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4.2.10. Budgetary implications of other bills

The Constitution states that “bills which increase the budget expenditure proposed by the federal government or involve or will give rise to new expenditure shall require the consent of the federal government. This shall also apply to bills which involve or will give rise to cuts in revenue” (GG, Art. 113). Also, measures which may oblige the Federation or the Länder to spend in future financial years shall only be permissible if the budget provides authorisation for them to do so (HGrG, s. 19).

4.3. Budget execution

Budget execution is governed by the HGrG and budget codes. For the federal government, the law authorises the Federal Ministry of Finance to issue administrative regulations concerning financial and budgetary administration (BHO, s. 5). Detailed regulations have been issued, which have binding force over federal ministries and dependent entities. Similar regulations have been issued by the 16 Länder.

4.3.1. Apportionment of expenditure authority

Appropriated funds shall be administered in such a way that they suffice to cover all expenditure for the various purposes indicated (HGrG, s. 19). Disbursements (and collections) may be made only on the basis of written warrants by the Minister of Finance or by agencies so authorised (HGrG, s. 32). The law adds that the minister may approve exceptions.

4.3.2. Cancellation of budget authority and other in-year expenditure controls

The Minister of Finance can block expenditures: “if developments in the revenue or expenditure situation so require, the Minister of Finance may make commitments or expenditure subject to his approval” (HGrG, s. 25). The instrument of freezing expenditures has been used in recent years. When spending exceeded the cash limits established by the Ministry of Finance, spending ministers were required to seek the permission of the Minister of Finance prior to spending authorised amounts (Sturm and Müller, 1999, p. 198). For investment spending financed by loans, prior approval of the Minister of Finance is needed for both commitments and payments (HGrG, s. 21). The regulations to the budget codes contain details on how these provisions are implemented.

4.3.3. Emergency spending, excess spending and contingency funds

The Constitution authorises expenditure in excess of budgetary appropriations, with the consent of the Minister of Finance, but only in the

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case of an unforeseen and compelling necessity. Details may be provided by federal legislation (GG, Art. 112). For the federal budget, “the need shall not be deemed compelling if in the specific case a supplementary budget can be adopted in time or if expenditure can be postponed until the next budget law has been passed. A supplementary budget shall not be required if the excess expenditure does not in any one case exceed a specific amount to be stipulated in the budget law” (BHO, s. 37).

The law provides the authority for the federal government’s budget to contain an unspecified expenditure item for use when economic activity declines and a disturbance in general economic equilibrium needs to be averted. Approval by the Bundestag, with comments by the Bundesrat, is needed for expenditure under this item (StWG, s. 8).

Concerning wage expenditures at all levels of government, “the granting of salary payments in excess of the collectively agreed scale requires the consent of the relevant Minister of Finance if this results in additional expenditure in the current or following fiscal year” (HGrG, s. 24). Similarly, the minister’s consent is required should administrative fees be lowered, resulting in a loss of revenue (HGrG, s. 24). Statutory expenditures (for example, for regular payments to civil servants, pensions) have to be paid irrespective of the amount provided for in the budget.

4.3.4. Transfer and virement of appropriations within the year

Transfers of budget authority between ministries is generally possible. Virement – the swapping of budget authority within titles and chapters for a particular ministry – has traditionally been very restrictive. Prior to the 1998 budget, virement was allowed between expenditure titles “only if there was an administrative or substantive connection. Expenditure budgeted without any detailed indication of its purpose could not be declared eligible for virement” [HGrG, s. 15(2)]. Following the adoption of the Law Adapting Budget Legislation of the Federation and the Länder in late 1997, virement rules for administrative expenditures were eased. The new rules allow virement within section 4 (salaries, except title 411), within section 5 (non-personnel administration expenditures), within title 711 (construction projects) and section 8 (other capital expenditure). Additionally, 20% of the budgets for each of these sections may be swapped with other sections. The impact of this more flexible management has been rather limited since only about 6% of total federal expenditures has been affected (even though the rules relate to 104 chapters, comprising about 3 000 budget titles). The main reason for this is that major federal government expenditures, including those on social security, transportation, subsidies and interest payments, were unaffected by the new legislation.

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4.3.5. Cash planning and management of government assets and debt

Principles for efficient cash management are incorporated in law, notably that “revenues shall be collected punctually and in full” and that “money may only be spent as and when necessary” (HGrG, s. 19). Also, for the federal government, the Federal Budget Code specifies “that a liquid reserve should be accumulated with the Bundesbank… In order to ensure proper cash management without recourse to borrowing authorisations” (BHO, s. 62).

The BHO also contains provisions for asset acquisitions (“only if required for the performance of the federal government’s tasks in the future”) and for asset sales (“sold only if not required for the performance of the federal government” and “sold at full value, with exceptions permitted in the budget”) (BHO, s. 63). There is also an article relating to real estate property (BHO, s. 64).

The executive is authorised to exercise in-year control over government borrowing for macro-stability reasons. The StWG provides details on operating procedures. In particular, the law requires a special committee of the Financial Planning Council to prepare a quarterly schedule of the priority of proposed borrowings, the amounts involved, and borrowing terms and conditions. This schedule may be declared binding by the Federal Minister of Finance. In consultation with the Bundesbank, the minister may suspend the schedule should capital markets deteriorate (StWG, s. 22). Each Land is required to ensure by appropriate measures that borrowing by a Land, its municipalities and other subordinated entities do not exceed the level decided at federal level (StWG, s. 23). Land and special funds are required to report, if requested by the Federal Minister of Finance, on their borrowing requirements (StWG, s. 24).

4.3.6. Internal audit

Until 1997, the law required government authorities to carry out internal financial control in the form of ex ante control, including for receipts, payments, commitments to incur expenditure, assets, and liabilities (BHO, s. 100). The BHO required a finance officer to be established in every agency (BHO, s. 9). Each internal audit office (called a pre-audit office) was integrated with the authority in which it was established, being directly subordinate to the head of such authority. The Federal Court of Audit was required to give its agreement to the appointment and recall of heads of internal audit offices, and each internal audit office was required to submit its audit results to the Federal Court of Audit. Since 1997, this legal requirement was removed from the HGrG. The pre-audit offices were replaced by internal auditing within the departments, where specific transactions can be checked at any time. Internal auditing is carried out on a decentralised basis in all departments in the form of a self-check.

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4.4. Government accounting and fiscal reporting

4.4.1. The accounting framework

The Constitution requires annual accounts to cover not only revenues and expenditures, but also assets (“property”) and debt liabilities (GG, Art. 114). When this clause was inserted in the Constitution in 1969, it was understood that the governments’ accounting systems would be on a modified cash basis. “All collections and disbursements shall be entered separately for each financial year, in the year in which they were made” (HGrG, s. 34). “Collections and disbursements shall be recorded in accounts chronologically and in accordance with the procedure laid down in the budget or otherwise provided. The Minister of Finance may order accounts to be kept on commitments entered into and monies accruing. All entries in accounts shall be supported by documents” (HGrG, s. 33). A few exceptions are specified in the law, including transactions made during the unspecified complementary accounting period when books are being closed.

4.4.2. Government banking arrangements

The concept of a consolidated revenue fund for all revenues is explicit in the law: “all revenue shall serve as cover for all expenditure. Exceptions must be stipulated by law” (HGrG, ss. 7-8). However, the law does not require a single treasury account, opened in the name of the Minister of Finance. Nor does the law specify government banking arrangements associated with federal cash offices. The Bundesbank Act, 1992, entitles the central bank to conduct any financial transaction (with the exception of granting loans) for the Federation, special funds, Länder, and other public bodies. However, the law does not oblige the Bundesbank to be the federal government’s banker. In practice, however, nearly all federal government financial transactions are carried out via accounts managed by the Bundesbank on behalf of the Ministry of Finance.

4.4.3. In-year reporting to Parliament

For the annual budget debate (usually September). The legal requirements and actual information provided are discussed in above. Coverage of the Finance Report is extensive. Law does not explicitly state that Parliament must be provided with the fiscal strategy needed to meet its European commitments.

January. The federal and Länder governments are required to submit an annual economic report to the Bundestag and the Bundesrat in January of each year (StWG, s. 2). This report must contain:

● comments on the Annual Report of the Council of Experts;16

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●the federal government’s economic and fiscal aims (annual projections) for the current year. This projection shall employ the same methods as the national accounts unless alternative accounts are necessary;

●a survey of planned economic and fiscal policy measures for that current year.

Other months. Law does not require regular (for example, quarterly) budget execution reports to be transmitted to Parliament and the public. However, in practice, the Federal Ministry of Finance publishes a monthly report (including a 15-page summary in English) on federal fiscal developments – revenues, expenditures, balance, federal borrowing, guaranteed debt. It includes an advance calendar of publication dates. The Federal Ministry of Finance also regularly provides data on fiscal developments for general government, especially to the EU and other international bodies.

4.4.4. Annual accounts and reports

The Constitution requires “the Minister of Finance, on behalf of the federal government, to submit annual accounts to the Bundestag and the Bundesrat in order to obtain discharge; the accounts cover revenues, expenditures, property (assets) and debt” (GG, Art. 114). The law requires the Minister of Finance to set the date for closing the accounts (HGrG, s. 36). An explanatory report on the closed accounts is required (HGrG, s. 41).

To reach these legal requirements, the steps in preparing consolidated and nationwide accounts are embodied in law. “The responsible agencies shall render their closed accounts for each financial year. On the basis of the closed accounts, the Minister of Finance shall draw the consolidated budgetary account for federal government for each financial year” (HGrG, s. 37; BHO, s. 80). The HGrG specifies in detail the requirements for revenues, expenditures and financing (HGrG, ss. 38-40; BHO, ss. 81-83). Once the cash accounts and the budget have been closed, an explanatory report is required by law (HGrG, s. 41; BHO, s. 84). At federal level, additional summary information is required, including for excess and extrabudgetary expenditure, special funds and reserves, indirect federal agencies, revenue from asset sales not envisaged in the budget, and a “property” account (a balance sheet with certain assets and debt liabilities). The law does not include the date by which the minister must provide the consolidated annual accounts to the Federal Court of Audit for audit.

Federal entities whose accounts follow the rules of the Commercial Code (that is, who prepare annual accounts and reports using commercial doubleentry accounting standards), may be excused the Federal Ministry of Finance’s