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 revenue to 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 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.

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 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

11. Budget Players (David Good) 1. Spenders 2. Guardians 3. Priority Setters 4. Financial Watchdogs

12. 3 Key Decisions (David Good) 1. How much to spend 2. Where to spend it 3. 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?