GoodPracticeinParliamentaryBudgetScrutiny:

InternationalComparisons

PreparedfortheBudgetProcessReviewGroupestablishedjointlybytheFinanceandConstitutionCommitteeandtheScottishGovernment

ByJoachimWehnerAssociateProfessorinPublicPolicyLondonSchoolofEconomicsandPoliticalScience

Finaldraft,27February2017

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Contents

Executivesummary

1Introduction

2Globalnormsandrelatedliterature

Internationaltransparencystandards

Standardsforlegislativefinancialscrutiny

Relatedliterature

3Casestudies

Germany

Sweden

NewZealand

Australia

4Summaryandrecommendations

Acknowledgments

References

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Abbreviations

BPRG BudgetProcessReviewGroup

BPS BudgetPolicyStatement(NewZealand)

FIAG FinancialIssuesAdvisoryGroup

GIFT GlobalInitiativeforFiscalTransparency

IBP InternationalBudgetPartnership

IMF InternationalMonetaryFund

MSP MemberoftheScottishParliament

OECD OrganisationforEconomicCo-operationandDevelopment

PEFA PublicExpenditureandFinancialAccountability

VAT Value-AddedTax

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Executivesummary

ThisresearchwascommissionedbytheBudgetProcessReviewGroup(BPRG)tohelpestablishasetofprinciplestounderpinaworldclassfinancialscrutinyprocessinScotland.Thereportsurveysexistingglobalnormsforbudgetarygovernanceandlegislativebudgetscrutiny.Italsoexamineslessonsfromtheexperienceoflegislaturesinfourcountriesthatexercisedifferentdegreesofinfluenceinbudgetarydecisions:Australia,NewZealand,SwedenandGermany.

Globalstandardsrecognisethelegislature’sroleinbudgetapproval,andcallforin-yearparliamentaryoversightofbudgetexecution,aswelleffectiveparliamentaryauditprocedures.Moreover,thereisincreasedrecognitionthatparliamentaryinvolvementshouldbecontinuous,coveringallstagesofthebudgetprocess,includingmedium-termbudgetingandprioritysetting.Yet,manydetailedinstitutionalchoicescannotbesettledwithreferencetoglobalnorms.

Recommendation1:TheBPRGshouldspelloutaclearvisionforthefuturedevelopmentofparliamentaryfinancialscrutinyinScotland.Inparticular,itshouldclarifywhetheritendorsestheFinancialIssuesAdvisoryGroup’s(FIAG)callforaparliamentaryprocessthatentails“muchmorescrutiny”thanatWestminsterandthepossibilitytoinfluencethebudget.

ThecasestudieshighlightpracticesfromlegislaturesthatofferalternativescenariosforthedevelopmentoffinancialscrutinyinScotland.Onbalance,theAustralianandNewZealandexamplesareclosesttothedefaultmodeloftheWestminsterParliament,whichFIAGexplicitlyrejected.ThefollowingrecommendationsarepremisedonFIAG’svision,anddrawonthesurveyofnormsandinternationalexperiencetosuggestimprovementstotheexistingarrangements:

Recommendation2:Thediscussionofthedraftbudgetshouldbeprecededbyaformalmedium-termbudgetpolicystatementthatistabledannuallyanddiscussedinParliamentpriortothetablingoftheannualbudgetproposalintheautumn.Themedium-termbudgetpolicystatementshould,withinthecontextoftheeconomicoutlook,setoutthegovernment’sfiscalpolicyobjectivesanditsbroadprioritiesforthebudget.Itshouldbetabledsufficientlyfarinadvance,aboutsixmonthspriortothestartofthefiscalyear,toallowmeaningfulparliamentarydiscussionthatisinformedbypublicconsultationandengagement.

Recommendation3:Thegovernmentshouldtableasinglebudgetproposalintheautumnthatshouldbescrutinisedbyparliamentarycommitteesanddebatedintheplenary,withthepossibilitytotableandadoptamendments.Thiswouldreplacethecurrentdraftbudgetstagewiththetablingofaformalbudgetproposalduringtheautumn.Maximumamendmentauthoritywouldallowanychangestogovernmenttaxandspendingproposals.Ataminimum,itshouldbepossibleforMSPstoamendthebudgetbyshiftingfundsfromoneitemtoanotherorbyreducinganexpenditure,andtoamendtax

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measuresinawaythatdoesnotresultinalowerbudgetbalancethaninthegovernmentproposal.Amendmentsshouldnotbetiedtoavoteofconfidenceinthegovernment.

Recommendation4:AcentralrolefortheFinanceCommitteeisessentialforco-ordinatingparliamentarydecisionsonthesinglebudgetproposaltabledintheautumn.SimilartotheprocessinSweden,theFinanceCommitteeshouldfirstconsiderthebudgetaggregatesandallocationsacrossthemainspendingareas,andmakerecommendationsthataredebatedandputtoavoteintheParliament.

Recommendation5:Basedontheframeworkestablishedinthefirstparliamentarydecisiononthebudgetaggregatesandallocationsacrossthemainspendingareas,asecondstageofparliamentaryreviewshouldinvolvedetailedscrutinyofexpenditureprioritieswithinspecificsectorsbytherelevantsubjectcommittees.Anyamendmentsproposedbythecommitteesatthisstageshouldbeconsistentwiththeframeworkestablishedinthefirstparliamentarydecision.

Recommendation6:Givenincreaseddevolutionofauthorityovertaxation,theScottishParliamentshouldconsidertheestablishmentofseparatecommitteestoscrutinisespendingandtaxation.Aseparatecommitteeontaxationcouldhelptoensurethatappropriateattentioncanbegiventotheexpenditureaswellastherevenuesideofthebudget.

Recommendation7:TheBPRGshouldexploreoptionsforincreasingtheprovisionofequalityrelevantinformation.Thisshouldincludegenderincidenceanalysisthatquantifiestheimpactofbudgetmeasuresonmenandwomen,alongsideotherdistributiveimpactsbasedonageandhouseholdincome.

Recommendation8:TheBPRGshouldadoptacautiousapproachtotheincorporationofperformanceinformationintobudgetdocuments.Onlyperformanceinformationthatisdirectlylinkedtospendingfiguresshouldbepresented.Outputscanbeattributedtoaspecificprogrammeandfiscalyear,whichmeansthatgovernmentbodiescanbeheldtoaccountfortheirdelivery.Incontrast,anexcessivefocusonoutcomesislikelytoweakenaccountability,asmanyimpactscannotbeclearlyattributed.Programmesshouldbelinkedtooutcomes,sothattheireffectivenesscanbeassessedagainststatedobjectives.However,thelarge-scaleintroductionofoutcomeinformationintoannualbudgetdocumentsisnotrecommended.

Recommendation9:Parliamentaryapprovalofspendingshouldbeattheprogrammelevel.Thebudgetdocumentsshouldspelloutthefinancialcostofeachprogrammeforatleastthecurrentyear,thebudgetyear,aswellasthemediumterm,undertheassumptionthatcurrentpolicyismaintained.Ideally,thebudgetshouldalsocontainpastexpenditureinformationattheprogrammelevel.Parliamentshouldbeconsultedtodeterminetowhatextentspendingshouldalsobepresentedonthebasisofotherclassifications,

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inparticulareconomicandfunctional.Virementrulesshouldsetlimitsforshiftingfundsbetweenapprovedprogrammestoensureparliamentaryoversightandcontrolofin-yearadjustments.

Recommendation10:TheAuditorGeneralforScotlandandtheScottishParliamentshouldconsiderbroadeningtheflowofrelevantauditinformationtoparliamentarycommitteesbeyondthePublicAuditCommittee.ThiscouldinvolvetheAuditorGeneralgivingevidenceandadvicetodifferentcommitteesincludingduringthebudgetapprovalprocesstohighlightrelevantaspectsofaudits.

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1Introduction

ThisresearchwascommissionedbytheBudgetProcessReviewGroup(BPRG)tosupportitsreviewoftheScottishParliament’sbudgetprocess.1TheReviewGroupwishestoestablishasetofprinciplestounderpinaworldclassfinancialscrutinyprocessthatareinformedby(a)statementsofbestpracticeonbudgetarygovernanceandtheroleoflegislaturesinbudgetscrutinyissuedbyrelevantinternationalbodies;and(b)examplesofinternationalgoodpracticefromotherjurisdictions.Inthiscontext,thereportisalsotoconsiderwhethertheprinciplesdevelopedbytheFinancialIssuesAdvisoryGroup(FIAG)andwhichinformthecurrentScottishbudgetprocessmayrequirerevisiontofullyreflectthegoodpracticeidentified.

CertaindevelopmentsmakeitparticularlyrelevanttorevisittheroleoftheScottishParliamentinthebudgetprocessatthistime.Additionalpowersdevolvedunderthe2016ScotlandActincludetheabilitytosetincometaxratesandbands.TheScottishParliamentwillauthoriseandscrutinisetheuseofthesepowers.Inaddition,inhis2016AutumnStatement,theChancelloroftheExchequerannouncedplanstomaketaxchangesonlyonceayearintheautumn(HMTreasury2016).2ThesechangesraisethequestionofwhethertheScottishbudgetprocessshouldbeadjustedtotakeaccountofthesedevelopments,withpotentialimplicationsfortheroleoftheScottishParliament.

ThefundamentalpremiseofthisreportisthatitcannotdeliverananswertothenormativequestionofhowinfluentialaroletheScottishParliamentshouldhaveinthebudgetprocess.Ultimately,thisisforthepoliticiansandpeopleofScotlandtodecide.Theaimofthisreportistohighlighthowdifferentpracticescansupporttheroleofthelegislaturethatisenvisaged,andtosketchalternativescenarios.Putdifferently,whatconstitutesa“good”oreven“best”practice,ifthelatterexists,caninmostinstancesonlybeevaluatedagainstanormativeandcontext-specificdecisionabouttheextenttowhichlegislativeinvolvementinbudgetingisdesired.Whiletherearesomeglobalnormsandminimumstandards,theseleavesubstantialroomtoshapelegislativeinvolvementinawaythatisdeemedappropriateinaparticularcontext.ThismeansthattheBPRGshoulddefineclearobjectivesforthefutureroleoftheScottishParliamentinthebudgetprocess.

Withtheabovecaveatinmind,thisreportaimstosupportthediscussionofalternativescenariosforthefuturedevelopmentofthebudgetaryroleoftheScottishParliament.InmappingoutitsvisionoftheScottishbudgetprocess,FIAGoutlinedabudgetprocessthatinvolvestheScottishParliamentatanearlystagetodebatestrategicpriorities(stage1),priortotheintroductionofadraftbudget(stage2)thatgivesMembersoftheScottishParliament(MSPs)anopportunitytodebate

1Inthisreport,thegenericterms“legislature”and“parliament”areusedinterchangeably.2Duringthe1990s,theUKexperimentedwithaunifiedbudgetprocesswherethegovernmentannounceditstaxandspendingplansatthesametime(Dorrel1993).

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alternativesandproposechanges,followedbyformalapprovalbasedonasuitablyupdatedbudgetandpriortothestartofthefinancialyear(stage3).FIAGalsoenvisagedbroadcommitteeinvolvementdrawingontheFinanceCommittee,subjectcommitteesandtheAuditCommittee,aswellasparliamentaryoversightofbudgetexecution.Theaimofitsproposalswastopromote“muchmorescrutinybyParliamentoftheExecutive'sspendingproposalsthanispresentlythepracticeundertheWestminstersystem”(ConsultativeSteeringGroup1998:AnnexI,para.1.7).WhetherthisremainsadesirableobjectiveforScotlandhastobeclarified.

Thecasestudiesinthisreportillustrateapossiblecontinuumofparliamentaryinvolvement.Ontheonehand,theAustralianParliamentplaysalargelyceremonialroleinthebudgetprocess,especiallytheHouseofRepresentatives.TheNewZealandParliamenthasseensomechangesinrecentdecadesthatmaketheprocessmoreconducivetoparliamentaryparticipation,includingtheintroductionofapre-budgetdebate,andrevisedpowersofamendment.Inpractice,however,theprocessremainsdominatedbythegovernment.Swedenillustratesaperhapsmoreco-operativeapproach.TheSwedishParliamentdebatestheoveralldirectionofbudgetpolicyearlyintheyear,andapprovesbroadguidelinesinaSpringFiscalPolicyBillaheadoftheintroductionoftheannualbudget.WhiletheSwedishParliamentamendsthebudgetlessfrequentlythaninpreviousdecades,itretainsthepowertodoso.TheGermanParliamentillustratesthemoreactiveendofthespectrum.TheBundestagmakeshundredsofamendmentstotheexecutivebudgetproposaleachyear,whichoftenservetoreduceexpenditures.ThefourreferencecountrieschosenforthisreportillustratealternativebutpossibletrajectoriesforthebudgetaryroleoftheScottishParliament.3

InlinewiththeTermsofReference,thisreporthastwosubstantiveparts.Thefirstsurveysinternationalnormsonbudgettransparency,highlightingthoseelementsthatarerelevantforassessinglegislativefinancialscrutiny.Italsogivesabriefoverviewofrelevantaspectsoftheacademicliteratureontheroleoflegislaturesinpublicfinance.Thesecondpartconsistsofaseriesofcasestudiesthathighlightpracticesrelatedtolegislativefinancialscrutinyfromfourdifferentcountries.Adetailedevaluationandoverviewoflegislativebudgetingacrossfourcountriesisimpossiblewithintheshortspaceavailableforthisreport,norisitnecessary.ThefocusisonspecificelementshighlightedintheTermsofReferenceissuedbytheBPRGforthisresearchreport.Theconclusionsummarisesthekeyfindings,relatesthesetotheFIAGprinciples,anddevelopsspecificrecommendations.

3Theexperienceofmoreactivebudget-writinglegislatures,suchastheUSCongress,isdeliberatelyexcludedfromthisreport.AnapproachwherethelegislaturewritesthebudgetisfarfromexistingpracticeinScotlandandfromtheprinciplesespousedbyFIAG.

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2Globalnormsandrelatedliterature

Legislativescrutinyofthebudgetanditsimplementationisgenerallyregardedasanintegralpartofatransparentbudgetsystem.TheOrganisationforEconomicCo-operationandDevelopment(OECD)providesperhapsthemostcompactdefinitionofbudgettransparencyas“thefulldisclosureofallrelevantfiscalinformationinatimelyandsystematicmanner”(OECD2002:7).Givingabitmoredetail,theInternationalMonetaryFund(IMF)definesitas“thecomprehensiveness,clarity,reliability,timeliness,andrelevanceofpublicreportingonthepast,present,andfuturestateofpublicfinances.”4

Severalorganisationshavedevelopednormsandstandardsinthisareathatarerelevantforthisreport.Whiletherearedifferencesinemphasis,thereiswideagreementaboutthedesirabilityofbudget(orfiscal)transparencyandmostofitscoreelements(Petrie2003,WehneranddeRenzio2013:97-99).Thereisalsoagreementonsomeminimumstandardsfortheroleoflegislaturesinthebudgetprocess,butthisaspectislessdeveloped–thusfar.TheOECDiscurrentlyengagedinworktodefinebestpracticesforlegislativebudgeting,whichshouldhelptofurtherentrenchnormsinthisarea.Thestandardshighlightedhereapplytobothnationalaswellasthesubnationallegislatures.

Thispartofthereportstartswithanoverviewofinternationaltransparencystandards.Itthendiscussesspecificelementsofthesestandardsthatrelatetoparliamentaryscrutiny.Thefinalsectionofthispartdrawsoutrelevantkeyfindingsfromtheacademicliteratureonlegislativebudgetscrutiny.

2.1Internationaltransparencystandards

TheOECDBestPracticesforBudgetTransparencyrecommendthefollowingseventypesofbudgetreports:(i)acomprehensivebudgetthatincludesperformancedataandmediumtermprojections;(ii)apre-budgetreportthatstateslong-termeconomicandfiscalpolicyobjectives,andeconomicassumptionsandfiscalpolicyintentionsforthemediumterm;(iii)monthlyreportsthatshowprogressinimplementationandexplaindifferencesbetweenactualandforecastamounts;(iv)amid-yearreportthatprovidesacomprehensiveupdateonimplementation,includinganupdatedforecastofthebudgetoutcomeforthemediumterm;(v)ayear-endreportauditedbythesupremeauditinstitutionandreleasedwithinsixmonthsof

4TheIMFdefinitionisfromitstransparencyportal:http://www.imf.org/external/np/fad/trans/.AnotherwidelyciteddefinitionwasputforwardbyKopitsandCraig(1998:1):“FiscalTransparencyis…opennesstowardthepublicatlargeaboutgovernmentstructureandfunctions,fiscalpolicyintentions,publicsectoraccounts,andprojections.Itinvolvesreadyaccesstoreliable,comprehensive,timely,understandable,andinternationallycomparableinformationongovernmentactivities–whetherundertakeninsideoroutsidethegovernmentsector–sothattheelectorateandfinancialmarketscanaccuratelyassessthegovernment’sfinancialpositionandthetruecostsandbenefitsofgovernmentactivities,includingtheirpresentandfutureeconomicandsocialimplications.”

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theendofthefiscalyear;(vi)apre-electionreportthatilluminatesthegeneralstateofgovernmentfinancesimmediatelybeforeanelection;and(vii)along-termreportthatassessesthelong-termsustainabilityofcurrentgovernmentpolicies.Inaddition,theOECDrecommendsseveralspecificdisclosuresrelatedtoeconomicassumptions,taxexpenditures,andvarioustypesofassetsandliabilities.Afinalsectionaddressesintegrity,controlandaccountabilitypractices,someofwhichwillbediscussedfurtherbelow.

TheOECDBestPracticeshavenotbeendirectlyrevisedorupdatedsincetheirpublication.Moreover,unliketheIMFandsomeotherorganisationsdiscussedbelow,theOECDdoesnotdirectlyusetheBestPracticestoscoreandcomparetransparencypracticesacrosscountries.In2015,theCounciloftheOECDdevelopeditsworkinthisareawhenitapproveda“RecommendationonBudgetaryGovernance.”Amongstothers,itadvocatesforbudgetdocumentsanddatatobe“open,transparentandaccessible”andforbudgetdebatestobe“inclusive,participativeandrealistic”(OECD2015a:sectionsII.4.andII.5.).

TheOpenBudgetSurveyconductedbytheInternationalBudgetPartnership(IBP),acivilsocietygroup,assessesbudgetinformationandotheraspectsofthebudgetprocess.ItmeasurestransparencyacrossasetofbudgetdocumentsthatisverysimilartothoselistedintheOECDBestPractices.OneadditionaldocumentthattheIBPpromotesisa“citizenbudget”designedtocommunicatekeypublicfinanceinformationtothewiderpublic(IBP2015).The2017versionoftheOpenBudgetSurveywillalsoincluderedesignedindicatorsonpublicparticipationandoversightpractices,includingtheroleofthelegislatureandthesupremeauditinstitution.TheOpenBudgetIndexandotherindicatorsderivedfromthesurveyarespecificallydesignedtoassesspracticesacrosscountriesandovertime,withupdatesthatarepublishedeverytwoyears.5

TheIMFfirstpublishedaCodeofGoodPracticesonFiscalTransparencyin1998,whichitupdatedin2001and2007.Adecadeafteritslaunch,interesthadwanedandadecreasingnumberofcountriesrequestedassessmentsagainsttheCode.Fiscaltransparencyregainedprominenceinthewakeofthe2007-8financialcrisis,whentheIMFidentifieditasacentralplankinitsresponse(IMF2012).In2014,theIMFrelaunchedasubstantiallyrevisedFiscalTransparencyCode.Thisrevisionputgreateremphasis,amongstothers,onforecastingandfiscalriskanalysis.ThenewCodecontainsasetofprinciplesbuiltaroundfourpillars:(i)fiscalreporting;(ii)fiscalforecastingandbudgeting;(iii)fiscalriskanalysisandmanagement;and(iv)resourcerevenuemanagement(thelatterisstillunderpublicconsultationatthetimeofwriting).Foreachprinciple,theCodesetsoutstandardsthatcanbeusedtoassesspracticesasbasic,goodoradvanced.

Inaddition,severalotherorganisationshavedevelopedrelevantprinciplesorstandards.Themulti-stakeholderGlobalInitiativeforFiscalTransparency(GIFT)haspublishedHigh-LevelPrinciplesonFiscalTransparencythattheUnitedNations

5TheOpenBudgetSurveywebsiteincludesausefuldataexplorertoolandotherresources:http://www.openbudgetsurvey.org.

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GeneralAssemblyendorsedinDecember2012.Also,thedonor-ledPublicExpenditureandFinancialAccountability(PEFA)initiativehasdevelopedamethodologyforassessingpublicfinancialmanagementacrosssevenbroadpillars,withelementsthatarerelevantforthisreport.ThePEFAframeworkhasbeenappliedextensivelyacrossdifferentlevelsofgovernment,toassessnationalaswellasregionalandmunicipalgovernments.

2.2Standardsforlegislativefinancialscrutiny

Providingabroadstartingpoint,oneoftheGIFTPrinciplesrelatesdirectlytotheroleofthelegislatureinthebudgetprocess.Principle8demandsthat“Theauthoritytoraisetaxesandincurexpenditureonbehalfofthepublicshouldbevestedinthelegislature.Nogovernmentrevenueshouldberaisedorexpenditureincurredorcommittedwithouttheapprovalofthelegislaturethroughthebudgetorotherlegislation.Thelegislatureshouldbeprovidedwiththeauthority,resources,andinformationrequiredtoeffectivelyholdtheexecutivetoaccountfortheuseofpublicresources.”Inaddition,theGIFTPrinciplescallforrolesandresponsibilitiestobeclearlyassignedtodifferentactorsinthebudgetprocess,includingthelegislature(principle7).

TheOECDBestPracticesmakethreereferencestotheroleofparliament.Themostspecificoftheserelatestothetimingofbudgetapproval(para.1.1):“Thegovernment’sdraftbudgetshouldbesubmittedtoParliamentfarenoughinadvancetoallowParliamenttoreviewitproperly.Innocaseshouldthisbelessthanthreemonthspriortothestartofthefiscalyear.ThebudgetshouldbeapprovedbyParliamentpriortothestartofthefiscalyear.”Thisestablishesclearminimumstandardsforthetimingoftheparliamentaryprocess.TheBestPracticesalsodemandthatparliamentmustscrutiniseauditreports(para.3.3)and,moregenerally,thatitmusthave“theopportunityandtheresourcestoeffectivelyexamineanyfiscalreportthatitdeemsnecessary”(para.3.4).

TheOECD’sRecommendationonBudgetaryGovernancepromotestheideathatparliamentaryengagementinbudgetingshouldbecontinuous.Itrecognisesthe“fundamentalrole”ofparliamentinbudgetapprovalandaccountability,butadds:“Theparliamentanditscommitteesshouldhavetheopportunitytoengagewiththebudgetprocessatallkeystagesofthebudgetcycle.”Notably,thetextsuggestsaroleinmedium-termbudgetingandprioritysetting(OECD2015a:sectionII.5).FutureworkoftheOECDonbestpracticesforlegislativebudgetingmayalsosuggestminimumstandardsforamendmentauthority.AbouthalfofallOECDcountrieshavelegislatureswithunfetteredauthoritytoamendthebudget,whereastheamendmentlimitsoftheUKHouseofCommonsareamongthemostrestrictive(DownesandNicol2016;seealsoWehner2006).

TheIMF’s2014FiscalTransparencyCodemakestwomainreferencestotheroleofthelegislature.Itcontainstheprinciplethat“Thelegislatureandthepublicareconsistentlygivenadequatetimetoscrutinizeandapprovetheannualbudget”(principle2.2.2.).InlinewiththebenchmarkestablishedintheOECDBestPractices,

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ascoreof“advanced”againstthisprinciplerequiresthebudgettobe“submittedtothelegislatureandmadeavailabletothepublicatleastthreemonthsbeforethestartofthefinancialyear”and“approvedandpublishedatleastonemonthbeforethestartofthefinancialyear.”InitsevaluationoftheUKbudgetprocess,theIMFconcludedthatthelatesubmissionandapprovalofthebudgetfalloutsidetheinternationallyacceptedrangeofreasonablepractices,sothatbasicrequirementsare“notmet”(IMF2016:42).

AsecondIMFprinciple(2.4.2.)demandslegislativeoversightofbudgetexecution:“Anymaterialchangestotheapprovedbudgetareauthorizedbythelegislature.”Here,apracticeisconsidered“advanced”where“[a]supplementarybudgetisrequiredpriortomaterialchangestototalbudgetedexpenditureorsubstantiallyalteringitscomposition.”Inthisregard,theIMFconcludedthattheUKbudgetprocessallowedstrongparliamentaryoversightandmetthe“advanced”standard(IMF2016:47).6

Inaddition,theIMFCodementionsthelegislatureontwofurtheroccasions.Regardingbudgetdocuments,theCodereiteratesthewell-knownprincipleofbudgetunity(2.1.1.):“Revenues,expenditures,andfinancingofallcentralgovernmententitiesarepresentedonagrossbasisinbudgetdocumentationandauthorizedbythelegislature.”AmajorshortcomingoftheUKcentralgovernmentbudgetprocessisthat“thebulkofrevenuesandexpendituresprovidedareonanetbasis”(IMF2016:34).TheIMFratedUKpracticesonthismeasureas“basic”andidentifiedthisasareformpriority,citingcalculationsthatownsourcerevenuesworth8percentofexpenditureareunreported.

Intermsofthelegalframework,theIMFdemandsthatit“clearlydefinesthetimetableforbudgetpreparationandapproval,keycontentsofthebudgetdocumentation,andthepowersandresponsibilitiesoftheexecutiveandlegislatureinthebudgetprocess”(principle2.2.1).Againstthisprinciple,theIMFattestedthatUKstandardsare“basic”withsignificantgapsduetothelackoflegislationregulatingthebudgetprocess,includingtheroleandpowersoftheHouseofCommons(IMF2016:41).

Finally,thePEFAFrameworkcontainsthreeindicatorsthatrelatetotheroleofthelegislature(PEFA2016).Notably,PillarIV(policy-basedfiscalstrategyandbudgeting)includesanindicator(17)thatlooksatthebudgetpreparationprocess,withonedimension(3)thatisrelatedtothebudgetsubmissiontothelegislature.Here,thehighestpossiblescoreisachievedwhenthebudgetwassubmittedtothelegislatureatleasttwomonthsbeforethestartofthefiscalyearineachofthelastthreeyears.ThisstandardislowerthanintheOECDBestPracticesandlessdemandingthanforthetopcategoryintheIMFCode.ThismayreflectthefactthatthePEFAframeworkiswidely,althoughnotexclusively,usedtoassesspublicfinancialmanagementindevelopingcountries,wherebudgetprocessestendtobemorecompactthaninindustrialisedeconomies.6However,thehighlyaggregatedlevelatwhichtheHouseofCommonsappropriatesmoneymeansthatParliamenthasfarlesscontrolthanotherlegislaturesthatapprovespendingattheprogrammelevelorbasedonmoredisaggregatedcategories(Wehner2015).Thenextpartincludesexamples.

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PillarVII(externalscrutinyandaudit)includesanindicatoronexternalaudit(30),withonedimension(2)thesubmissionofauditreportstothelegislature.Thisaspectisratedstrongestwherefinancialauditsaretransmittedthreemonthsaftertheaccountsweresenttotheauditinstitution.Anotherindicator(31)coverslegislativescrutinyofauditreports,withseparatedimensionsontiming,hearings,recommendationsandtransparency.Here,thePEFAframeworkratespracticeshighlywherelegislaturesdebateauditreportswithinthreemonthsofreceipt;holdhearingswithallentitiesthatreceiveaqualifiedoradverseopinionoradisclaimer;issuerecommendationsonasystematicbasisandtrackthese;andconducthearingsinpublic,debatecommitteereportsinthefullchamberandmakethemavailabletothepublic.

2.3Relatedliterature

Recentreviewsoftheacademicliteratureonfiscaltransparency(deRenzioandWehner2016)andtheroleoflegislaturesinpublicfinance(Wehner2014)areavailableelsewhere.Thissectionislimitedtosomebroaderpointsandspecificfindingsthataremostrelevantinthecontextofthisreport.

Theempiricalliteraturecomparingtheroleoflegislaturesinbudgetingfindswidevariationacrossmoderndemocracies(Lienert2005,Wehner2006,Stapenhurstetal.2008).Somespecificdifferencesarediscussedinmoredetailinthenextpartofthisreport.Whiletheglobalnormssurveyedintheprecedingsectionsuggestthatthereissomeagreementonselectedminimumstandards,thereisnoagreementonhowextensivearolethelegislatureshouldplayinbudgetarydecisions.Insomecountries,itisunthinkablethattheexecutivebudgetproposalwilleverbeacceptedunchangedbythelegislature,whilstinothersthereverseapplies.Moreover,withinthesamecountry,legislativebudgetingevolvesovertimeandadaptstochangingconditions(Schick2002).

Wehner(2006,2010)reviewsseveralinstitutionalpreconditionsforlegislativecontrolofpublicfinance,focusingontwodimensions.Oneistheformalauthorityofalegislatureinbudgetarymatters.Thisincludesalegislature’spowerstoamendtheexecutivebudgetproposal,thereversionarybudgetthatisimplementedshouldapprovalbedelayedbeyondthestartofthefiscalyear,aswellasthedegreeofexecutiveflexibilitytoaltertheapprovedbudgetduringimplementationwithouthavingtoseeklegislativeapproval.Asecondsetofvariablescapturestheorganisationalcapacityofalegislature.Thisrelatestotheamountoftimeavailableforparliamentarybudgetdiscussionspriortothestartofthefiscalyear,thedegreetowhichparliamentaryscrutinyinvolvesspecializedlegislativecommittees,aswellasparliament’saccesstoindependentbudgetresearchcapacityintheformofaparliamentarybudgetoffice.

Amajorconcernhighlightedbytheliteratureonbudgetinstitutionsisthattheremightbeatrade-offbetweenlegislativeinfluenceandfiscalprudence.Severalstudiescautionthatstronglegislativeinvolvementinbudgetingmayleadtopoorfiscaloutcomesincludingincreaseddeficitsanddebt(Alesinaetal.1999,Hallerberg

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andMarier2004,Hallerbergetal.2009).However,carefullydesignedproceduresmaymitigatethesetendencies(Wehner2010:141):

Tosome,thefiscalcostofparliamentaryactivismmaysimplybeanacceptablesideeffectofdemocracy.Others,surely,willdisagree.Yetitmaynotbeimpossibleforlegislaturestobebothpowerfulaswellasfiscallyresponsible.Thisrequirescarefullyengineeredinstitutionsthatforcelegislatorstofixprudentaggregateparametersandtofocusdebateonallocativechoiceswithinahardbudgetconstraint.Seeminglyminorproceduraldetailsplayamajorroleinanyattempttoachievethisgoal.

Somearguethatalegislaturemaynothavetoamendthebudgettoimpactonpolicy.Theexecutivemayanticipatelegislativereactionsandfashionthedraftbudgetaccordingly,therebyreducingthelikelihoodofamendments.However,itisunlikelythataprolongedabsenceofamendmentsindicatesthatthelegislatureisgettingitsway.Anexecutivehasnoreasontoberesponsivetolegislativepreferencesunlesstheabsenceofsuchconsiderationhasconsequences.Amodicumofamendmentactivitymayberequiredtosignaltotheexecutivethatlegislativeactorshavethecapacity,inpractice,forsubstantialrevisionshouldthedraftbudgetnottakesufficientaccountoftheirpreferences(Wehner2010:57).Moreover,alackofmeaningfulopportunitiestoinfluenceprioritiesalsoreducetheincentivesoflegislatorstoinvesttheirtimeandefforttoscrutinisethebudget.Thecasestudiesinthefollowingpartdocumentpracticesthathaveallowedsomerelativelyinfluentialparliamentstoreconcilelegislativeparticipationwithprudentbudgeting.7

7Inaddition,fiscalrulescanbedevisedtopromoteprudentbudgets(Cangianoetal.2013,Schaechteretal.2012).Theseimposeconstraintsonanindicatorofoverallfiscalperformance,andbindboththeexecutiveaswellasthelegislature.Fiscalrulesarebeyondthescopeofthisreport.Forausefuloverviewofdesignchoices,seeAndersonandMinarik(2006).

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3Casestudies

NoscrutinyprocessisdirectlycomparabletothatoftheScottishParliament,withtransferablepackagesof“good”or“best”practices.Forthisreport,itisimpossibleandunnecessarytoattempttodescribeindetailthelegislativeprocessacrossdifferentcountries.Instead,thisreporttakesamoretargetedlookatrelevantpracticesinfourcountriesthatillustrateacontinuumofparliamentaryinfluence.Ofthelegislaturesconsidered,theGermanParliamentisbyfarthemostactiveinbudgetarymatters.TheSwedishParliament,too,hashadanactiveandinfluentialroleinthepast,butlesssonowadays.TheexperiencesofparliamentsinAustraliaandNewZealandisperhapsmorefamiliar,duetothecommonheritageoftheWestminstersystem.Nonetheless,thereareareaswherethesecountrieshavereshapedparliamentarypracticesanddevelopedsometimesuniqueapproachesthatareworthhighlightinginthecontextofthisreport.

AsspecifiedintheTermsofReference,thefocusofthissectionofthereportisonscrutinypracticethat:(a)takesa“fullyearapproach”tobudgetconsiderations;(b)isinformedbyadequateinformationpresentedinatransparent,accessibleandrelevantmanner;(c)isinformedbythelong-termimplicationsofpolicyandbudgetdecisionsonaffordabilityandfinancialsustainability;8(d)considersandinfluencesdraftbudgettaxandspendingplanspriortoconsiderationoftheBudget/FinanceBill;(e)hassubject/departmentalcommitteeconsiderationofdepartmentalspendingplans;(f)hasaclearfocusontheroleofpublicbodiesandlinesofaccountability;(g)considerstheperformanceofpublicbodiesandimpactonoutcomesincludinghowspendingdecisionsareprioritised;(h)considerswiderperformance,outputsandoutcomesandhowtheyinfluencespendingandtaxdecisions;(i)considershowoutcomesarelinkedtothebudgetdocumentation;(j)considersinyearchangestobudgetplans;(k)considersoutturnagainstbudgetsandconsolidatedaccounts;(l)considersgoodpracticeinscrutinyofequalitiesissues;(m)considersauditfindingssystematicallyinbudgetscrutinywork.

Basedontheaboverequirements,thispartofthereportidentifiespracticeselsewherethatareusefulforthinkingaboutthescrutinyprocessintheScottishParliament.However,itisimportanttopointoutthatotherinstitutionswillbeimportanttofullyaddresssomequestionsthatariseintheScottishcontext.Inparticular,intergovernmentalco-operationinfiscalmatterscanbeachievedthroughavarietyofmechanismswithdifferentdegreesoflegislativeinvolvement(Shah2007,Ter-Minassian1997).InGermany,regionalgovernmentsarerepresentedinthelaw-makingprocessatthenationallevelviatheBundesrat,andthusplayanimportantroleintaxdecisionsthataffecttheregions.InAustralia,theindependentCommonwealthGrantsCommissionadvisesonrevenuesharingbetweenthefederal8Theassessmentoffiscalsustainabilityisincreasinglycarriedoutbyindependentfiscalinstitutions,suchasfiscalcouncilsorparliamentarybudgetoffices(vonTrappetal.2016).Forexample,attheUKcentralgovernmentlevel,theOfficeforBudgetResponsibilitypublishesaFiscalSustainabilityReportwithlong-termfiscalprojectionsandanassessmentofthetrajectoryforpublicsectordebt.ThismaybeoneoptionforthefuturedevelopmentofthemandateoftheScottishFiscalCommission.

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governmentandthestates.Otherfederations,likeCanada,havewell-developedsystemsforintergovernmentalnegotiationsthatinvolvefederalandprovincialexecutives.TheUKcurrentlylacksanequivalentmachinery.Oneimplicationforthisreportisthattherearelimitsindrawingoninternationalexperiencewith“scrutinyprocesseswithinlegislatureswheresimilarinteractionsbetweentiersofgovernmentoperate”,astheTermsofReferencephrasedit.

Thefollowingsectionsproceedbycountry,startingwithasummaryofsalientfeaturesoftheapproachtolegislativebudgetscrutiny.Thisisfollowed,ineachcase,byadiscussionofspecificelementshighlightedascentralintheTermsofReferenceforthisreport.Insomeareas,thishighlightslackofconsensusaboutwhatmightbe“best”practice,andbringstotheforenotabledifferences.Someofthediscussionreferstorelevantsubnationalexperiences.However,theexperiencesofnationallegislaturesarenolessrelevant.InSwedenandNewZealand,theirunitarystructuremeansthattherearenoobvioussubnationalcounterparts,butthesecountriesareparticularlyinterestingbecauseofthechangesinbudgetpracticestheypioneeredinrecentdecades.Moreover,theyhaverecentexperiencewithminorityandcoalitiongovernment.WithregardtoAustraliaandGermany,thereportnotessimilaritiesanddifferencesbetweennationalandsubnationalpractices.

3.1Germany

TheGermanParliamenthas“anunusuallystrongandinfluentialengagementintheannualbudgetprocess”(OECD2015b:73).Itreceivesthebudgetproposalaboutfivemonthspriortothestartofthefinancialyear,andhasunlimitedauthoritytoamendit.Thescrutinyofthefederalbudgetmainlytakesplaceinthelowerhouse,theBundestag.Theregionalchamber,theBundesrat,hasamoreimportantroleinchangestothemostimportanttaxes,whicharesharedbetweenlevelsofgovernment(incometax,corporationtax,andVAT).TheBundestagmakesregularuseofitsbudgetarypowersandtypicallyadoptsseveralhundredamendments–aboutonethousandonaverageinrecentyears–totheexecutivebudgetproposaleachyear,evenwhenthegovernmentcommandsalargeparliamentarymajority.Thesepowersareusedresponsibly.Amendmentstypicallyreduce,ratherthanaugment,totalspending(Wehner2001).ItisimportanttonotethattheBundestagisunusuallylarge,withcurrently631seats.Thismeansthatscrutinytaskscanbedistributedacrossalargemembershipandparliamentarycommitteesarelargeandcanbehighlyspecialised.Severalelementsoftheparliamentarybudgetprocessatthenationallevelareinstructiveinthecontextofthisreport,asaresomeaspectsoftheexperienceoftheparliamentsinGermany’sregions,theLänder.

PowerfulBudgetCommittee.TheBudgetCommitteeisatthecentreoffinancialscrutinyintheBundestag.Whilesectoralcommitteescanprovidefeedback,andmakesuggestionstotheBudgetCommittee,thelatterhasdecision-makingauthorityandisresponsiblefortransmittingrecommendationstotheplenary.TheBudgetCommitteeiscomposedofmorethan40members,basedontheproportionalrepresentationofallpartiesintheBundestag.TheBudgetCommitteedoesnotrecommendtaxchanges,andalltaxlegislationisdealtwithseparatelyintheFinance

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CommitteeoftheBundestag.IntheparliamentsoftheLänder,thereistypicallyasinglebudgetandfinancecommitteethatconsidersbothspendingandtaxquestions.Taxquestionsarelessprominentatthislevel,sincethemajortaxesaresharedbetweentheLänderandthefederalgovernment,andaregovernedbyfederallegislation.Forexample,theParliamentofLowerSaxonymaintainsaCommitteeforBudgets,FinanceandPublicAccounts.

Roleofauditfindingsinbudgetscrutiny.IntheBundestag,theCommitteeonPublicAccountsisasubcommitteeoftheBudgetCommittee,consistingof15ofitsmembers.AmemberofthelargestoppositionpartytraditionallychairstheBudgetCommittee,whileamemberofthegoverningcoalitionchairsthePublicAccountsCommittee.Theintegrationofapprovalandauditfunctionsinasinglecommitteehelpstoensurethatauditscanfeeddirectlyintobudgetarydecisions.ThiscommitteemodelisalsofoundinseveralparliamentsoftheLänder.Forexample,inSaxony-Anhalt,thePublicAccountsCommitteeisasubcommitteeoftheFinanceCommittee.9

Specialisedrapporteursystem.TheBudgetCommitteehasadecentralisedapproachtoscrutiny.Rapporteursareresponsibleforthebudgetofaspecificministry,supportedbyassistantrapporteursfromeachpoliticalpartyrepresentedintheBundestag.Rapporteurstendtokeeptheirpositionsforseveralyearsanddevelopahighdegreeofportfolio-specificexpertise.ThePublicAccountsCommitteealsooperatesarapporteursystem,butwithoutassistantrapporteurs.ArapporteurofthePublicAccountsCommitteewillneverberapporteurforthesameministryintheBudgetCommittee.

Full-yearapproach.Duringbudgetformulation,BudgetCommitteerapporteursarekeptinformedbytherelevantofficialsinlinedepartmentsandsectoralofficialsinthebudgetdivisionofthefinanceministry.Duringthefirsthalfoftheyear,itisnotunusualforrapporteurstoconductsitevisits,forinstancetoinvestigatethenecessityofcertaindemandsforcapitalexpenditure,ortocheckonthestandardofadministration.Since2011,thecabinetdecidesbindingceilingsforeachlineministryfortheupcomingbudgetinMarch,andthefinanceministerreportsthisdecisiontotheBudgetCommittee.Duringbudgetexecution,theBudgetCommitteereceivesmonthlyexpenditureupdatesandquarterlyreportsondebtmanagement,andithastoapprovein-yearadjustmentsabovethelimitsitgrantsintheannualbudgetact.TheFederalCourtofAuditassiststheBundestagalsoduringthebudgetexecutionstage,andanswersseveralhundredparliamentaryquestionseachyear.

Uniquepowersoverin-yearchanges.Whenapprovingthebudget,theBundestaghasthepowertoinserta“qualifiedfreeze”torequirethefinanceministrytoobtainparliamentaryconsentbeforedisbursingfundsforaspecificitem,oracertainpercentagethereof.Theexecutiveiscriticalofthismechanism,asitcaninterfere

9InsomecountriesinfluencedbyNapoleonictraditions,parliamentsuseaformaldischargeproceduretoapprovetheimplementationofthebudgetforaspecificyear.Inmanycases,thisapprovalisroutinelygranted,butthismaynotalwaysbethecase.Forexample,theEuropeanParliament’srefusaltograntadischargein1998ultimatelyledtotheresignationoftheSanterCommissioninMarch1999.

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withbudgetimplementation.Ontheotherhand,itisapowerfulparliamentarymechanismtoensuretheexecutiveprovidessufficientinformationtoParliamentandproperlyjustifiesitsspendingproposals.

Documentationwithdetailedinputinformation.Parliamentexercisescontrolthroughthedetailedscrutinyofabout6000lineitems.In2009,thefinanceministryproposedtorestructurethebudgetintoprogrammesandtoreducethenumberoflineitemstoabout1000.TheBudgetCommitteehaltedtheimplementationofthisreform,fearinga“lossof…control”(JonesandLüder2010:269).Hence,theBundestagcontinuestoapproveahighlydetailedbudget.Theannualbudgetlawcontrolshowmuchflexibilitytheexecutivehastovirebetweenitemsandtherearemechanismsforcarry-overs(OECD2015b:27).

3.2Sweden

TheSwedishRiksdagisaunicameralparliament.TheRiksdagfundamentallyrestructureditsbudgetprocessinthemid-1990s,aspartofawidersetofreformsadoptedinsupportoffiscalconsolidation(Blöndal2001).Amongstthemajorchangestothebudgetprocessmostrelevantinthecontextofthisreportarethemovetoatwo-stageprocessofparliamentaryengagementwithbudgetformulation.Inaddition,thereformsalsoredesignedtheprocessbywhichparliamentarycommitteesscrutinisethebudget.Formanydecades,theSwedishParliamentadoptedseveraldozenamendmentstothegovernmentbudgetproposaleveryyear,oftenresultinginadditionalexpenditures.Parliamentnowvotesonthebudgetasapackage,whichmakesitdifficultforoppositionpartiestopromoteamendments,eveninaminoritygovernmentsetting.Ingeneral,sincethereformswereadoptedParliamenthasamendedthebudgetlessfrequently,andrarelyinawaythataffectstotaloutlays(Wehner2007,2013).Thiswasnotthecasein2014,whenanoppositionbudgetwastemporarilyenacteduntilarevisedgovernmentbudgetgainedparliamentarysupport(Mattson2014,OECD2017a).

Earlyparliamentaryinvolvement.Inthemid-1990s,theSwedishParliamentadoptedatop-downvotingprocessinwhichitvotesfirstonbudgettotalsbeforedecidingindividualappropriations.ThereformsintroducedaSpringFiscalPolicyBill,inwhichthegovernmentproposedaggregateexpenditureceilingsfortheupcomingbudgetplustwofurtheryears,aswellasindicativeceilingsor“frames”fortheallocationsacross27expenditureareas.ThisbillwastabledforthefirsttimeinApril1996,precedingthepresentationofthedraftbudgetbyfivemonths.FollowingparliamentaryapprovalofthebillinJunetheexecutivewouldproceedtofinaliseadraftbudgettobepresentedtoParliamentinSeptember,morethanthreemonthsbeforethebeginningofthenewfiscalyear.In2001,itwasdecidedthatthisprocesswastoocumbersome.TheSpringFiscalPolicyBillnowcontainsgeneralguidelinesforbudgetpolicy,ratherthanfixedceilingsandindicativeframes,whicharedecidedintheautumn.

Subjectcommitteeinvolvement.Inconjunctionwiththetwo-stepdecision-makingprocedure,thereformsadoptedinthemid-1990sgavetheFinanceCommittee

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responsibilityfordiscussingaggregatespendingaswellastheframesforeachofthe27expenditureareas.BasedontheworkoftheFinanceCommittee,thefirstparliamentarydecisionintheautumnisnowontheexpenditureframesfortheupcomingbudget,followingwhichsectoralcommitteeslookatbetweenoneandfourexpenditureareasandproposeallocationswithintheapprovedceilings.Sectoralcommitteesmayproposeshiftingfundsbetweenitemswithinanexpenditurearea,butnotinawaythatbreachesthetotalsetforthatarea.

Performanceofagencies.TheSwedishgovernmentusesadecentralisedstructurewithabout350agenciestoimplementpolicy.Sincethereformsofthemid-1990s,agenciesenjoyaconsiderabledegreeofautonomyandreceivelumpsumappropriationsfortheiroperations.Inreturn,therehavebeeneffortstostrengthenaccountabilityforresults(Blöndal2001:49-54).TheBudgetBillnowcontainsabouttwoorthreeperformanceobjectivesforeachofthe27expenditureareasthatareapprovedwiththespendingplans,andperformanceisassessedwithamixofoutputandoutcomemeasures.Thisfollowsamorestrictlyoutcome-focusedapproachdiscontinuedin2009,whichwasfoundtobeapoorsteeringinstrumentwhenimpactsarebeyondthedirectcontrolofanagency.Yet,theOECD(2017a)concludesthat“performanceinformationlacksinfluenceinparliament’sbudgetarydialogue”dueto“weakpracticallinkagesbetweentheperformanceinformationprovidedintheannualreportsofagenciesandtheproposedappropriationsfortheupcomingbudgetyear.”Workiscurrentlyunderwaytostrengthentheserelationships.Itremainstobeseenwhetherthisinformationwillbecomemorecentraltobudgetscrutiny,giventhatparliamentariansalreadyreceivelargevolumesofinformation,andtheinherentdifficultiesindocumentingclearlinksbetweenfundingandimpacts.

Commitmenttoscrutinyofequalityissues.ParticularlynoteworthyareSweden’seffortsoverseveraldecadestomainstreamgendersothatitisanintegralpartofpolicyformulation.Thecurrentgovernmenthasannouncedamajornewinitiativetoadvancegenderbudgeting,whichiscurrentlyintheprocessofbeingdeveloped(Quinn2016).Oneoftheprinciplesistoworktowardsthepresentationwiththegovernment’sbudgetproposalofinformationontheimpactsofbudgetmeasuresonmenandwomen.Anotheristomakemorerigorousgenderimpactassessmentanintegralpartofthebudgetdiscussionsbetweenthefinanceministryandlineministriesatanearlystageduringbudgetformulation(OECD2017a).Itistooearlytoevaluatethesedevelopments.10

3.3NewZealand

NewZealand’sunicameralParliamentplaysaminorroleinthebudgetapprovalprocess.Itreceivesthebudgetaboutonemonthpriortothestartofthefinancialyear,andtypicallyapprovesitonlytwomonthsintothefinancialyear.Membersof

10InAustria,genderbudgetingwasintroducedaspartofanambitiousperformancebudgetingreformin2013.Foreachofthe32budgetchapters,ministriesdefineamaximumoffiveimpactobjectives(andrelatedperformanceindicators)andoneofthesehastoberelatedtogenderequality.ForanoverviewofotherOECDcountries,seeOECD(2017b).

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theHouseofRepresentativescaninitiatechanges,butthegovernmenthasa“financialveto”overproposalsitconsidershaving“morethanaminorimpact”onthefiscalaggregatesorthecompositionofavote(NewZealandTreasury2011:83-84).Thefinancialvetoisusedinpractice,butnotoften.11NewZealandprovidesarareexampleofmanagingpublicmoneybasedonastrictlinkbetweenperformanceandtheallocationoffunding,whereanincrementinresourcesisdirectlylinkedtoanincrementinoutputs(Schick2003).TheestimatespresentedtotheNewZealandParliamentlinktheexpenditureofadepartment,orvote,tospecificoutputs,andspendingisapprovedonthisbasis.12

Earlyparliamentaryinvolvement.TheBudgetPolicyStatement(BPS)setsouttheoverarchingpolicygoalsandprioritiesfortheforthcomingbudget.TheMinisterofFinancemustpresentaBPStotheHouseofRepresentativesby31Marcheachyear.Inrecentyears,theBPShasbeentabledinDecember,precedingthepresentationofthebudgetinlateMay,aheadofthestartofthefinancialyearinJuly.TheFinanceandExpenditureCommitteecallsforpublicsubmissions,considerstheBPSandreportsitsfindingswithin40workingdaysofreceivingtheBPS.In2016,thecommitteereceived33submissionsandheldhearingsontwodays,includingwiththeMinisterofFinanceandaselectionofninesubmitters.Thecommittee’sreportformsthebasisforapre-budgetdiscussionintheplenary,whichisintroducedbythechairpersonoftheFinanceandExpenditureCommittee.

Output-basedappropriations.TheNewZealandParliamentisaskedtoapprovespendingonspecificoutputs(NewZealandTreasury2013).13Theunderpinningperformanceinformationintheestimatesdocumentsthe“budgetedstandard”intermsofoutputs.Thesearegroupedbysector,withanoverviewofthebroadstrategicprioritiesandreferencingoutcometargetspublishedbythegovernment.Forexample,the2016-17estimatesfortheNewZealandPolicefallunderthejusticesector.Oneoftheappropriationsinthepolicevoteisfortheroadsafetyprogramme.Theestimateslistaseriesofoutputsofthisprogrammetowhichbudgetedstandardsareattached.14

11InJune2016,theFinanceMinisterissuedafinancialvetotoblockabillextendingthedurationofpaidparentalleave,citinganoverallnetincreaseinspendingof$278millionoverafour-yearperiod.12NewZealand’sbudgetdocumentsareavailableathttp://www.treasury.govt.nz/budget.13Thesedistinguishdifferenttypesofappropriations:outputs(goodsorservicestobesupplied),benefitsorrelatedexpenses(fordirectresourcetransferstoindividuals),borrowingexpenses(suchasinterestpayments),othersnotfallingintotheprecedingcategories,andcapitalexpenditure.Thereisalsoaseparatesingle-lineappropriationtypeforintelligenceandsecurityservicesofasensitivenature.Inaddition,areformin2013introducedanewtypeofmulti-categoryappropriationsthatcross-cuttwoormoreofthecategories,whichallowsforgreaterflexibility.Theappropriationsalsodistinguishfundingforgoodsorservicesprovidedbythegovernmentdirectly(departmental)fromthosesuppliedonbehalfofthegovernment(non-departmental).Appropriationscancoverdifferenttimeperiods:annual,multi-year(butnotexceedingfiveyears),orpermanent(authorisedbylegislationotherthananappropriationact).14Examplesofthelatterarethenumberofvariousofficerissuedenforcementactionsundertaken(e.g.590to635forspeed,per10,000population),thenumberofbreathtestsconducted(2-2.4million),roadsafetysessionsdeliveredinschools(50,000),etc.Thisiscomplementedwithquality-relatedmeasuresrelatedtotimeliness,suchasforthemedianresponsetimetoemergencytraffic

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Subjectcommitteescrutiny.EstimatesarereferredtotheFinanceandExpenditureCommitteeandmaybereferredtootherselectcommittees.SelectcommitteeshavetwomonthsfromthedaythebudgetwaspresentedtoParliamenttoreportontheirexaminationoftheestimates.Thesystemforauditscrutinyissimilarlydecentralised.In1962,thePublicAccountsCommitteewasdiscontinuedanditsfunctionsgiventothePublicExpenditureCommittee,andin1985totheFinanceandExpenditureCommittee.ThelatterreceivesauditreportsandmayreceiveabriefingonspecificreportsfromtheAuditorGeneral.OthersubjectcommitteescanreceivebriefingsfromtheAuditorGeneralonanyreportswithinthesubjectareaofthatcommittee,butitisrarethattheyreporttotheHouse.Duringthereviewoftheestimates,theAuditorGeneralsupportsselectcommitteeswithevidenceandadvice.ThisprovidesanopportunityfortheAuditorGeneraltohighlightpertinentinsightsfromauditstoinformparliamentaryscrutinyofspendingproposals.

3.4Australia

TheAustralianParliamenthasamarginalroleinthebudgetapprovalprocess.Itsformalpowerstoamendthebudgetarelimited.IntheWestminstertradition,itcanonlyrejectorapproveanexpenditure,orreduceit.Moreover,partydisciplineinthelowerhouseisverystrong.Until1993,budgetswereonlyintroducedafterthestartofthefinancialyearandapprovedaboutfivemonthsintoit.AnewtimetablesincethenisbasedonintroductioninMayandapprovalinJune,withthefiscalyearstartinginJuly.TheestablishmentofaParliamentaryBudgetOfficein2012hasgivenmembersaccesstoanewsourceofindependentbudgetanalysis,includingcostingsofpolicyproposals.TheHouseofRepresentativessubjectsthebudgettohardlyanyscrutiny.ItisinthedirectlyelectedSenate,theupperhouse,thatmoredetailedscrutinyoftheestimatestakesplace.Thisinvolvessectorallegislationcommittees,whichconducthearingswithevidencefromexecutiveofficials.TheAustralianexperienceisparticularlyrelevantforhighlightingthepotentiallydetrimentalimpactonparliamentaryscrutinyofaperhapsoverlyoutcome-focusedbudgetsystem.

Outcome-basedappropriations.Atthefederallevel,theAustralianbudgetsystemwasamongstthefirsttomovetowardsastrongoutcomes-orientationinthelate1990s(Kristensenetal.2002).Thisinvolvedappropriationsagainsthigh-leveloutcomesinsteadofprogrammesordepartments.Forexample,theDepartmentofDefencehadasinglelineforallitsoperations:“TodefendAustraliaandAustralia’sinterests”(Blöndaletal.2008:155).Appropriationscoveredthefullcostsofoutputscalculatedonanaccrualbasisandwerenon-lapsingratherthanannual(KellyandWanna2004:98).Thisallowedthegovernmenttofundnewactivitieswithreferencetoanoutcome,eveniftheywerenotmentionedinthesupportingbudgetdocumentation,aHighCourtjudgmentconfirmed(Blöndaletal.2008:166).TheAustralianParliamentcontinuestoappropriatebyoutcome,althoughasingleorganisationcanhavemorethanoneoutcome.Whileinformationonoutputsis

events(8to9minutesinurbanareas,12to14inruralones).Foreachbudgetedstandard,theestimatesalsoprovidethebudgetedand“estimatedactual”figuresfortheprecedingfinancialyear.

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presentedinthePortfolioBudgetStatementsthatarealsotabledinParliament,theseareforinformationonly(seebelow).15In2008,areviewoftheAustralianbudgetsystemconductedbytheOECDconcludedthatoutcome-basedbudgeting“hadtheresultoffurtherlimitingParliament’srole”(ibid.:171).16

Programme-levelestimateslinkedtooutcomes.ThePortfolioBudgetStatementscontainprogramme-levelfundinginformationandstatewhichprogrammesareassociatedwitheachoutcome.Programme-levelspendingestimatesareforthecurrentbudgetyear(“estimatedactual”),theupcomingbudgetyearandafurtherthreeyears(“forwardestimates”).Forexample,theDepartmentofEducationandTrainingPortfolioBudgetStatementsfor2016-17listnineprogrammesascontributingtotheachievementofitsoutcome1(“Improvedearlylearning,schooling,studenteducationaloutcomesandtransitionstoandfromschoolthroughaccesstoqualitychildcare,support,parentengagement,qualityteachingandlearningenvironments”),aswellasthree“linked”programmesrunbyotherentities.Performanceinformationispresentedforeachprogramme,includingperformancecriteriaandtargets.

Approachtoperformanceatthestatelevel.ThebudgetapprovalprocessfollowedintheAustralianstatesismoreoutput-focused.Forexample,theappropriationsauthorisedbytheParliamentofVictoriaarefortheprovisionofoutputsinsteadofoutcomes.However,whileoutputsarespecifiedinthebudgetdocumentationthatisprovidedtothelegislature,theappropriationsbundlefundingfordifferentbasketsofoutputsatthedepartmentallevel(e.g.educationandtraining,healthandhumanservices,etc.).Inotherwords,theappropriationsdonotfacilitateparliamentarycontroloftheallocationofexpenditureacrossdifferentprogrammesandoutputswithindepartments.

15Australianbudgetdocumentsareavailableathttp://www.budget.gov.au/past_budgets.htm.16Ontheexperiencesofothercountries,seethecomparativeanalysisofperformancebudgetingreformsbyMoynihanandBeazley(2016).Theynotethatthe“impact[ofperformancebudgeting]onhowannualbudgetsallocateresourceshasbeenminimal”(p.2).

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4Summaryandrecommendations

Globalstandardsforbudgettransparencydisplayasignificantdegreeofoverlapandconsensusabouttheessentialingredientsofatransparentbudgetsystem,andthetypesofreportsthatshouldbeproduced.Thereissomewhatlessdetailontheroleofthelegislatureinthebudgetprocess,becauseofdifferentnationaltraditions,althoughthereisagreementonsomeaspects.TheOECDandIMFbothagreethatthebudgetshouldbetabledatleastthreemonthspriortothestartofthefiscalyear,andtheOECDconsidersthisanabsoluteminimum.Internationaltransparencystandardsalsoacknowledgetheimportanceofin-yearparliamentaryoversightoftheexecutionoftheapprovedbudget,aswellastimelyandeffectiveparliamentaryauditprocedures.Moreover,thereisincreasedrecognitionthatparliamentaryinvolvementshouldbecontinuous,coveringallstagesofthebudgetprocess,includingmedium-termbudgetingandprioritysetting.Yet,manydetailedinstitutionalchoicescannotbesettledwithreferencetoglobalnorms.

Recommendation1:TheBPRGshouldspelloutaclearvisionforthefuturedevelopmentofparliamentaryfinancialscrutinyinScotland.Inparticular,itshouldclarifywhetheritendorsesFIAG’scallforaparliamentaryprocessthatentails“muchmorescrutiny”thanatWestminsterandthepossibilitytoinfluencethebudget.

ThecasestudieshighlightedaselectionofpracticesfromlegislaturesthatofferalternativescenariosforthedevelopmentoftheroleoftheScottishParliamentinfinancialscrutiny.TheAustralianandNewZealandexamplesareclosesttothedefaultmodeloftheWestminsterParliament,whereparliamentaryparticipationislimited.FIAGexplicitlyrejectedthisapproach(ConsultativeSteeringGroup1998:AnnexI,para.1.7).IftheBPRGreaffirmsthisvision,thiswouldpointtowardsatrajectorywherefinancialscrutinyevolvestowardsalevelofengagementthatisclosertothatintheSwedishorGermanparliaments.ThefollowingparagraphsidentifypracticesrelatingtospecificaspectshighlightedintheTermsofReferencethatwouldbecompatiblewiththislatterapproach.

Afull-yearapproachtreatsfinancialscrutinyasacontinuousprocessratherthananevent.Activefinancialscrutinyinvolvesparliamentsearlyintheformulationstage,allowssufficientroomtomakeamendmentstothebudgetduringtheapprovalstage,andenablesoversightofimplementationbothin-yearaswellasexpost.Anumberofparliaments,includingseveralofthosecoveredinthecasestudysectionofthereport,haveadoptedpracticesthatsupportcontinuousscrutiny.

Animportanttrendinbudgetingisthatmoreparliamentsgettodebatethebroaddirectionoffiscalpolicyandbudgetaryprioritiesaheadofthetablingoftheannualbudget.TheBPSinNewZealandisoneexampleofthis.Swedenhasgonefurtherandformalisedthisapproachinatwo-steplegislativeprocess,wheretheSpringFiscalPolicyBillisdebatedandapprovedseveralmonthsaheadofthetablingofthebudget.Thesepre-budgetdebatesprovideanopportunitytothinkbeyondtheannualbudgetandaboutthemedium-termpathoffiscalpolicy,majorobjectives,as

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wellaslong-runsustainability.Theycanalsohelptobuildconsensusaboutdifficulttrade-offsandcommitmenttomajorbudgetparameters,includingthroughpublicconsultationandengagement.ThebudgetprocessenvisagedbyFIAGclearlyenvisagedparliamentarydiscussion“onstrategicprioritiesforthefollowingfinancialyear”aspartofa“stage1”priortothetablingofadraftbudget(ConsultativeSteeringGroup1998:AnnexI,para.1.6).

Recommendation2:Thediscussionofthedraftbudgetshouldbeprecededbyaformalmedium-termbudgetpolicystatementthatistabledannuallyanddiscussedinParliamentpriortothetablingoftheannualbudgetproposalintheautumn.Themedium-termbudgetpolicystatementshould,withinthecontextoftheeconomicoutlook,setoutthegovernment’sfiscalpolicyobjectivesanditsbroadprioritiesforthebudget.Itshouldbetabledsufficientlyfarinadvance,aboutsixmonthspriortothestartofthefiscalyear,toallowmeaningfulparliamentarydiscussionthatisinformedbypublicconsultationandengagement.

Tobeameaningfulactorinthebudgetprocess,legislatorsshouldhavetheauthoritytomakeamendmentstothebudget,anditshouldbepossibleinpracticetousethisauthoritywheredeemedappropriate.TheWestminstertraditionsuppressesoutrightparliamentaryamendments,butmanyotherparliamentarybodieshaveamendmentpowersandroutinelymakechangestothegovernmentbudgetproposal,basedonthescrutinyofthebudgetproposalinparliamentarycommittees.InScotland,FIAGrecommendedParliamentfirstdiscussingadraftbudgetpriortoformalapprovalofadetailedbudgetwithoutthepossibilityofamendments.ThisprocessmayreflectadesiretogivetheParliamentasay,butitalsorevealsahesitationtodecisivelybreakwithWestminsterconventionsinthisregard.Fromacomparativeperspective,thisisanunusualandcumbersomeprocess.Amorenaturalsequencewouldbeforthebudgettobetabledanddebated,withthepossibilityofparliamentaryamendmentsinthisprocess.IfthebudgetproposalrespondstoanyissuesraisedinParliamentduringthepre-budgetdebate,alargevolumeofamendmentswouldbeunlikely.

Recommendation3:Thegovernmentshouldtableasinglebudgetproposalintheautumnthatshouldbescrutinisedbyparliamentarycommitteesanddebatedintheplenary,withthepossibilitytotableandadoptamendments.Thiswouldreplacethecurrentdraftbudgetstagewiththetablingofaformalbudgetproposalduringtheautumn.Maximumamendmentauthoritywouldallowanychangestogovernmenttaxandspendingproposals.Ataminimum,itshouldbepossibleforMSPstoamendthebudgetbyshiftingfundsfromoneitemtoanotherorbyreducinganexpenditure,andtoamendtaxmeasuresinawaythatdoesnotresultinalowerbudgetbalancethaninthegovernmentproposal.Amendmentsshouldnotbetiedtoavoteofconfidenceinthegovernment.

Toensurethatparliamentaryreviewisdisciplinedandco-ordinatedrequiresastrongrolefortheFinanceCommitteeinthisprocess.Someparliamentsbundlethescrutinyoftaxationandspendinginasinglecommittee,whileothersmaintain

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separatecommittees,forexampleinGermanyandSweden.Parliamentsthatengageactivelyinthebudgetprocess,includingbymakingamendments,ensurethatstrongfinancialcommitteesareinplacetoguidethisprocess.InSweden,theFinanceCommitteeisinstrumentalinreviewingtotalspendingaswellasallocationsacrossthedifferentexpenditureareas,leavingsectoralcommitteestofocusonspendingwithinsectorsundertheirjurisdiction.TheNewZealandParliament’sFinanceandExpenditureCommitteealsoplaysaco-ordinatingrole,althoughthepossibilityforchangesislimited.TheprocessintheGermanParliamentcentralisesdecision-makingintheBudgetCommittee,butbenefitsfromsector-specificknowledgethrougharapporteursysteminwhichmembersdevelopspecialisedexpertiseandscrutinisespecificpartsofthebudget.

Recommendation4:AcentralrolefortheFinanceCommitteeisessentialforco-ordinatingparliamentarydecisionsonthesinglebudgetproposaltabledintheautumn.SimilartotheprocessinSweden,theFinanceCommitteeshouldfirstconsiderthebudgetaggregatesandallocationsacrossthemainspendingareas,andmakerecommendationsthataredebatedandputtoavoteintheParliament.

Recommendation5:Basedontheframeworkestablishedinthefirstparliamentarydecisiononthebudgetaggregatesandallocationsacrossthemainspendingareas,asecondstageofparliamentaryreviewshouldinvolvedetailedscrutinyofexpenditureprioritieswithinspecificsectorsbytherelevantsubjectcommittees.Anyamendmentsproposedbythecommitteesatthisstageshouldbeconsistentwiththeframeworkestablishedinthefirstparliamentarydecision.

Recommendation6:Givenincreaseddevolutionofauthorityovertaxation,theScottishParliamentshouldconsidertheestablishmentofseparatecommitteestoscrutinisespendingandtaxation.Aseparatecommitteeontaxationcouldhelptoensurethatappropriateattentioncanbegiventotheexpenditureaswellastherevenuesideofthebudget.

Anincreasingnumberofcountriesareattemptingtoincorporateagenderperspectiveintothedecision-makingprocessonbudgets.Thisisanongoingprocess,anditisstilltooearlytoevaluatemanyoftheseinitiatives.Therearevariousmechanismstoincreaseconsiderationofequalityissuesinthecontextofthebudgetprocess,suchasincidenceanalysisfromanequalityperspective,orrelevantperformanceinformation.

Recommendation7:TheBPRGshouldexploreoptionsforincreasingtheprovisionofequalityrelevantinformation.Thisshouldincludegenderincidenceanalysisthatquantifiestheimpactofbudgetmeasuresonmenandwomen,alongsideotherdistributiveimpactsbasedonageandhouseholdincome.

Manycountrieshaveattemptedtostrengthentheperformanceorientationofthebudgetprocessbyincorporatinginformationonoutputsoroutcomesintobudgetdocuments,sometimesincombinationwithtargets.TheNewZealandParliament

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appropriatesonanoutputbasis(i.e.thegoodsandservicesproduced),creatingastrictlinkbetweenoutputsandallocatedfunding,whichisveryrare.InAustralia,Parliamentapprovesfundingonanoutcomebasis(i.e.theintendedimpactonsociety).Theintroductionofthisapproachhasledtoalossofparliamentarycontrolandgivensubstantialdiscretiontotheexecutive.InSweden,performanceinformationhasbeenoflimitedusetoparliamentariansinassessingproposedappropriationsforagencies.Impactscanrarelybeclearlyattributedtoaspecificgovernmentprogramme.Moreover,theirachievementhasnoobviousrelationtothegovernment’s12-monthaccountingperiod,i.e.thefinancialyear,andtypicallyhastobeassessedoverlongertimeperiodsofvaryinglength.Enthusiasmforperformancebudgetingisgreatestincountrieswherethebudgetprocessisdominatedbytheexecutive.TheGermanParliament,themostinfluentialofthelegislaturessurveyedforthisstudy,hasrejectedaninitiativebytheMinistryofFinancetoreducethenumberoflineitems.

Recommendation8:TheBPRGshouldadoptacautiousapproachtotheincorporationofperformanceinformationintobudgetdocuments.Onlyperformanceinformationthatisdirectlylinkedtospendingfiguresshouldbepresented.Outputscanbeattributedtoaspecificprogrammeandfiscalyear,whichmeansthatgovernmentbodiescanbeheldtoaccountfortheirdelivery.Incontrast,anexcessivefocusonoutcomesislikelytoweakenaccountability,asmanyimpactscannotbeclearlyattributed.Programmesshouldbelinkedtooutcomes,sothattheireffectivenesscanbeassessedagainststatedobjectives.17However,thelarge-scaleintroductionofoutcomeinformationintoannualbudgetdocumentsisnotrecommended.

Recommendation9:Parliamentaryapprovalofspendingshouldbeattheprogrammelevel.Thebudgetdocumentsshouldspelloutthefinancialcostofeachprogrammeforatleastthecurrentyear,thebudgetyear,aswellasthemediumterm,undertheassumptionthatcurrentpolicyismaintained.Ideally,thebudgetshouldalsocontainpastexpenditureinformationattheprogrammelevel.Parliamentshouldbeconsultedtodeterminetowhatextentspendingshouldalsobepresentedonthebasisofotherclassifications,inparticulareconomicandfunctional.18Virementrulesshouldsetlimitsforshiftingfundsbetweenapprovedprogrammestoensureparliamentaryoversightandcontrolofin-yearadjustments.

Whileanoutcomefocusprovidesapoorbasisforparliamentaryscrutinyoftheannualbudget,itiscrucialthatparliamentsassesstheeffectivenessofprogrammes.Ultimately,suchinformationshouldinformdecisionsabouttheallocationoffinancialresources.However,abudgetproposalfilledwithoutcomemeasuresandtargetswillnotenablesuchanapproach.Performancecanbeassessedaspartof

17Forexample,theScottishGovernment’sworkonplanningforoutcomesinreoffendingprovidesagoodbasisforthinkingabouthowoutcomescouldbelinkedtobudgetsataprogrammelevel(Bisset2015).18ProgrammebudgetingisdiscussedinKraan(2007)andRobinson(2007),andJacobsetal.(2009)giveanoverviewofbudgetclassifications.

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otherprocessesingovernment,basedoncredibleimpactevaluation.Forparliaments,valueformoneyaudits–especiallythosethatfocusoneffectiveness–canbeavaluablesourceofinformationontheimpactofindividualprogrammes.Thelinkbetweenauditsandthebudgetapprovalprocessisoftenpoorlydeveloped,buttherearemechanismsthatpromotesuchalink.IntheGermanParliament,thefactthattheauditcommitteeisasub-committeeoftheBudgetCommitteeensuresthatmembersdirectlydrawontheirknowledgeofauditinsightsinmakingdecisionsaboutbudgets,includingamendments.InNewZealand,subjectcommitteescrutinyoftheestimatesbenefitsfromtheevidenceandadviceoftheAuditorGeneral.

Recommendation10:TheAuditorGeneralforScotlandandtheScottishParliamentshouldconsiderbroadeningtheflowofrelevantauditinformationtoparliamentarycommitteesbeyondthePublicAuditCommittee.ThiscouldinvolvetheAuditorGeneralgivingevidenceandadvicetodifferentcommitteesincludingduringthebudgetapprovalprocesstohighlightrelevantaspectsofaudits.

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Acknowledgments

TheauthorwouldliketoacknowledgehelpfulcommentsfromClareHammond,DarrenHughes,ScherieNicol,LisavonTrappandthemembersoftheBPRG.Theviewsandopinionsexpressedinthisreport,andanymistakes,shouldbeattributedentirelytotheauthorandnootherindividualororganisation.

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