Budget should not be a surprise

In my last two pieces, I had suggested an agenda for tax and expenditure reforms for 2009.

In my last two pieces, I had suggested an agenda for tax and expenditure reforms for 2009. This last related piece is about improving budget transparency and parliamentary oversight. The annual budget, containing a comprehensive statement of government8217;s proposed revenue and expenditure, as well as key policy initiatives, is presented to Parliament on the last working day of February. This is followed by a general discussion on the budget and then it goes to the standing committee for in-depth consideration. The report of the standing committees is thereafter considered and both the appropriation and the finance bills are considered and adopted in the Lok Sabha. This is followed by a discussion in the Rajya Sabha.

Budget-making is still shrouded in undue secrecy. After all, except for changes on excise and customs, the rest of the budget is applicable only prospectively. It can be subjected to much wider debate for creating a broader consensus than seems possible in the current calendar of events. Parliamentary engagement and oversight also remain limited mostly in terms of ex post examination. The budgetary appropriations in most other countries are debated for months before consideration by the legislature.

An international symposium of OECD member countries concluded that there was need to assert legislative control over executive expenditure by first, constraining fiscal aggregates, and second, enlarging legislative control over revenue. In their view, good governance implies an active partnership around the budget 8212; the major vehicle of both government policy and democratic control. To be effective, parliaments require timely, coherent and credible information from the executive on resources and performance.

Several parliaments of OECD member countries are re-examining their internal organisation and processes for the discussion on the budgetary process. OECD believes that 8220;Parliamentary budget processes and policies support sound governance when they promote fiscal responsibility, transparency, a future orientation, as well as all the financial commitments which are not included in the budget, and when they demand credible information on the nature, cost and impact of public policies.8221;

Based on established best practices for budgetary transparency I have three specific suggestions to make:

8226; First, improve standards of disclosure, namely, the reports which should accompany the government8217;s key policy documents. They should contain not only a comprehensive analysis of government revenue and expenditure but also the trade-offs between different policy options considered by government, the non-financial performance data, and more importantly, a medium-term perspective indicating the likely behaviour of revenue and expenditure trends.

Parliament needs to engage on a rolling budget plan over a two-three year horizon to evaluate the budget proposals. The disclosures must be truthful enough to reveal contingent and other off-budget liabilities which, while technically not forming part of the budget, finally can add to the overall burden.

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8226; Second, the budget need not be an unexpected surprise. A quarterly review showing progress in budget implementation, the behaviour of underlying economic assumptions, and any material event impacting the budget proposals should be presented to Parliament. This should be followed by a pre-budget report, which would encourage improved responses in understanding of budgetary aggregates. This should be presented during the winter session of Parliament. The pre-budget report would serve to create appropriate expectations for the budget itself. It should bring out the behaviour of key macro variables and serve as a backdrop to the budget. For instance, we all know that the expenditure budget for the next fiscal year begins to take shape around the time of the second supplementary.

No doubt the level of Gross Budgetary Support GBS is debated for much longer, but within limits, a lot of it is known by the winter session of Parliament. The pre-budget report can thus secure the ex-ante engagement of Parliament.

8226; Third, parliamentary oversight relates to procedures, time spent and the quality of oversight. The standing committees of Parliament are supported by the same administrative ministries which have shaped the budget proposals. Member of Parliament do not have access to any independent analysis of budget proposals and their institutional capacity to do so remain weak. Consider the fact that the United States Congressional Budget Office has 245 highly trained staff, in the Philippines it is 50, and they are in large numbers even in many African countries. All over the world professional experts give independent inputs to law makers enabling an objective evaluation of the proposed appropriations.

We need to learn from the best international practice on budget transparency and benchmark our procedures in relation to new evolving practices. Our budgetary processes and procedures have remained substantially frozen in time. The rest of the world has readapted them to suit contemporary needs. Parliamentary oversight needs a qualitative improvement in terms of time spent, stages of scrutiny and quality of analysis. Indeed, it owes this to the electorate to discharge this crucial fiduciary obligation with responsibility.