- •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. GERMANY
4.2. Budget process in Parliament
The law, beginning with the Constitution, has specified the steps required to be followed in approving and adopting the budget law in Parliament.
4.2.1. The timetable for budget adoption and constraints on the budget debate in Parliament
The fiscal year for all levels of government is the calendar year (HGrG, s. 4). A budget is prepared for every financial year, covering revenue expected during the year, money likely to be spent in the financial year, and all authorisations of future commitments likely in the financial year (HGrG, s. 8). A budget may be prepared for two years, each year being dealt with separately (HGrG, s. 9). The Constitution specifies that the budget should be adopted by Parliament before the beginning of the financial year (Box 3). In contrast to non-budget laws, which are submitted first to the Bundesrat (GG, Art. 76), the Constitution requires that the annual draft budget be submitted simultaneously to the Bundestag and the Bundesrat. The BHO requires that, as a rule, the draft federal
Box 3. Germany: Budget processes in Parliament
●Simultaneous introduction of draft budget to both chambers [GG, Art. 110(3)].
●First stage in the Bundesrat. It must state its position within six weeks [GG, Art. 110(3)].
●First reading in the Bundestag – usually in September, when the Federal Minister of Finance gives his/her budget speech and outlines the government’s fiscal policy strategy.
●Budget Committee of the Bundestag examines budget proposals, prepares a report, and proposes amendments if necessary.
●Second reading in the Bundestag. Budget Committee’s findings presented, plenary session debate on departmental budgets, with separate decisions on each.
●Third reading in the Bundestag. Vote on the budget as a whole.
●Bundestag resolution transmitted to Bundesrat [GG, Art. 77(1)].
●If necessary, vote on any amendments proposed by the Mediation Committee.
● Second stage in the Bundesrat. Bundesrat may enter objection [GG, Art. 77(3)]. This can be rejected by the Bundestag with the required majority [GG, Art. 77(4)].
●Budget statute signed into law by the Federal President (countersigned by the Federal Chancellor and the Federal Minister of Finance).
●Publication in the Federal Law Gazette.
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budget law, together with the draft budget, be submitted to the Bundestag and Bundesrat no later than the first week of the Bundestag’s session following 1st September (s. 30). This timing allows nearly four months for budget discussions in Parliament.
The Bundesrat’s comments are provided by its president to the Federal Chancellor, who passes them on to the Federal Ministry of Finance. If necessary the Ministry drafts a response on the Bundesrat’s comments, submitting them to the Federal Chancellor for submission to, and adoption by, the government. These are submitted without delay to the president of the Bundestag by the Federal Chancellor.
The Bundestag’s Rules of Procedure specify that all bills, including the draft budget law, pass through three readings. After the first reading, the Budget Committee’s rapporteurs of each departmental budget scrutinise the detailed estimates in their area of competency. The role of the chair of the Budget Committee is to synthesise their findings and prepare a report suggesting amendments to the government’s draft budget law. Since the Constitution requires that any statutes increasing budget expenditures require the consent of the government, nearly all of the work of the Budget Committee on the expenditure side is directed at changing the composition of expenditures, rather than attempting to change total expenditures. Also, since the budget contains details on proposed changes in the number of civil servants and salary levels, the Bundestag’s discussion on resources relative to staffing is often the most contentious part of the budget debate (Bundestag, 2003).
4.2.2. Provisional budgets
Should the budgets not be adopted by the end of a fiscal year, the federal government is authorised by the Constitution to make payments that are necessary to maintain statutory institutions, carry out measures authorised by existing law, meet the Federation’s legal obligations, and continue projects or make transfers already approved in the previous year’s budget (GG, Art. 111). To the extent that revenues are insufficient to cover these expenditures, the executive is authorised to borrow to conduct current operations, up to a maximum of one-quarter of the total amount of the previous year budget (GG, Art. 111).
4.2.3. Powers of amendment
The Constitution severely restricts Parliament’s amendment powers. Statutes increasing budget expenditures proposed by the government, or involving or likely in the future to cause new expenditures, require the consent of the government. A similar provision applies to statutes involving decreases in revenues (GG, Art. 113). Also the government may demand that
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the Bundestag postpones its vote on such bills. The Constitution includes a sixweek time limit for government withholding its consent to statutes (GG, Art. 113).
4.2.4. Approval of resources
An independent Working Group on Tax Revenue Estimates, which includes federal and Länder representatives, reviews tax revenues in the spring (the March-May period) and updates them at the parliamentary approval stage. The latter are used by the Budget Committee at a “settlement” session that finalises the estimates to be included in the annual budget law. Revenues are projected on a gross basis and on the basis of existing laws (which do not have to be renewed annually with each budget law). The Budget Committee scrutinises all estimates in detail, expenditures as well as revenue. The Bundestag takes a separate decision on each departmental budget, prior to Bundesrat consideration of each departmental budget.
4.2.5. The nature, structure and duration of appropriations
The “budget” (excluding annexes) consists of three main elements: the budget law (BHO, s. 1); an aggregate budget; and departmental budgets [HGrG, s. 10(1)]. The budget law defines expenditure totals. The aggregate budget is a summary of the revenues, expenditures, and authorisations for future commitments contained in departmental budgets, a summary of how the fiscal balance will be financed, as well as new loans and repayment of old loans [HGrG, s. 11(4)]. Departmental budgets are very detailed, being required to contain revenues, expenditures, and authorisations for future commitments of a single agency, sub-divided into chapters and titles. The economic classification of revenues and expenditures is detailed in the HGrG [s. 10(3)]. The authorisations for future commitments are budgeted separately from expenditure items [HGrG, s. 12(2)]. For each department, the budget is subdivided into chapters and titles. Titles, which are the smallest units in the budget, identify the purposes of expenditure or special items. There are 7 000-8 000 titles (Sturm and Müller, 2003, p. 198).
Revenue and expenditure are budgeted in full and independently of each other. Exceptions, particularly for receipts in the case of asset sales or incidental expenses, may be allowed, provided the computations are shown in a budget annex or an explanatory note [HGrG, s. 12(1)]. Funds to independent self-administration agencies may be allocated on a net basis if this is in the interests of efficiency and economy [HGrG, s. 12(3)]. The statutory items are the estimates for revenues according to origin, cash expenditures for the year, authorisations for future commitments according to purpose, and budget notes. Explanatory notes are not legally binding unless declared to be so [HGrG, s. 12(4)]. For expenditures, titles may be grouped into a heading
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designating a common purpose. Flexible budget management applies (see below).
The Constitution specifies that the budget shall be laid down in a bill covering one or several financial years separately. Provision may be made for parts of the budget to apply for different durations or different financial years [GG, Art. 100(2)]. Normally, both expenditures and authorisations for future expenditures may be used only up to the end of the financial year. However, it may be provided in the law that unused authorisations for future commitments shall be valid until the promulgation of the budget law of the next fiscal year [HGrG, s. 27(1)].
4.2.6. Carryover of appropriations and borrowing of future appropriations
Investment expenditure and expenditure from specifically earmarked revenues may be carried over. Other expenditure may be carried over if it is earmarked for a specific purpose covering several years and if this is in the interests of efficiency and economy [HGrG, s. 15(1)]. For carried-over expenditures, unexpended balances may be accumulated which remain available for the particular purpose beyond the financial year up to the end of the second financial year. The Minister of Finance may permit expenditure to be carried over in specially justified cases, provided that funds are still to be spent in the next fiscal year on measures that have already been authorised [HGrG, s. 27(1)]. The 1997 Law Adapting Budget Legislation of the Federation and the Länder widened the scope of these provisions by extending eligibility for carryover to all expenditures coming under flexible management arrangements (see below). It also abolished the requirement to effect savings in departmental budgets when use was made of unexpended funds.
4.2.7. Public debt approval
The Constitution requires that the borrowing of funds and the assumption of pledges, guarantees or other commitments, as a result of which expenditure may be incurred in future fiscal years, necessitate federal legislative authorisation indicating, or permitting computation of the maximum amounts involved (GG, Art. 115). The annual budget law must determine the level up to which the Minister of Finance may borrow funds for deficit financing and for ensuring effective cash management [HGrG, s. 13(1)]. This authorisation is valid for the fiscal year, or until the annual budget law of the following year is promulgated [HGrG, s. 13(2)]. It may be provided by law that revenue from borrowing is designated to specific expenditures [HGrG, s. 13(3)].
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“The granting of guarantees or any other warranties that may result in expenditure in future financial years shall require legal authorisation in terms of definite amounts. Promises of loan guarantees shall require the consent of the Minister of Finance. He shall be involved in the negotiations” (HGrG, s. 23).
The protocol attached to the EU Treaty of Maastricht requires the general government deficit to be no higher than 3% and gross debt to be no higher than 60%. Member countries report debt and general government balance levels to the EC twice a year. For Germany, the Federal Ministry of Finance reports a scenario for public debt that has been approved by Cabinet. Parliament has never established maximum limits on the total amount of general government debt.
The law authorises the federal government, with the consent of the Bundesrat, to adopt ordinances (having the force of law) that limit the borrowing of funds by any level of government. Such limits apply to special funds and administrative entities. Governments may limit borrowing to below that approved by Parliament in the framework of the annual budget should it be necessary to avert a disturbance of general economic equilibrium (StWG, s. 19). The Bundestag has the right to overturn such ordinances. The transferring of unutilised maximum borrowing rights between public entities (for example, municipalities or associations of municipalities) is permitted (StWG, s. 21).
4.2.8. Promulgation, veto and publication of the adopted budget
Following the Bundestag’s third reading of a bill and the receiving of the consent of the Bundesrat, the annual budget law is signed by the Minister of Finance, the Federal Chancellor and the Federal President. Neither the Federal President nor the Federal Chancellor has the right to veto the budget approved by the two chambers of Parliament. The budget, once published in the Federal Law Gazette, becomes law.
4.2.9. Supplementary budgets (rectifying laws)
Provisions relating to supplementary budgets are contained in budget codes. For the federal government, it is stated that Parts I and II of the code (respectively, general provisions and budget preparation provisions respectively) apply to: 1) amendments to the draft budget law and draft budget and 2) supplements to the (adopted) budget law and budget (BHO, ss. 32-33). The law does not limit the number of supplementary budgets in a given year. The only limitation is that drafts for supplementary budgets must be submitted before the end of the fiscal year (BHO, s. 33).
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