The Importance of Independent Budget Analysis and Role of Parliamentary Budgetary Offices

(PBOs)

Anthony StaddonUniversity of Westminster

June 17, 2013

Fiscal Councils

• A fiscal council is a publicly funded entity staffed by non-elected professionals mandated to provide non-partisan oversight of fiscal performance and/or advice and guidance on key aspects of fiscal policy.

• Some have a normative mandate to take positions on various aspects of fiscal policy. – Examples include Austria’s Government Debt Committee (GDC).

• Some provide independent macroeconomic or budgetary forecasts. – Includes the oldest fiscal council, the Dutch CPB (founded in 1945)

• Also includes fiscal advisory bodies that provide independent analysis of fiscal issues. – A number of these fiscal advisory bodies are attached to the legislature. – California’s LAO and the CPBD in the Philippines are permitted to make

recommendations to the legislature.

History and Development

• PBO’s traditionally existed in budget-making and budget-influencing legislatures (Norton 2003). – Does the PBO “translate” to a budget approving

legislatures?– PBO may be even more important in those parliamentary

systems where some members may be naturally disinclined to fully scrutinize the government. (Goodin 2010)

• PBOs are now being established across both presidential and parliamentary systems and they have also been created in sub-national or state legislatures.– In October 2010 the New South Wales Parliament passed

the Parliamentary Budget Officer Act 2010, the first independent PBO in Australia.

Explanations for the Development of PBOs

• The increase in the number of democracies creating more legislatures with the capacity of exercising some form of independent power (Johnson and Stapenhurst, 2008).

• Legislatures are responding to the superior information on spending and performance possessed by executive budget offices (Posner & Park, 2007).

• Support by external organisations.• A response to the criticism that governments had been

too optimistic in their fiscal forecasts. • PBOs can be seen as forming part of a broader reform

strengthening the role of the legislature in the budget process and vis-a-vis the executive more generally.

Comparing and Contrasting Organisational Options (Flinders 2010)

Non-Ministerial Department Parliamentary BodyStaffing Easy to arrange temporary staff

transfer and secondments from other departments.

Arguably greater flexibility (organisationally and culturally).

Accountability to Parliament

Indirect: through the Chancellor of the Exchequer to Parliament.

Direct: The head would enjoy a direct relationship with Parliament.

Independence Potentially restricted due to ministerial sponsorship. (The perception may be greater than the actual reality.)

Constitutionally greater and arguably more legitimate in the eyes of the public. Greater distance may create an unhelpful "them and us" relationship.

Conflict Ministers would have more internal control mechanisms but at a price of impairing the independence and credibility of the OBR.

Political tensions are bound to arise between the Government and OBR at some point.

Appointment By the Chancellor with the approval of the Treasury Committee.

By Parliament (with cross-party approval).

Logic Suited more towards semi-independent forecasting.

Suited more towards a rigorous public-interest regulatory role.

Core Functions/Mandate(Anderson 2008/2011)

• Economic Forecasts• Baseline Estimates• Analysis of the executive’s budget proposals• Medium-term analysis• Anderson argues a newly-established PBO should have a narrow mandate in the

first instance and focus on providing information rather than making recommendations.– NABRO’s role equally involves providing assistance and information, but not to make

recommendations on any matter – A narrow mandate may require restricting a PBO in the first instance to commenting

only on annual budgets rather than all legislation and policy proposals of the government (and the analysis of alternative policies)

• Above all it must have a clear mandate to ensure its role is understood.• PBO resources must be commensurate to its mandate. • An independent post-implementation review should examine both the budget

and resources of the unit and its operational performance.

Benefits of an Independent Analytical Unit (Anderson 2008)

• Simplifies Complexity• Promotes Transparency• Enhances Credibility• Promotes Accountability• Improves the Budget Process• Serves Both the Majority and the Minority• Provides Rapid Responses

Recent Experience/Impact from Kenya, Liberia, Uganda and Nigeria

1. PBOs are assisting MPs to better understand the technical details of the budget, the budget process and the development of incomes and expenditures over several years.

2. A well functioning PBO is a key contributor to the development of a legislature from budgetary approving to budgetary influencing parliament (legal mandate, credibility and resources are also important).– Contributors to e-discussions argued that PBOs have not

only improved the parliament’s willingness and ability to scrutinize the executive’s budget, but its input has led to some policy proposals being discarded.

Recent Experience/Impact

3. Some evidence that the timeliness of the budget process has also improved in countries with PBOs.

– In Nigeria, for example, the NABRO’s assistance led the 2013 budget to be passed early, the first time this has happened since 1999

– It has also been noted that the Ugandan PBO has increased levels of discipline in adhering to the budget calendar and complying with the medium term expenditure framework.

4. PBOs are playing a valuable role to provide analysis and inform MPs, not only at the time of the budget but also throughout the year.

– Greater information on the estimated cost of proposed bills has enabled more informed debate on proposed legislation.

Impact on the Media/Civil society

5. All reports and information produced by the NABRO are made available on its website for public consumption, and the Nigerian media has increased its reporting of budget debates and related matters now that they are more accessible and of a higher quality.

6. The Kenya Women Parliamentary Association was able to work closely with the PBO to produce gender responsive budgeting guidelines for the executive, thereby improving the credibility of the budget.

Assessing Impact/Performance

• To what extent has the technical input from PBO especially on budgetary proposals resulted into change in the executive's budget?

• Information provided by an e-learning participant (Uganda)– More than 90% of what was provided as technical input becomes

part of the sessional committee report.– More than 70% of the technical input ends up in the Budget

Committee report, which provides recommendations of Parliament to the executive.

– The executive is currently adopting well over 50% of the recommendations of the budget committee (compared to 20-30% in previous Parliaments).

The Limitations of PBOs

• PBOs will provide independent budgetary information, but will not solve the basic political problems that are involved in setting up a budget.– A PBO will not prevent bad political decisions, but it will

provide better information upon which those decisions are made.

• The extent of their influence on economic and fiscal performance.

• There may not always be great use made of the information generated.– Broader use of PBO reports outside the main relevant

budgetary committee may be modest (Uganda, Kenya)• Constraints of the wider political system

Political Will• Must be accepted as an independent and objective unit

removed from the political process. • PBOs can increase the credibility of the ruling party’s own

budget forecasts and can help the ruling party both internally and externally.

• By providing technical information a PBO is supporting the work of Members rather than usurping the role of MPs.

• Establishing a PBO may prove difficult in political systems with a number of political parties and in bicameral systems.– Some criticism in Nigeria that the provisions of the NABRO bill

are skewed in favour of the House of Representatives rather than the National Assembly as a whole.

Executive “push-back”

• The competitive relationship between the executive and the legislature in budgeting.

• May also be a natural part of executive-legislative relations. – Concerns raised about the Ugandan Public Finance Bill, 2012 does not

adequately safeguard parliamentary involvement in the budget process.

– An independent budgetary unit can still be subject to political interference as recent examples in Canada and Hungary demonstrate

• Problems experienced by PBOs and/or budgetary units may be an indication that they have become too high profile and a part of political debate.

Independence

• Fundamentally, a PBO will have to be, and be seen to be, independent.

• Staff must be appointed by technical merit rather than political party affiliation.– Head of the PBO should be able to appoint his/her own staff (Liberia)– One concern in Kenya and Uganda is the independence of the staff of

the PBO is not protected by law • Nonpartisanship is assisted when the PBO is overseen by a

cross-party legislative committee.• Security in funding.

– One of the concerns of the Liberian LBO since its establishment is that it does not have a separate budgetary allocation.

• Independence will require a PBO to act on its own initiative as well as be able to respond to questions and enquires.

Placing the Core Functions of the Unit in Law

• Establishing a PBO by statute provides a PBO with a more secure foundation than a resolution of the legislature.

• Some jurisdictions have first established a PBO by resolution of the House before formalizing the institution by statute (Kenya) – Despite the non-passage of the NABRO bill into law, the

institution as presently constituted relies on the framework of the bill to discharge its functions .

• Establishing a PBO on a statutory basis could be modelled on the legislation and powers provided to the Auditor-General or Supreme Audit Institution.

Location of the PBO

• Some jurisdictions have decided to locate PBOs within an established body such as the Parliamentary Library (Canada) or within the parliamentary administration (Korea/Kenya/Uganda). – Independence & expertise can be immediately transferred

(but this can also be ensured by legislation & through internal operating policies/procedures).

– Practical and efficiency arguments in favour, but problems have arisen in some jurisdictions.

– The tension between the provision of confidential advice to parliamentarians and the desirability of putting work on fiscal issues into the public domain.

Serving Committees and/or Individual Members

• Should the PBO give equal priority to parliamentary committees and individual Members? – Danger of being overwhelmed with demands from individual

parliamentarians and a procedure may need to be established for requests for information.

– Kenya and Ugandan PBOs serve committees.– The approach taken by most parliamentary libraries is to deal

with demand by prioritizing parliamentary business (rather than on a representational basis).

– In Canada Committee requests are ranked above the requests of individual parliamentarians and requests are also assessed by risk and materiality from a fiscal framework perspective.

PBO Accountability• The balance between independence and accountability

– The relationship between the legislature and the AG may serve as a useful guide.

• Options for ensuring the accountability of a PBO include– An external governing body with an independent board, perhaps

including parliamentarians among other directors; or– A reporting & accountability line direct to a legislative committee (a

joint committee may be appropriate in a bicameral system). • Either option could oversee the operations of the PBO, its

resources (including funding, staff and IT) and reports. – Another option would be to report directly to the Presiding Officer(s),

but the director should have the right to testify before a committee.• Wider accountability and legitimacy is also important

– PBO must be subject to audit scrutiny

Sources• Anderson, B (2011) Presentation made at a Video-Conference for the East Asia and

Pacific Region, Washington, World Bank. • Anderson, B. (2008) ‘The Value of a Nonpartisan, Independent, Objective Analytic Unit to

the Legislative Role in Budget Preparation’ i in “Legislative Oversight and Government Accountability: A World Perspective” by Rick Stapenhurst, Riccardo Pelizzo, David Olson and Lisa Von Trapp. World Bank Publications.

• Flinders, M (2010), Office for Budget Responsibility, written evidence to the Treasury Committee, 4th report, London: House of Commons.

• Goodin, B (2010). Inquiry into Parliamentary Budget Office Bill 2010, Senate Standing Committee on Finance and Public Administration, Canberra, Parliament of Australia. http://www.aph.gov.au/senate/committee/fapa_ctte/parl_off_bill/submissions.htm

• Johnson, J & Stapenhurst, R (2008) Legislative Budget Offices: International Experiences in “Legislative Oversight and Government Accountability: A World Perspective” by Rick Stapenhurst, Riccardo Pelizzo, David Olson and Lisa Von Trapp. World Bank Publications.

• Posner, Paul, and Chung-Keun Park, 2007, “Role of the Legislature in the Budget Process: Recent Trends and Innovations,” OECD Journal on Budgeting, Vol. 7 No. 3 (Paris: OECD).