EXECUTIVE SUMMARY

Country studies reveal a multiplicity of reasons for adopting budget-related laws

This comparative study examines the major differences across countries in the legal provisions for budget preparation, presentation, approval, execution, government accounting and fiscal reporting. It includes in-depth country studies for nine OECD member countries that allow comparability of different aspects of the budget process or of different budget actors. A mini-comparative study for four Nordic countries highlights the considerable differences in the use and attitude towards budget-related laws in these seemingly similar countries.

More generally, this study highlights the wide differences between the legal frameworks for budget systems. Whereas budget systems may be converging in OECD member countries, the laws associated with budget systems do not appear to be converging at the same rate. This is partly because today’s conglomerate of budget-related laws in a given country is a result of years, perhaps centuries, of evolution of previous laws. Each country’s specific institutional features and political systems result in differences in laws for government budgeting systems.

Conclusions

One conclusion from this study is that budget-related laws are adopted for a variety of reasons. These include: to introduce budget reforms – perhaps as a result of a budget crisis; to change the balance of power between the legislature and the executive; to enhance macro-fiscal stability; to enhance transparency and accountability in the budget system. These different goals, combined with a diversity of constitutional, political and other country-specific arrangements, make it difficult to categorise countries’ legal arrangements for budgeting into neat, mutually exclusive groups. Differences in budget-related laws are therefore likely to persist.

At the broadest level, OECD member countries fit into one of two groupings: those whose budget systems are constitutionally constrained and those where there are no constitutional constraints. In the first grouping, the authors would place continental European countries, the United States and the Asian OECD member countries. In these countries, budget systems are constrained either directly by written constitutions or indirectly by the statute laws that have been adopted, consistent with constitutions. Constitutional courts (or the equivalent) play a guardianship role in ensuring the constitutionality of budget-related laws. At times, courts may find legal reasons to reject changes in laws pertaining to the budget system.

EXECUTIVE SUMMARY

The second grouping includes the budget systems of the Westminster and Scandinavian countries, as these are not constrained by constitutions. In some of these countries, the absence of a written constitution necessarily exonerates the budget system from high-level legal constraints. Where written constitutions do exist, their provisions are not onerous. A formal law for the budget system is not a necessity – it is an option. The examples of Denmark and Norway demonstrate that there are other options, notably regulations adopted by the executive or a parliamentary committee. These substitute for formal statutes that have completed all law-making phases. Regulations have the advantage of having an impact similar to statute law, but without the rigidities, including the relatively greater difficulty of making changes in the budget system via amendments to law. Convention and informality are relatively more important in these countries, which also do not have constitutional courts to oversee that budget-related laws meet the letter of constitutional law.

As a final remark – and as a guide for making choices relating to budget system law(s) – a country may wish to consider whether the results produced by the budget system are relatively more important than the laws that produce the results.

ISSN 1608-7143

OECD Journal on Budgeting – Volume 4 – No. 3 © OECD 2004

PART I

Comparative Law, Constitutions,

Politics and Budget Systems

This part aims to identify reasons for the wide differences in budget system laws in advanced countries. Comparative research on budget system laws is virtually non-existent. The economics and public finance literature provides little explanation as to why budget system laws differ so widely across countries. Comparative law studies are more promising, particularly those relating to the hierarchy of law. The differences in the relative importance of the constitution, statutes and regulations provide some explanation as to why countries’ budget-related laws are so different. However, there is no theory to explain why the relative weight of each of these sources of law differs across countries. Political variables are also important, particularly the past and present forms of government. The degree of separation of powers between the executive and the legislature partly explains the extent to which law is used for specifying budget processes and actors.

I.COMPARATIVE LAW, CONSTITUTIONS, POLITICS AND BUDGET SYSTEMS

1. Introduction

In some Western European countries, the origins of national budget systems can be traced to the institutional arrangements prevailing before democracy was introduced. Monarchies had royal treasuries to manage government finances, sourced by obligatory taxes on citizens. In a few countries, the “constitutional” arrangements for budget systems have an inheritance dating back several centuries.1 Although many changes and reforms in the legal framework for budget systems have been introduced over the centuries, a few ancient features still prevail – especially in the United Kingdom and France. These in turn were inherited by the former colonies of these two countries, whose legal frameworks for budgeting still bear resemblances to those inherited at independence.

Over time, many of the rules pertaining to national budgeting systems were written down but not all were. It is therefore important to distinguish between the rules that were written into law and other norms that are analogous to law, although not legally binding rules. There is no distinct line of demarcation between these two kinds of rules. Over time, legal rules often assimilate norms of the other kind. This is what happened – and is still happening – with the rules pertaining to budget systems. However, the extent and speed with which budget rules have been embodied in statutes varies from country to country.

This part first observes the vastly different ways that countries incorporate into law various provisions relating to budget processes and budget actors. It then conducts a search for explanations as to why the organisation, structure and content of the legal framework for budget systems differ so widely across countries. Contributions from economics, public finance, comparative law and political studies are successively examined. Some explanations for differences can be found in differing legal traditions and, especially, the extent to which the legislature controls the executive (or the reverse).

Differing legal traditions reflect, inter alia, varying levels of trust between and powers of legislatures, executives (both political and administrative bodies), and citizens, as well as differing political systems. Such factors are taken into account when the legislature incorporates certain aspects of the budget process into law, whilst leaving others to regulation or informal understandings.