Budgetary law and net budgeting in Finland

1. Budgetary law and net budgeting in Finland by Niko Ijäs Budget Secretary Budget Department

2. 1. Sources of budgetary law • Constitution (chapter 7)http://www.finlex.fi/en/laki/kaannokset/1999/19990731 • parliament’s budgetary power • budget principles • types of appropriations • supervision and audit of state finances • Act on State Budget http://www.finlex.fi/en/laki/kaannokset/1988/19880423 • basic structure of the budget • general legal provisions concerning for example: • cash management • bookkeeping • annual accounts of the state • state asset and debt management • guidance and control of state financial management and internal control

3. 1. Sources of budgetary law • Decree on State Budgethttp://www.finlex.fi/en/laki/kaannokset/1992/19921243 • structure and preparation of the budget • operational and economic planning • implementation of the budget • organization of the financial management • payments traffic • financial accounting • supplementary accounting systems • final accounts • internal control • miscellanous provisions • Administrative decisions and instructions • example: Mof’s stipulation concerning preparation of the (multiyear) expenditure ceiling and (next year’s) budget • European Community law • criterion of The Stability and Growth Pack

4. 2. Constitutional Budget Principles 1. Unity and completeness (section 84.1) • The budget shall cover all revenue and expenditure • one budget document • supplementary budgets (if there is justified reason; section 86) • also borrowing and lending are considered as revenue and expenditure • Exceptions: • extra-budgetary funds (11) • state enterprises

5. 2. Constitutional Budget Principles • Extra-budgetary funds: • Constitutional limits for the establisment of funds • shall be created by an Act • 2/3 majority of the votes cast • allowed only if the performance of a permanent duty of the State requires this is an essential manner • State enterprises: • Act on state enterprises • revenue and expenditure of the enterprises are included in the budget in so far as provided by an Act • Parliament decides the most important service objectives

6. 2. Constitutional Budget Principles 2. Gross budgeting (section 84.1) • The main rule • Exceptions may be provided by an Act of parliament concerning revenue ja expenditures immediately linked to each other • Net budgeting: see later

7. 2. Constitutional Budget Principles 3. Annuality (section 83.1) • The Parliament decides on the State budget for one budgetary year at a time. • Exceptions: • Transferable appropriations • Authorization to make commitments in the budget

8. 2. Constitutional Budget Principles 4. Budgetary Balance (section 84.2) • Estimated revenue shall cover the appropriations • surplus allowed • Borrowing is counted as revenue

9. 2. Constitutional Budget Principles 5. Virement-rule (section 85.2) • An appropriation shall not be moved from one budget item to another, unless this has been allowed in the budget. • However, the transfer of an appropriation to a budget item to which its use is closely linked may be allowed by an Act.

10. 3. Other Budget Principles Universality • Revenue is not ear-marked for the specific purpose • Ratio: • effiency of resources allocation • safeguarding of the budgetary power • Some exceptions

11. 4. Different kind of appropriations • There are three kind of appropriations in the budget (see section 85.1 in the constitution): • Fixed appropriation • granted for one year • can’t be exceeded • can’t be carried over • Estimated appropriation (some 75 % of the Budget) • granted for one year • can be exceeded with the authorisation of the competent ministry after a certain standard procedure (opinion of Mof or Cabinet finance committee) • can’t be carried over • use: especially statutory expenditures • Transferable / Deferrable appropriation • granted for n+1 or n+2 years(= can be carried over for 1 or 2 subsequent years) • can’t be exceeded • use: especially operating expenditures

12. 5. Net budgeting (backround) • Started in 1980’s • State debt • Expanded in the beginning of 1993; reasons: • economic depression • performance management and budgeting • from line-item budgeting to lump sum budgeting • number of appropriations fell substantially

13. 5. Net budgeting (general) • Net budgeting is allowed and applied for example in the following cases: • State debt • Interests, emission profits & losses and losses of capital related to state debt • Revenue from and expenditure on the activities of government agencies (”operating appropriations”) • Revenue from the sale of shares and sales commissions related to the sale; and financial commitments assumed by the State on behalf of the buyer • Legislation-based State subsidies to municipalities and amounts payable to the State by municipalities under government subsidization principles governing the determination of subsidy

14. 5. Net budgeting (general) • Net budgeting can’t be applied to: • taxes • fines • transfers • exceptions: points 4 and 5 in previous slide • incomes from an investment which is budgeted separately from an agency’s ”operating appropriation” • Regardless of net budgeting Parliament can decide, if it wants, for example: • maximum amounts of expenditure • and all other matters about which it can decide under gross budgeting

15. 6. Net budgeted agencies • Idea of net budgeting: - 50 m€ operating expenditures + 30 m€ operating incomes = 20 m€ net appropriation • Parliament decides only on the amount of net appropriation (= lump sum net budgeting) • Operating expenditures includes: • salaries • rents • procurements (goods, services and smaller investments) • travel expenditures • other operating expenditures

16. 6. Net budgeted agencies • Operating incomes include: • User charging fees • Co-funding for different kinds of projects • e.g. EU-structural Funds and corresponding governmental funding from the funding agency • direct EU-funding from the European Commission (e.g. 7th R&D Framework Programme) • co-project funding from municipalities, other agencies etc. • Donations and legacies given to the agency (and not to the State in general) • These are not common.

17. 6. Net budgeted agencies • An agency can be partly gross budgeted and partly netbudgeted • e.g. user charging fees can be gross budgeted and incomes from co-projects can be net budgeted • e.g. user charging fees collected by the courts of law are gross budgeted but possible co-project funding is net budgeted.

18. 6. Net budgeted agencies • Some risks of net budgeting: • Revenues remain much smaller than estimated funding problem • Revenues are much higher than estimated the scale of an agengy’s operations may grow “too big” from Parliament’s and / or central government’s point of view

19. Thank You!