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PEMPAL Plenary Meeting of Budget Community of Practice PEMPAL Plenary Meeting of Budget Community of Practice (BCOP)(BCOP)

Program budgeting - the EU approach: Program budgeting - the EU approach:

from theory to practicefrom theory to practice

Grzegorz OrawiecGrzegorz Orawiec

SloveniaSlovenia

27-29 March 201227-29 March 2012

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Desirable featuresDesirable features Comprehensive coverageComprehensive coverage A rules based approachA rules based approach A multiannual approachA multiannual approach An important role to independent national budget An important role to independent national budget

institutionsinstitutions Appropriate organization of the budget processAppropriate organization of the budget process Transparent and effective control and enforcement Transparent and effective control and enforcement

mechanismsmechanisms Strong political commitment through effective Strong political commitment through effective

communicationcommunication Adaptability to new challengesAdaptability to new challenges Preconditions of budgetary frameworks Preconditions of budgetary frameworks

(sufficient standards of accounting, forecasting and (sufficient standards of accounting, forecasting and monitoring)monitoring)

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QuestionQuestionss

What are theWhat are the main elementsmain elements that that have proven to be most successfully have proven to be most successfully in planning and implementation of in planning and implementation of budgetary policiesbudgetary policies ??

How the desirable features are How the desirable features are applied in theapplied in the “ “best pupilsbest pupils” cases, ” cases, trends-based budgetary policytrends-based budgetary policy ??

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The legal framework for improving The legal framework for improving public financepublic finance

Fiscal rulesFiscal rules

Consolidation of fiscal sectorConsolidation of fiscal sector

Multi-annual planningMulti-annual planning

Independent public institutionsIndependent public institutions

Performance-based budgetingPerformance-based budgeting

http://ec.europa.eu/economy_financehttp://ec.europa.eu/economy_finance

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EU & macroeconomic stabilization policy

Fiscal policy:: government spending and taxes. government spending and taxes. The framework for fiscal policies of EU Member States is The framework for fiscal policies of EU Member States is

intended to monitor andintended to monitor and supervise the supervise the deficitsdeficits and and debtsdebts of each of each MS - the aim of MS - the aim of sound public financessound public finances in the context of in the context of deeper deeper economic integrationeconomic integration (EC) (EC). .

The aim is to achieve The aim is to achieve balancedbalanced budgetary positionsbudgetary positions in the in the medium term (3-5 years): medium term (3-5 years): Fiscal rulesules: The size of the deficit : The size of the deficit (max. (max. 3%3% of GDP ), public of GDP ), public

debt (max. debt (max. 60%60%)) Tax policy: The taxes : The taxes – variety of rates– variety of rates Government spending – different strategies e.g. – different strategies e.g. PBBPBB

Monetary policy controls the value of currency. It is concerned controls the value of currency. It is concerned with the amount of with the amount of money in circulation in circulation ((inflation)). . Interest rates - - set by set by NCB / ECBNCB / ECB Reserve requirements

EUEU: common monetary policy ^ national but coordinated : common monetary policy ^ national but coordinated fiscal policyfiscal policy

- (e.g. Poland – Constitution – Art. 126: 3/5 GDP)- (e.g. Poland – Constitution – Art. 126: 3/5 GDP)

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Performance budgetPerformance budget

Goals (allocation)

PerformanceBudget

Specific objectivesConcrete actions

(subdivision)

Results(indicators)

PBB sets the goals, to which money is “connected” (allocated)

From these goals, specific objectives are delineated and funds are then subdivided among them.

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Performance-based budgetingPerformance-based budgeting

Performance budgetsPerformance budgets use goals, objectives and use goals, objectives and indicators (measured results)indicators (measured results) to explain why the to explain why the money is being spent. money is being spent.

The key word “The key word “resultresult”” The entire planning and budgeting framework is The entire planning and budgeting framework is

result orientedresult oriented. There are objectives and activities to . There are objectives and activities to achieve these results.achieve these results.

Performance budgeting comprises Performance budgeting comprises three elementsthree elements:: strategystrategy (different ways to achieve the final result) (different ways to achieve the final result) activity/outputsactivity/outputs (what will be done to achieve the final (what will be done to achieve the final

result)result) resultresult → concrete measures (indicators) → concrete measures (indicators)

PBBPBB – only one ( – only one (rather finalrather final) puzzle of modern public ) puzzle of modern public finacefinace

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Performance-based budgeting – the legal basePerformance-based budgeting – the legal base The is The is no singleno single model of performance-based model of performance-based

budgeting:budgeting:- PSA (GB), VBTB (the Netherlands)- PSA (GB), VBTB (the Netherlands)

National ↔ Regional ↔ Local level (National ↔ Regional ↔ Local level (administrative divisionadministrative division)) Countries which directly adopted foreign models later Countries which directly adopted foreign models later

had had adjust these modelsadjust these models or reconstruct them or reconstruct them completely with respect to:completely with respect to:- specifics of their own public finances- specifics of their own public finances- national priorities - national priorities - social-economical circumstances- social-economical circumstances

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Legal base forLegal base for economic EU policy: economic EU policy: Articles 121Articles 121 andand ArticlesArticles126126 of theof the Treaty on the Functioning of the European UnionTreaty on the Functioning of the European Union((the basis for the stability and convergence programmesthe basis for the stability and convergence programmes & & the Excessive Deficit Procedure the Excessive Deficit Procedure

Stability and Growth PactStability and Growth Pact ( (SGPSGP)) - - the key instrument for fiscal policy the key instrument for fiscal policy coordcoordiinationnation::

““national budgetary rules should be complementary to the national budgetary rules should be complementary to the

member States’ commitments under the Stability and Growth member States’ commitments under the Stability and Growth

PactPact””

Council Regulation (EC) no 1466/97Council Regulation (EC) no 1466/97 on the on the strengthening of the surveillance of strengthening of the surveillance of budgetary positions and the coordination of economic policiesbudgetary positions and the coordination of economic policies (referred to as(referred to as preventive preventive part)part)

Council Regulation (EC) No 1467/97 of 7 July 1997Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the on speeding up and clarifying the implementation of the excessive deficit procedureimplementation of the excessive deficit procedure (referred to as (referred to as corrective part)corrective part)

These Regulations were amended in 2005 by These Regulations were amended in 2005 by Regulation (EC) No 1055/2005Regulation (EC) No 1055/2005 and and Regulation (EC) No 1056/2005Regulation (EC) No 1056/2005 and complemented by the and complemented by the Council Report of 20 March Council Report of 20 March 20052005 on ‘Improving the implementation of the Stability and Growth Pact’on ‘Improving the implementation of the Stability and Growth Pact’

EU – basic legal regulations (1/2)

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Stability and Growth PactStability and Growth Pact ( (SGPSGP) ) – – contcont::

Protocol (No 12) on the excessive deficit procedure Protocol (No 12) on the excessive deficit procedure annexed to annexed to the Treatythe Treaty((the details of the excessive deficit procedure referred to in Article the details of the excessive deficit procedure referred to in Article 126 126 ))

Council Regulation (EC) 479/2009Council Regulation (EC) 479/2009 on the application of the on the application of the Protocol on the EDPProtocol on the EDP(e.g. rules of reporting – period <n ; n-4>, quality of data – used (e.g. rules of reporting – period <n ; n-4>, quality of data – used methods)methods)

Code of conductCode of conduct - "Specifications on the implementation of the - "Specifications on the implementation of the Stability and Growth Pact and guidelines on the format and content of Stability and Growth Pact and guidelines on the format and content of stability and convergence programmes", endorsed by the ECOFIN stability and convergence programmes", endorsed by the ECOFIN Council on 7 September 2010Council on 7 September 2010(e.g. Medium term budgetary objective, correction of an excessive (e.g. Medium term budgetary objective, correction of an excessive deficit)deficit)

October 2006 ECOFIN Council conclusionsOctober 2006 ECOFIN Council conclusions on the quality of on the quality of public financespublic financesOctober 2007 ECOFIN Council conclusionsOctober 2007 ECOFIN Council conclusions on improving the on improving the effectiveness of the Stability and Growth Pacteffectiveness of the Stability and Growth Pact(e.g. reform of public finance, administration, financial markets)(e.g. reform of public finance, administration, financial markets)

EU – basic legal regulations (2/2)

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EU – new legislative package

””Hot” discussion in EP onHot” discussion in EP on legislative packagelegislative package on:on: EU EU economic governanceeconomic governance andand discipline of public finance discipline of public finance of MSsof MSs

made up of made up of six pieces of legislationsix pieces of legislation: : - new - new proposals deal with fiscal issues, including a wide-proposals deal with fiscal issues, including a wide-ranging ranging reform of the Stability and Growth Pactreform of the Stability and Growth Pact (SGP) (SGP)- new concept of - new concept of prudent fiscal policy-makingprudent fiscal policy-making (MTO) (MTO)- - debt developmentsdebt developments == deficit developments deficit developments (penalty (penalty procedures e.g. cutting money from EU funds)procedures e.g. cutting money from EU funds)- e- establishing stablishing national fiscal frameworks of qualitynational fiscal frameworks of quality (e.g. (e.g. consistent accounting consistent accounting ))- n- new requirements for the ew requirements for the budgetary frameworkbudgetary framework of the of the Member States, Member States, - - ppreventing and correcting macroeconomic imbalancesreventing and correcting macroeconomic imbalances (EC→MS (EC→MS specific analysis and recommendationsspecific analysis and recommendations for E. for E. Council + early warning → MS)Council + early warning → MS)- new set of - new set of gradual financial sanctions for euro-area gradual financial sanctions for euro-area Member StatesMember States (e.g. (e.g. non-interest bearing deposits which non-interest bearing deposits which would be converted to fineswould be converted to fines))

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Reform of public financeReform of public finance inin NetherlandsNetherlands

Complex actionsComplex actions Expenditure rule:Expenditure rule: real expenditure ceilings, set real expenditure ceilings, set

for entire government period (4 years coverage), for entire government period (4 years coverage),

Independent macroeconomic projectionsIndependent macroeconomic projections,, as as basis for budget, are provided by the basis for budget, are provided by the Netherlands Netherlands Bureau for Economic Policy AnalysisBureau for Economic Policy Analysis (CPB), (CPB),

Medium-term budgetary framework (MTBF):Medium-term budgetary framework (MTBF):o Four years coverageFour years coverageo Link between annual budget and MTBFLink between annual budget and MTBFo Main target= general government balance at the Main target= general government balance at the

end of coverage, end of coverage,

Budgetary procedures:Budgetary procedures: Transparency, centralization of the budget process Transparency, centralization of the budget process

at planning stage, top-down budgeting,at planning stage, top-down budgeting, performance budgetingperformance budgeting

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PPoland currently has a oland currently has a traditional budget systemtraditional budget system that that is based on organisational units and control of inputs.is based on organisational units and control of inputs. But also – Poland But also – Poland in the process of introducing a in the process of introducing a new new budget systembudget system, the performance-based budgeting system, the performance-based budgeting system

The aims:The aims: IImprove public finance managementmprove public finance management (rational use of (rational use of resources: money → tasks)resources: money → tasks) More universal and competent supervisionMore universal and competent supervision of public funds of public funds spending (indicators)spending (indicators),, MMulti-year budgetingulti-year budgeting (analysis of different scenarios) (analysis of different scenarios) TTransparency and accountabilityransparency and accountability (improvement of (improvement of effectiveness of public administration)effectiveness of public administration)

””step by stepstep by step” scenario ” scenario →→ 20132013: national budget : national budget prepared parallel in traditional & performance-based prepared parallel in traditional & performance-based methodsmethods

The performance budget in The performance budget in PolandPoland

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Debt / Revenue relationLocal self-government level

Operational surplus index Information since 2011 → obligation since 2014 Based on budgetary data from 3 previous years Old rule = max 15% Increasing debt possible only if:- surplus in current section of the budget

(revenue ↔ expenditures) v revenue from sale of public (council) property

- no matter for free sources and surplus in property section for last three budgetary years

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Program budgeting –Program budgeting – EU approach EU approach AAlways remember that:lways remember that:

Step by step attitude (e.g. fiscal rules, Step by step attitude (e.g. fiscal rules, consolidation of fiscal sector)consolidation of fiscal sector)

Complex team work + timeComplex team work + time- system of independent public institutions, - system of independent public institutions, audit & controlaudit & control

Need for planningNeed for planning- Medium-term budgetary frameworks- Medium-term budgetary frameworks- National public finance reform- National public finance reform

One mission One mission →→ one team one team

Don’t afraidDon’t afraid – – May the Force be with youMay the Force be with you

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””Men build too many walls Men build too many walls and not enough bridges”and not enough bridges”

Isaac Isaac NewtonNewton

Thank you for your attentionThank you for your attention

Grzegorz OrawiecGrzegorz Orawiec