- •Box 6. Canada: The budget approval process in Parliament
- •4.3. Budget execution
- •4.4. Government accounting and fiscal reporting
- •4.5. External audit
- •Notes
- •Bibliography
- •1. Overview
- •1.1. The legal framework governing budget processes
- •Box 1. France: Main budget system laws
- •1.2. Reforms of budget system laws
- •2. Principles underlying budget system laws
- •3. Legal basis for the establishment and the powers of the actors in the budget system
- •3.1. The executive and the legislature
- •3.2. Role and responsibilities of sub-national governments
- •Box 3. France: Key features of the Local Government Code
- •4. Legal provisions for each stage of the budget cycle
- •4.1. Budget preparation and presentation by the executive
- •4.2. Budget process in Parliament
- •4.3. Budget execution
- •4.4. Government accounting and fiscal reporting
- •4.5. External audit
- •Notes
- •Bibliography
- •1. Overview
- •1.1. The legal framework governing budget processes
- •Box 1. Germany: Main budget system laws
- •1.2. Reforms of budget system laws
- •2. Principles underlying budget system laws
- •3. Legal basis for the establishment and the powers of the actors in the budget system
- •3.1. The executive and the legislature
- •Box 2. Germany: Public agencies
- •3.2. Role and responsibilities of sub-national governments
- •4. Legal provisions for each stage of the budget cycle
- •4.1. Budget preparation and presentation by the executive
- •4.2. Budget process in Parliament
- •Box 3. Germany: Budget processes in Parliament
- •4.3. Budget execution
- •4.4. Government accounting and fiscal reporting
- •4.5. External audit17
- •Notes
- •Bibliography
- •1. Overview
- •1.1. The legal framework governing budget processes
- •Box 1. Japan: Main budget system laws
- •1.2. Reforms of budget system laws
- •Box 2. Japan: Main contents of the 1997 Fiscal Structural Reform Act
- •2. Principles underlying budget system laws
- •3. Legal basis for the establishment and the powers of the actors in the budget system
- •3.1. The executive and the legislature
- •3.2. Role and responsibilities of sub-national governments
- •Box 3. Japan: Grants from central government to local governments
- •4. Legal provisions for each stage of the budget cycle
- •4.1. Budget preparation and presentation by the executive
- •Box 4. Japan: The timetable for the budget process
- •Box 5. Japan: Additional documents attached to the draft budget
- •4.2. Budget process in Parliament
- •4.3. Budget execution
- •4.4. Government accounting and fiscal reporting
- •4.5. External audit
- •Notes
- •Bibliography
- •1. Overview
- •1.1. The legal framework governing budget processes
- •Box 1. Korea: Main budget system laws
- •1.2. Reforms of budget system laws
- •2. Principles underlying budget system laws
- •3. Legal basis for the establishment and the powers of the actors in the budget system
- •3.1. The executive and the legislature
- •3.2. Role and responsibilities of sub-national governments
- •Box 3. Korea: Major acts governing the fiscal relationship across government levels
- •4. Legal provisions for each stage of the budget cycle
- •4.1. Budget preparation and presentation by the executive
- •Box 4. Korea: Legal requirements for the timetable for budget preparation and deliberation
- •Box 5. Korea: Other documents annexed to the draft budget
- •4.2. Budget process in Parliament
- •4.3. Budget execution
- •4.4. Government accounting and fiscal reporting
- •4.5. External audit
- •Notes
- •Bibliography
- •1. Overview
- •1.1. The legal framework governing budget processes
- •1.2. Reforms of budget system laws
- •2. Principles underlying budget system laws
- •3. Legal basis for the establishment and the powers of the actors in the budget system
- •3.1. The executive and the legislature
- •3.2. Role and responsibilities of sub-national governments
- •4. Legal provisions for each stage of the budget cycle
- •4.1. Budget preparation and presentation by the executive
- •Box 2. New Zealand: Fiscal responsibility (legal provisions)
- •Box 3. New Zealand: Key steps and dates for budget preparation by the government
- •Box 4. New Zealand: Information required to support the first appropriation act
- •4.2. Budget process in Parliament
- •4.3. Budget execution
- •4.4. Government accounting and fiscal reporting
- •4.5. External audit
- •Notes
- •Bibliography
- •1. Overview
- •1.1. The legal framework governing budget processes
- •Box 1. Nordic Countries: The main budget system laws or near-laws
- •1.2. Reforms of budget system laws
- •2. Principles underlying budget system laws
- •3. Legal basis for the establishment and powers of the actors in the budget system
- •3.1. The constitutions of the four countries
- •Table 1. Nordic countries: Age and size of constitutions
- •3.2. Legislatures
- •Table 2. Nordic countries: Constitutional provisions for the legislatures
- •3.3. The political executive
- •Table 3. Nordic countries: Constitutional provisions for the political executive
- •3.4. Ministries and executive agencies
- •3.5. Civil service
- •3.6. Sub-national governments
- •4. Constitutional and other legal requirements for budgeting
- •4.1. Authority of Parliament
- •Table 4. Nordic countries: Constitutional provisions for the authority of Parliament
- •4.2. Timing of submission of the annual budget
- •4.3. Non-adoption of the annual budget before the year begins
- •4.4. Content of the budget and types of appropriations
- •4.5. Documents to accompany the draft budget law
- •4.6. Parliamentary committees and budget procedures in Parliament
- •4.7. Parliamentary amendment powers, coalition agreements, two-stage budgeting and fiscal rules
- •4.8. Supplementary budgets
- •4.10. Cancellation of appropriations and contingency funds
- •4.11. Government accounting
- •4.12. Other fiscal reporting and special reports
- •Table 5. Nordic countries: Constitutional requirements for external audit
- •Notes
- •Bibliography
- •1. Overview
- •1.1. The legal framework governing budget processes
- •Box 1. Spain: Main budget system laws
- •1.2. Reforms of budget system laws
- •2. Principles underlying budget system laws
- •3. Legal basis for the establishment and the powers of the actors in the budget system
- •3.1. The executive and the legislature
- •3.2. Role and responsibilities of sub-national governments
- •4. Legal provisions for each stage of the budget cycle
- •4.1. Budget preparation and presentation by the executive
- •Box 2. Spain: The timetable for the budget process (based on the fiscal year 2003)
- •Box 3. Spain: The major content of medium-term budget plans
- •Box 4. Spain: Additional documents attached to the draft budget
- •4.2. Budget process in Parliament
- •4.3. Budget execution
- •4.4. Government accounting and fiscal reporting
- •4.5. External audit
- •Notes
- •Bibliography
- •1. Overview
- •1.1. The legal framework governing budget processes
- •Box 1. United Kingdom: Main budget system laws
- •1.2. Reforms of budget system law
- •Box 2. United Kingdom: Reforms of the budget system in the past 20 years
- •2. Principles underlying budget system laws
- •3. Legal basis for the establishment and the powers of the actors in the budget system
- •3.1. The executive and the legislature
- •Box 3. United Kingdom: Executive agencies and other bodies
- •3.2. Role and responsibilities of sub-national governments
- •4. Legal provisions for each stage of the budget cycle
- •4.1. Budget preparation and presentation by the executive
- •4.2. Budget process in Parliament
- •Box 4. United Kingdom: Budget processes in Parliament
- •Table 1. United Kingdom: Format of appropriation adopted by Parliament for Department X
- •4.3. Budget execution
- •Table 2. United Kingdom: Transfers of budgetary authority
- •4.4. Government accounting and fiscal reporting
- •4.5. External audit
- •Box 5. United Kingdom: External audit arrangements
- •Notes
- •Bibliography
- •1. Overview
- •1.1. The legal framework governing budget processes
- •Box 1. United States: Main federal budget system laws
- •1.2. Reforms of budget system laws
- •2. Principles underlying budget system laws
- •3. Legal basis for the establishment and the powers of the actors in the budget system
- •3.1. The executive and the legislature
- •3.2. Role and responsibilities of sub-national governments
- •Box 3. United States: Major transfers between different levels of government
- •4. Legal provisions for each stage of the budget cycle
- •4.1. Budget preparation and presentation by the executive
- •Box 4. United States: Key steps in the annual budget process within the executive
- •Box 5. United States: Other information required by law
- •4.2. Budget process in the legislature
- •Box 6. United States: Legal and internal deadlines for congressional budget approval
- •4.3. Budget execution
- •4.4. Government accounting and fiscal reporting
- •4.5. External audit
- •5. Sanctions and non-compliance
- •Notes
- •Bibliography
IV. UNITED KINGDOM
Other information required by law. Besides the above, the CFS sets out specific information to be provided, including:
●A breakdown of expenditure and revenue by sector and economic and/or functional category.
●A statement outlining proceeds received from the sale of public assets.
●An explanation of significant accounting changes. H.M. Treasury may also invite the NAO to audit any changes to the key assumptions underlying fiscal projections.
●The structure of government borrowing, the cost of government debt, and other details for the Debt Management Office’s annual report.
4.1.8. Budgets of Parliament and other constitutional bodies
Both the House of Commons and the House of Lords have their own estimates in the annual appropriation acts. For the House of Commons, SO No. 144 specifies that the Finance and Services Committee is responsible for preparing the estimates the House of Commons. This select committee also monitors the financial performance of the House of Commons. For the House of Lords, a House Committee, advised by a management board, was established in 2002. This committee is required to agree on the annual and supplementary estimates and approve the House of Lords annual report. Other constitutional bodies19 also prepare their own budgets independently and have separate estimates.
4.2. Budget process in Parliament
There are two separate parliamentary processes for budget aggregates: one for revenues and another for expenditures (Box 4). The tax measures announced in the budget are traditionally presented to Parliament in a single, comprehensive finance bill, which may be amended by majority vote in the House of Commons. The House of Commons lacks effective power to increase or change the government’s expenditure estimates. Its main option for changing substantially the expenditure estimates would be to bring down the government via a vote of no-confidence. This has never happened in recent United Kingdom history, mainly because the Cabinet and the ruling party’s whip20 ensure that party unity is maintained. Although the usefulness of very brief parliamentary debate of the expenditure estimates in the House of Commons has been questioned, proposals to change the existing system have failed.21
The House of Lords plays no substantive role in approving the annual budget law. When the Parliament Act was adopted in 1911 (following the Lords’ rejection of the government’s budget for 1909), the upper House lost its
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Box 4. United Kingdom: Budget processes in Parliament
●The Chancellor of the Exchequer gives his/her budget speech and outlines the government’s fiscal policy strategy to Parliament.
●The timing of the budget speech is at the discretion of the government.
●Tax measures may take effect on the night of the budget speech. A Finance Bill is submitted to the House of Commons. The bill is scrutinised in committee, where both the government and the opposition parties may propose amendments and new clauses.
●The Finance Bill passes to the House of Lords for debate only. After the House of Lords debates the bill, it gains royal assent.
●The expenditure of individual departments is scrutinised by the relevant departmental select committee, but this is not mandatory.
●The Liaison Committee of the House of Commons decides on which select committee reports should be discussed in plenary session.
●The House of Commons adopts a resolution approving the main estimates and any revised estimates.
●The draft Appropriation Act is formally approved.
budget veto rights. Today, the Lords may delay any “money bill” by up to one month. In practice, the budget “debate” in the House of Lords is a one-day formality. Similarly, royal assent has been a formality since the supremacy of Parliament over the King was recognised in the 1689 Bill of Rights.
4.2.1. The timetable for budget adoption and constraints on the budget debate in Parliament
In contrast to many other countries, the main estimates are generally presented to Parliament after the beginning of the fiscal year (1st April-31 March). SO No. 54 limits consideration of the estimates in the House of Commons to three days per session, that is, a parliamentary year. In practice, the need to obtain royal assent of the appropriation act before Parliament rises for the summer recess means that the estimates typically could not be presented later than the end of June. The Liaison Committee recommends which estimates (or portions of them) are debated.
Parliamentary proceedings on consolidated fund and appropriation bills, which take place later than the three-day debate on the estimates, have been reduced to mere formalities. SO No. 56, adopted in 1982, dispenses with the
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IV. UNITED KINGDOM
usual obligatory intervals between 2nd and 3rd readings, implying that government proposals for providing the annual legal authority for public spending does not pass through any parliamentary committee stage (Erskine May, 1997, p. 739). Such practice is highly unusual in OECD countries. Formalities in the House of Lords and royal assent are required before the expenditures to be paid out of the Consolidated Fund become law in the form of an annual appropriation act.
4.2.2. Provisional budgets
Since the government’s draft budget is often presented to the House of Commons after the beginning of the new financial year, and appropriation acts are not usually adopted until about the fourth month of the new financial year, provisional legal authority to spend has to be in place prior to 1st April. To this end, the House of Commons routinely approves, 4-5 months before the start of a new financial year, a “Vote on Account” that authorises spending by government departments and constitutional bodies for the first few months of the upcoming financial year.22 Typically the amount voted is 45% of the expenditure estimates for the current year. The votes on account are given legislative force by the winter consolidated fund acts, which provide, in one line, the total amount that can be issued out of the Consolidated Fund in the new financial year. Neither the amount, nor the timing of annual votes on account has legislative basis; rather it is a longstanding convention, which is set out in Government Accounting and mentioned in the Standing Orders of the House of Commons.
The Parliament in Scotland has adopted a different procedure, which is a more akin to “standard practice” in other countries. If the annual budget act is not adopted by the Scottish Parliament before the beginning of the financial year, the amount of resources used in a given month may not exceed the greater of a) one-twelfth of any amount authorised in the previous financial year, or b) the amount used for that purpose in the equivalent month of the previous year [Art. 17, Public Finance and Accountability (Scotland) Act 2000].
4.2.3. Powers of amendment
The House of Commons cannot propose amendments to increase total expenditure, change the composition of spending, or reduce revenues. The basis for this restriction is the 300-year-old SO No. 48 of the House of Commons, which states that “the House will receive no petition for any sum relating to public service unless recommended from the Crown”. The Crown’s recommendation lays down a maximum charge on public funds, as well as its objects and purposes (Erskine May, 1997, p. 740). Clearly a representative of the Crown would not propose revisions to the budget proposals of the
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Chancellor of the Exchequer. Also, since parliamentary committees are dominated by members of the ruling majority party, proposals are not made to revise the main estimates, as these would be overridden by the government. Thus, the House of Commons may only reduce a particular item of expenditure. Any revisions to the estimates that are incorporated in the annual appropriation act are very small – the approved budget is extremely close to the main estimates presented by the government in the budget speech.
4.2.4. Approval of resources
The right to initiate the kinds and levels of taxation rests firmly with the executive. This is a long-standing tradition that is not specified in Standing Orders (Daintith and Page, 1999, p. 108). Parliament formally approves revenues – in a finance bill – well after the start of the financial year. The tax measures adopted in the budget are legislated at a time different from the appropriation of expenditures for the same year.
Most United Kingdom taxes, including all indirect taxes, are permanent. As major exceptions, the government’s authority to impose personal income and corporation taxes has to be renewed by legislation every year. This is done by adopting an annual finance bill, which also imposes new duties or adjusts the rates of permanent duties so that revenues match proposed expenditures and deficit targets. For more than three centuries, proposals for raising taxation – which were initiated by a government minister – originated in the House of Commons Committee of Ways and Means. However, this committee was abolished in 1967. Today, after a one-day debate at the second reading, the convention is for any controversial measures of the draft finance bill to be considered by the House of Commons Committee of the Whole House. Less controversial detailed revenue proposals are sent to a standing committee (despite the name, “standing” committees are not permanent). Many amendments may be proposed by select committees, but only those selected by the chairmen of the standing committee are debated. After the third reading in the House of Commons, the draft finance bill passes through all legislative stages of the House of Lords in one day, as the upper House is prohibited from making any amendments.23
Separate primary legislation is not required to make tax changes – simple resolutions of the House of Commons are adequate.24 By virtue of the Provisional Collection of Taxes Act, 1968, some income and excise tax changes and the validation of existing taxes (but not the approval of new taxes) may come into effect immediately following the Chancellor’s budget speech.25 Fees collected or proceeds of assets sales by departments may be retained and used by them, outside the Consolidated Fund. The amounts expected in the upcoming fiscal year are separately approved in the supply estimates as
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