Budgetary Process and Financial Management

Douglas Brown

Pols 341

March 2013

Budgetary Process and Financial Management

Political Significance of the Budget Key Objectives of the Budget in Modern States The Revenue Budget The Expenditure Budget The Budget Cycle and Budget “Games” Financial Management inside Government Scrutiny by Parliament and its agents

Political Significance

The Budget is a key policy instrument The Budget is a reliable indicator of

government’s priorities Political “spin” dominates budget

discourse, both government and opposition

Budget documents hide as much as they reveal

Objectives of the Budget in Modern States

1 Macroeconomic management

2 Policy tool for “micro-managing” the economy

3 Raising revenue to match government expenditures

1 Macroeconomic management

Attempts at economic stabilization, promoting growth

“Keynesian” policy of countering economic booms and busts (had been less emphasized until 2008)

Generally attempting to influence economic growth, inflation, employment

2 Policy tool for “micro-managing” the economy

Use of “tax expenditures” to promote spending or savings by individuals and firms (e.g. retirement savings (RRSP), research tax credits)

Use of taxes to discourage certain activity (e.g. smoking, energy consumption)

Use of spending to encourage investment, provide infrastructure, subsidize industry, farming, etc.

3 Raising revenue to match government expenditures

Determining the mix of taxes, tax rates and base

Estimating likely tax yields in the year ahead

Fine-tuning taxes, including cutting them Projecting an overall budgetary position:

balanced, deficit or surplus.

The “Revenue Budget”

Overall statement about the national (provincial) economy

Selected messages about spending priorities, new programs, new tax measures (including cuts)

Formal Tabling in Parliament of the Estimates (for expenditures) and Motions of Ways and Means (for taxes and other revenue measures)

Expenditure Budget

• Takes form in the “Main estimates” • Detailed department-by-department listings,

tabled in Parliament• Different rules for different categories of

expenditures: Operating Capital Grants Contributions, transfers Non-budgetary loans, investments and

advances

Forms of expenditure decision-making

1. Line-item budgeting – micro control of spending

2. Program budgeting – top-down strategic control, but letting the managers manage

3. Performance budgeting – flexibility in the face of changing needs

Budget Players (David Good)

1. Spenders

2. Guardians

3. Priority Setters

4. Financial Watchdogs

3 Key Decisions(David Good)

1. How much to spend

2. Where to spend it

3. How to manage it

The Budget Cycle

Involves both long term strategic planning and short-term management of finances

Annual cycles geared to fiscal year, and a late winter or spring Budget speech

Bottom-up input from departments Top-down setting of priorities and trade-offs by

the Cabinet Significant intermediary role by bureaucrats in

Finance and Treasury Board

Post-Budget Financial Administration in the Canadian Federal Government

Key Institutions involved Key principles applied Continuing issues

Institutions of Financial Administration 1 Financial Administration Act – legal basis for all

expenditures Parliament –votes supply, approves

appropriations, committees review expenditures Treasury Board – establishes spending rules,

approves new programs and projects and supervises departments

Public Works and Government Services – centralized cheque-issuing, accounting

Line Departments – pre-audit procedures, internal post-audit

Institutions of Financial Administration 2 Comptroller-General – supervises departmental

financial officers Auditor-General – formal audit, reports directly to

Parliament Public Accounts Committee – parliamentary

committee that reviews the work of the Auditor-General

Parliamentary Budget Officer

Key Principles of Financial Administration

Parliamentary oversight Ministerial accountability Checks and balances in the overall system Value for money auditing

Continuing Issues

Balancing act among three values:Economy, Efficiency, Effectiveness

Is the Auditor-General too political? Is accountability too excessive for effective

management?