Budgetary Process and Financial Management

1. Budgetary Process and Financial Management Douglas Brown Pols 341 March 2013

2. 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

3. 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

4. Objectives of the Budget in Modern States 1 Macroeconomic management 2 Policy tool for “micro-managing” the economy 3 Raising revenueto match government expenditures

5. 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

6. 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.

7. 3 Raising revenueto 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.

8. 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)

9. 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

10. Forms of expenditure decision-making • Line-item budgeting – micro control of spending • Program budgeting – top-down strategic control, but letting the managers manage • Performance budgeting – flexibility in the face of changing needs

11. Budget Players (David Good) • Spenders • Guardians • Priority Setters • Financial Watchdogs

12. 3 Key Decisions(David Good) • How much to spend • Where to spend it • How to manage it

13. 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

14. Post-Budget Financial Administration in the Canadian Federal Government • Key Institutions involved • Key principles applied • Continuing issues

15. 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

16. 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

17. Key Principles of Financial Administration • Parliamentary oversight • Ministerial accountability • Checks and balances in the overall system • Value for money auditing

18. Continuing Issues • Balancing act among three values: • Economy, Efficiency, Effectiveness • Is the Auditor-General too political? • Is accountability too excessive for effective management?