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budget, shows the performance of an authority in product areas and groups, and assigns to these both quantities and costs derived from cost-result accounting. The introduction of performance-oriented reforms would, however, require a major simplification of the present detailed appropriations structure.

Concerning modifications to the accounting system, there has been some experimentation with accrual accounting at the local government level (Lüder, 2002). First, some municipal budget acts were changed to allow experimentation. In 1999, the City of Weisloch became the first German city to introduce an outputand accrual-based budgeting and accounting system. Second, some Länder (notably Hessen, whose government decided, in 1998, to adopt accrual accounting over a ten-year period) have also begun changing. However, these efforts are in addition to the requirements of the HGrG, which does not allow the Länder to abandon the traditional “cameralistic” accounting system.8 The 1969 laws appear to be proving a constraint for innovation.

Major changes in the law – perhaps even the Constitution itself – would be required to introduce major budget and accounting reforms. However, in a reunited Germany it is more difficult than, say, 30 years ago, to reach the necessary two-thirds majority in both chambers of Parliament needed to change the Constitution. Another constraint to reform is the traditional sharp distinction between politics and administration. The notions of professionalism and loyalty in the civil service induce a strong desire to implement whatever policies are proposed by the government of the day.9 Thus, although civil servants would react positively once the necessary political consensus for budget reform is obtained, professional loyalty may induce them to be less willing (compared to other countries) to actively promote reform initiatives themselves. Finally, a legalistic culture also acts as a constraint. Judging from the number of issues which are referred to the Constitutional Court by politicians, one might ask whether the legalist mode of thinking is more pervasive among politicians than among civil servants. Whatever the response, the weight of the law appears to have been a constraint on reforming the budget system.

2. Principles underlying budget system laws

It is considered very important to embody budget principles in law. The equalisation of living conditions across the country is a fundamental constitutional principle, which has strong implications for budget expenditure policies and the size of the deficit. Also, unlike some continental European countries, Germany has incorporated several budgetary principles in its Constitution, notably:

●An annual budget.

●Timeliness – the budget must be adopted before the year begins.

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●Universality of all revenues and expenditures.

●Unity – all revenues and expenditures to be included in a single budget law.

●Overall economic equilibrium.

●The budget must be balanced.

●Restriction of content of budget.

●Budgetary autonomy for each level of government.

The current year principle states that cash expenditures are limited to a twelve-month period and generally lapse at end-year. This does not mean that budgetary authorisations are limited to 12 months (see below for a fuller discussion) or that only one financial year is shown for detailed estimates. The principle of universality is embedded in the Constitution: “all revenues and expenditures of the Federation are included in the budget” (Art. 110). This principle implies the recording of revenues and expenditures on a gross basis, without offsetting. The principle of equilibrium reflects the perceived need to draw up the federal and Länder budgets taking into account the main objectives for macroeconomic stability. The requirement for “a balanced budget” is in respect of revenues and expenditures in an accounting sense, not an economic sense. It means that the budget must show revenue (inclusive of revenues raised by borrowing) to cover all expenditures, inclusive of debt servicing spending. The budget’s content is restricted: the annual “budget statute may contain only such provisions as apply to revenues and expenditures of the Federation and to the period for which the budget statute is being enacted” [GG, Art. 110(4)]. This means, for example, that any legal provisions relating to the level of debt would have to be adopted in the context of a law other than the annual budget law.

Besides the Constitution, the budget-related laws elaborate on these principles, or introduce others, including:

●Specificity: revenues categorised according to origin and expenditures for specific purposes (HGrG, BHO).

●Efficiency and economy (HGrG).

●Separate budgeting for cash expenditures and future commitments (BHO).

The principle of specificity, or the “single estimates” principle, results in a very detailed budget. By adhering to this principle, Parliament exercises influence over budget details. Partly as a consequence, Parliament is relatively less actively involved in approving the overall fiscal strategy.

The principles of “clarity and reliability” are considered to be implicit by the Federal Ministry of Finance. The principle of clarity derives from the constitutional requirement of a “balanced” budget, as well as the extensive detailed classification system. The Ministry also notes that the principle of