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The Hungarian Budget Review Daniel Bergvall and Ian Hawkesworth Budgeting and Public Expenditures Division.

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Presentation on theme: "The Hungarian Budget Review Daniel Bergvall and Ian Hawkesworth Budgeting and Public Expenditures Division."— Presentation transcript:

1 The Hungarian Budget Review Daniel Bergvall and Ian Hawkesworth Budgeting and Public Expenditures Division

2 2 Introduction Budget formulation Parliamentary process Budget execution

3 3 General government deficit forecasts

4 4 Budget preparation

5 5 Account Structure

6 6 Problematic institutional features Focus on the actual deficit Focus on the budget year No clear rules of budgetary discipline

7 7 Focus on actual deficit Determined by revenue (tax legislation) and expenditure (entitlements + discretionary). Actual deficit is constantly moving Aiming at specific deficit requires continuing amendments in preparation and execution phases Hampers orderly decision making process Forces the government to take pro-cyclical decisions Suggestion: Fiscal rule Expenditure rule Cyclically adjusted deficit rule (less transparent) Entitlements – in or out

8 8 Focus on the budget year The budget formulation process is focused on the budget year – lacks proper Multi-annual framework EU convergence program is a de facto framework (flexible) but not implemented at line item level Budget formulation needs to focus on the whole period in order to optimize results – especially saving plans Ensure multi-year estimates are in line with the expenditure rule Alternatives: hectic adjustments as cash limits, across the board cuts and accounting gimmicks

9 9 No clear rules of budgetary discipline More top-down budgeting in Hungary– from totals, chapter to line item The budget circular should contain the final ceilings New spending must be contained within the multi-year ceilings New initiatives in any area during the year need to be costed and fit under the ceilings Clear rules of compensation requirement, but not a more inflexible system New rules need explicit endorsement and publication of Hungarian government

10 10 Parliamentary process Submitted by September 30th General Debate – amendments (2000) Budget Committee Chapter aggregates decided Debate on appropriations below chapter level - amendments Budget Committee Final vote

11 11 Budget execution Organisation of budget execution Budget flexibility during budget execution Service delivery

12 12 Organisation of budget execution Treasury – financial implementation of the budget separated from Ministry of Finance in 1996 Debt management agency – debt management STA in Hungarian central bank set up in 1996

13 13 Flexibility during budget execution Reallocation Central reserve fund Special reserves Safety reserve Saving of unspent appropriations

14 14 Service delivery Organisation of the government sector Central government - 50% of expenditure Social security institutions - 25 % of expenditure Extra Budgetary Funds - 3 % of expenditure Local governments - 22 % of expenditure Reduced number of extra-budgetary funds Introduction of programme review under way Separation of policy making and policy implementation

15 15 Accounting and Auditing Auditing SAO independent institution reporting to the parliament Broad mandate – all government expenditure can be audited, including local governments Audit plan prepared by SAO 3000 separate audits per year – 60-70 audit reports published Prepares ex ante report on the Annual Budget Law Audit Committee and specialised committees discuss the audit reports Accounting Final accounts bill to parliament before end of August – voted on in November

16 16 Summing up Fiscal slippage Clear target – EMU accession Optimism bias Need for institutional strengthening to enhance budget discipline – fiscal framework and top-down budgeting Relatively detailed input budget Well functioning SAO

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