1. Read and discuss the texts.

2. Write down five questions about each text.

3. Say what you know about the use of multiyear budgeting and budget classi­fication in Ukraine.

A) Multiyear Budgeting

It has become quite common for ministries of finance around the world to practise some variety of multiyear budgeting. For example, Canada, Germany and the United Kingdom all have multiyear expenditure plans which get reviewed and approved every year. In these countries, the starting point for the next year's budget is the expenditure level approved for this year in the multiyear expenditure plan. Any changes to these previously approved levels have to be treated as additions to the budget, to be financed by raising total spending or by making offsetting changes in other programs.

In Germany, the annual budget is integrated in a multiyear financial plan, which is presented to parliament at the same time the annual budget is presented.

The most important objective of the multiyear financial plan is to monitor the possible existence of excessive demands on public resources.

In Canada, each year the federal government reviews and rolls forward the Fiscal Plan which comprises in more detail the current fiscal year and three more years. Each spending unit develops its own multiyear expenditure plan with the levels needed to keep the current level of services running for the next three years, which are then negotiated with the Treasury Board.

In the United Kingdom, the multiyear public expenditure survey also covers the next three fiscal years.

Even when they do not have multiyear expenditure plans other countries carry out forecasts of the financial consequences of current expenditures (for example, the future liabilities implied by increases in pension plans) or capital investment projects (such as future expenditure on maintenance and operation). For example, in Denmark, there is an appendix to the annual budget showing the expenditure level for the next three years.

From: Fiscal Management in Ukraine, World Bank, 1996.

Words you may need:

Англійський	Російський	Український
multiyear budget	многолетний бюджет	багаторічний бюджет
offsetting changes	компенсирующий изменения	той, що компенсуює зміни
roll forward	переносить	переносити

B) Types of Budget Classification

A system of budget classification enables the myriad government operations and transactions to be organized into relatively homogeneous categories that facilitate the analysis of the impact, nature, and composition of revenues, expenditures, and other financing activities of government.

On the revenue, taxes are classified by the type of activity on which the tax is levied (income, sales, property and so on). Other current non-tax revenues are classified by the nature of the inflow, such as income from government property, sales proceeds, fines, and donations. Capital revenues are classified by the type of asset sold. Grants are distinguished by whether they come from domestic оr foreign governments and international institutions and whether they are for current or capital purposes.

On the expenditure, outlays are frequently classified by the responsible institution or organization. The two most useful types of classifications of government expenditures are the functional classification and the economic classification.

In functional classification, expenditures (and lending) are classified according to the main purpose or function, such as defense, education, and health. The three-level Classification of the Functions of Government published by the Statistical Office of the United Nations is commonly accepted. The value of functional classifications is that they permit analysis of trends in government expenditures even when the organizational structure of government changes.

The economic classification groups expenditures into current and capital and by whether they are requited or unrequited; if requited, for what kind of goods and services, and if unrequited, by the type of person or institution receiving the payment. The objective is to show the kinds of transactions through which the government performs its functions and their impact on markets, financial conditions, and the distribution of income. These transaction categories are wages and salaries, purchases of goods and services, interest on the debt, subsidies to enterprises, transfers to households and other gov­ernments, and lending.

One of the most useful ways to analyze government outlays is by means of a cross-classification by economic character and function. This classification reveals the means by which government performs its functions and the impact these activities will have on the rest of the economy.

From: Fiscal Management in Ukraine. World Bank, 1996.

Words you may need:

Англійський	Російський	Український
functional classification	функциональная классификация	функціональна класифікація
economic classification	экономическая классификация	економічна класифікація
requited	возвратный	поворотний
cross classification	перекрестная классификация	перехресна класифікація

Ex 11. Read the dialogues, sum up their content and act them out:

a) Fiscal Policy in Transition Economies: a Major Challenge

Ukranian: It is recognized that fiscal policy has been at the centre of the economic reform programs pursued by economies in transition.

Foreigner. Yes, practically all programs that they followed in their initial stage included a fiscal component. The transition economies needed to create basic market-based institutions and practices in the fiscal area like taxation and budget process first of all.

U.: What were their first steps towards market economy?

F.: They began to reform the budget process, to reorder expenditure priorities, to revamp the tax system, to restructure and privatize the state-owned enterprises and the banking system.

U.: It seems to me that in the process they have faced tasks similar to those of market-oriented economies.

F.: Well, if you mean the need to tame high inflation and balance-of-payments deficits, to eliminate structural distortions, to reverse poor investment performance and economic stagnation, then you are right. But the implementation of fiscal adjustment programs started in Eastern European countries in a peculiar economic situation, when they embarked on the reforms.

U.: Yes, the process of fundamental institutional change has brought about severe economic and social dislocation and macroeconomic imbalances. As a result, the high inflation, the dramatic fall in economic activity and the deterioration in revenue performance were unprecedented in modern times.

F.: It should be said in all fairness that most countries accomplished a relatively successful correction of the initial fiscal imbalance, which helped to dampen inflation expectations and solve other problems.

U.: What are they working on now?

F.: The economies in transition are engaged in a major effort to redefine the functions of government. The all-encompassing role of the state as regulator of economic activity is being cut back drastically. But the role has yet to be finalized.

U.: Thus, an effective system of public expenditure and its monitoring has still to be established.

F.: I fully agree with you. Besides, the state enterprise sector presets an increasing challenge. Enterprises have accumulated payment arrears to other enterprises and banks, and for the government tax payments. U.: Oh, we in Ukraine understand the problem only too well. And how do they go about the problem? F.: The solution to the problem is being sought through a combination of measures, such as bank recapitalization operations, debt restructuring, implementation of bankruptcy legislation. U.: Eastern European countries have nearly completed the initial stage of the transformation to a market system. What tasks remain for them to accomplish? F.: They are many. As the major ones I'd single out the need to complete the social security reform, to step up infrastructure investment, to overhaul local government finances, to deal with the difficult trade-off between the need to contain the fiscal imbalance and the need to pursue structural reform. U.: And finally, the most important question. Do the people support the reforms? F.: You have really raised the most important question. Sentiments are different, you know. The government's success of overhauling fiscal institutions and eliminating the fiscal imbalances depends on the broad-based support for the reforms. U.: In this situation it's important to develop measures to shield the poor from the adverse effects of adjustment. F.: I see you agree with me that designing and implementing fiscal policy is a major challenge for countries in transition.

Words you may need:

Англійський	Російський	Український
reorder	изменять порядок	змінити порядок
revamp	исправлять	виправляти
to tame high inflation	обуздать высокую инфляцию	загнуздати високу інфляцію
dislocation	нарушение	порушення
dampen	смягчать	пом’ ягшувати
all encompassing	всеохватывающий	всеохоплюючий
finalize	окончательно определить	остаточно визначати
arreas	задолженность	заборгованість
recapitalization	изменить структуру капитала	зміни структури капиталу
overhaul	осуществить перестройку	(тут)здійснювати перестройку
trade off	компромисс	компроміс
contain	сдерживать	стримувати
Sentiments	настроения	настрої
shield	защищать	захищати