II.COMPARISONS OF OECD COUNTRY LEGAL FRAMEWORKS FOR BUDGET SYSTEMS

Box II.1. Purposes of budget system laws

●Provide clear operational rules for the budget system to all interested players.

●Ensure that budget rules have sufficient authority.

●Incorporate budget principles into legal text.

●Elaborate on constitutional requirements for the budget system.

●Reform the budget system – either radically or on a piecemeal basis.

●Specify the financial powers of the legislature and the executive.

●Contribute to macroeconomic stability.

●Enhance the transparency of the budget system.

2.1.Legal necessity?

Although all democratic countries embody in law the principle of the supremacy of parliament in budget matters – notably that no taxation or spending can take place unless on the basis of law (i.e. with the approval of the legislature) – the degree to which other budget processes are based on law varies across countries The extent to which this is done depends, in part, on the relative importance given to providing a legal basis for budget processes at different stages of approval of the budget.

In continental European countries and the two Asian OECD countries, the role of the written constitution and the need to translate principles into law are given prominence (these countries could be placed in the first quadrant of Figure II.2). In some of these countries, written constitutions require the elaboration of constitutional principles in organic or ordinary law. In such countries, a legal way of thinking is firmly embedded: it is considered essential to begin with general principles, embody them in law, and then operate the budget system. At the outset of any budget reform, amongst the first questions asked is “how does the existing law need to be changed to incorporate the changes into existing principles or to introduce new principles previously not incorporated in the law?” In a legalistic cultural setting, the prevailing sentiment is that the government – or even civil servants – are powerless to act unless the authority of the legislature has been obtained.

This contrasts vividly with the attitude towards law in some Nordic countries and the Westminster countries (which could be placed in the second and fourth quadrants of Figure II.2 respectively). In the Westminster countries, the executive already has inherited considerable powers in budget processes. For example, the types and structure of budget appropriations in the United

II. COMPARISONS OF OECD COUNTRY LEGAL FRAMEWORKS FOR BUDGET SYSTEMS

Figure II.2. Budget reforms and changes in budget laws

Kingdom are specified without direct approval of the legislature. Besides inherited powers, the government may have acquired strong delegated powers. Accordingly, the executive issues orders or other rules relating to the budget system. Because the executive dominates the legislature, it may even cause parliament’s own “internal” regulations (“Standing Orders”) to be changed to enhance its own powers (e.g. by severely limiting parliamentary budget amendment powers or restricting the time period allowed by parliament for the budget debate). In these countries, the starting point for budget reform is not “law is needed to incorporate new budget principles”. Rather, if it is considered expedient, then a law may be adopted. But there is no necessity to do so. The executive in such countries usually has nothing to lose by adopting a law, since it provides a weak Parliament with an opportunity to rubberstamp its budget proposals.2 For example, the legislation adopted in Westminster countries in the 1990s to provide greater transparency in government budgetary processes was a no-risk way of bringing Parliament “on board” with government propositions for future fiscal policies of the government. These countries all have parliamentary systems in which the Cabinet of ministers (or a powerful subcommittee serving the Cabinet) agrees on budget strategy, sets the budgetary aggregates and allocates resources. The main way for Parliament to object would be to bring down the government through a vote of no-confidence. However, this tool is seldom used, as discipline within the governing party has traditionally been strong.

In Nordic countries, the need to reach consensus without undue confrontation is highly valued. This is also a necessity, given the multiplicity of political parties that are included in coalition governments. In some of these countries, a consensus to reform the budget system has been reached without