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are unconstrained by extensive written constitutions. Nordic countries do not have constitutional courts to contest non-constitutionality. In both groupings of countries, written or unwritten constitutional provisions for budgeting are interpreted liberally. Also, the delegation of budget authority to the executive appears to be higher than in the legally formalistic countries – those whose constitutions either specify key requirements for the annual budget or require that the budget system be governed by law. In summary, there are countries where attitudes towards formal law are not rigorous and countries where there is a culture of subservience to the legal aspects of budgeting.

Norms for budget systems have been issued and many should be in budget system laws

Public finance specialists and legal theorists have shied away from establishing legal norms for budget systems, except for quantitative fiscal rules. In contrast, international organisations have published comprehensive guidelines for desirable features of budgetary transparency. However, these organisations have not specified which features should be incorporated in domestic law. An exception is for external audit, where constitutional standards have been recommended by the International Organization of Supreme Audit Institutions (INTOSAI).

Classical and new budget principles, as well as the separate responsibilities of the legislature and the executive in budgetary processes, should guide policy makers who wish to establish a “good” law for their national budget system. Principles that are important for governing budget preparation, adoption, execution, reporting and auditing are: authoritativeness, comprehensiveness and accountability. Using a total of ten budget principles, suggestions are made as to which aspects of the budget system could be included in the constitution, in primary law and in secondary law.

The principle of aligning budgetary functions and legal instruments is proposed. On this basis, the executive, by regulation, would establish internal rules for budget preparation and budget execution – the areas of the budget process that legislatures could delegate to the executive branch. By contrast, this principle would require statute law, complemented by internal regulations of the legislature (“parliamentary regulations”) to provide the formal rules for budget presentation and adoption by the legislature, as well as for ex post reporting by the executive to the legislature. A separate law for establishing the independence, responsibilities, and powers of an external audit body serving primarily the legislature appears desirable.

This study does not specify a “model” budget system law or a “model” external audit law that could be used in all countries. This would be inappropriate.

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Budget system laws need to be adapted to each country’s constitutional, political, institutional, legal and cultural setting. There is no such thing as a “one-size-fits-all” law for the budget system.

OECD member countries do not adopt, or amend, budget-related laws after referring to international standards. Some continental European countries begin with budget principles and then move to law. The traditional emphasis has been on incorporating into law the principles of universality, unity, specificity, and annuality. These principles relate primarily to the early stages of the budget cycle – preparation, presentation and adoption of the budget by the legislature. There has been relatively less emphasis on incorporating into law the budget principles associated with the later stages of the budget cycle

– accountability, transparency, stability and performance. In contrast, the budget laws of Westminster countries emphasise accountability and other aspects relating to budget execution. The foundation for such laws in these countries was the United Kingdom’s Exchequer and Audit Departments Act, 1866. Many of the provisions of this very old law were valid in the United Kingdom until 2000, when a new government accounting law was adopted. This example illustrates how budget-related laws do not evolve quickly.

Budget reforms are a major reason why budgetrelated laws have been changed

Although the introduction of budget reforms is a major reason why OECD member countries have replaced existing budget system laws or adopted new ones, there are differences across countries in the extent and areas in which this has occurred. In some countries, where changes have been in response to budget crises, major changes have been introduced by adopting new budgetrelated laws.

In continental European countries, it is considered important that the legislature first discusses budget principles. At a second stage, the budget system law is amended or a new law is adopted. Implementation may be spread over a period of years. In Westminster countries, these steps tend to be reversed. Budget reforms are first introduced, perhaps on a pilot basis. If the new budget arrangements or procedures are perceived to be working, law may then be changed.

In recent years, fiscal transparency, accountability and macro-fiscal stability principles have increasingly been embodied in law. New Zealand’s 1994 Fiscal Responsibility Act has been influential in a number of other countries, both those within the Westminster “model” and those outside it. For example, France’s new Organic Budget Law, adopted in 2001, incorporated into law a new principle of budget “sincerity”.

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Budget-related laws may be adopted in order to better control the macro-fiscal position – especially to reduce deficits that are perceived to threaten fiscal sustainability. In this regard, the experience with embedding quantitative fiscal rules in law has generally been negative. Canada, Japan and the United States all allowed such laws to lapse. In the case of Japan, the law was barely operative for more than 12 months. The experience of some European Union countries in respecting the supranational body’s near-laws for budget deficits and debt barely fares better.

A number of OECD member countries have revised external audit laws in recent years. The aim of reforms has been to enhance the independence of the supreme audit institution (SAI), expand the coverage of audited entities, and strengthen the investigatory powers of the SAI.

Not all budget reforms are introduced by law. Nor are all budget processes necessarily provided with a legal basis. For example, some countries’ governments may prepare and submit a medium-term macro-fiscal framework to the legislature, even though this is not required by law. Another example is the introduction of an accrual basis for government accounts. Some countries’ laws do not specify the financial statements to be prepared, but nonetheless still prepare balance sheets, operating statements and cash flows, all of which are submitted to the legislature. Law may simply require that the government accounting system conforms to “generally accepted accounting principles”, without providing details of what this implies – this is left to regulations.

If fundamental changes in the budget system are to be made – such as moving from an input-based to a results-oriented budgeting system – it is usual for a new law to specify the new appropriations structure. Although there has been a widespread movement towards performanceor results-oriented budgeting in OECD member countries, there are cases where the executive, not the legislature, controls the structure and format of annual appropriations acts, i.e. a new appropriations structure has not been introduced by law. In countries where executives have strong inherited or delegated powers, convention may allow the introduction of far-reaching budget reforms without changing the law or by making just a few changes in existing budget-related laws.

Budget system laws are adopted to strengthen the powers of the legislature or the executive

Although the “supremacy of parliament” in budgetary matters is a widely accepted principle in all democratic countries, the procedures and timing of parliamentary budget processes differ widely. There are two categories: countries where the authority and powers of the legislature in budget making

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are strong and those where the executive has the “upper hand” in budget processes. In both cases, law may be used to strengthen these relative powers. In the first case, law-making initiatives begin in the legislature. In the second case, new laws are drafted by the executive.

The legislature of the United States is the prime example of a country in the first category. Since the 1970s, by adopting new laws, Congress has strengthened its budgetary control over the executive. Since the adoption of new law in 1974, the Budget Committees in both houses formally decide the budget strategy (in contrast, several countries’ laws prevent the executive’s proposed strategy from being changed easily, if at all). The law severely limits the executive power to make in-year budget adjustments. A heavily funded congressional budget office, which serves the legislature, was established by law. Financial management laws allow the legislature to be involved in internal audit arrangements (e.g. the chief financial officers of executive agencies report to Congress).

If the executive is perceived to have too much power, some of which is nontransparent in government-controlled budget accounting practices, the legislature may adopt a law to swing the balance of budgetary power in its own favour. This is one reason which stimulated France to adopt a new Organic Budget Law in 2001.

For countries in the second category, the legislature trusts the executive. In Westminster countries, law(s) may formally delegate authority to budget actors in the executive. Based on delegated authority, the roles and responsibilities of key actors in budget processes may be specified by decree (e.g. some Nordic countries) or not by any formal document (e.g. the strong budget-related powers of H.M. Treasury in the United Kingdom, which are based in inherited powers). For budget implementation, the executive enjoys considerable powers, without close supervision by the legislature. Internal audit arrangements are seen to be part of good overall management. In contrast to, say, the United States, there are no laws requiring internal audit bodies to report to the legislature.

Countries in the second category are likely to have fewer legal provisions concerning when the annual budget is to be submitted to the legislature and/ or approved. Although it is good practice for the budget to be approved before the beginning of the new fiscal year, several Westminster countries approve in law the budget after the beginning of the year, following a perfunctory budget debate in parliament. Such countries also have strict limitations on the legislature’s amendment powers. These are important ways in which the executive dominates the legislature.

This study has not attempted to measure the separate powers of the legislature and the executive in budget processes. Additional research could be conducted to test the relative powers of each branch of government.