II – Changes to the Budgetary Process

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Instrument applicable        
Austria | Belgium | Bulgaria | Croatia | Cyprus | Czech Republic | Estonia | Finland | France | Germany | Greece | Hungary | Ireland | Italy | Latvia | Lithuania | Luxembourg | Malta | Netherlands | Poland | Portugal | Romania | Slovakia | Slovenia | Spain | Sweden | United Kingdom |

Austria

Budgetary process 
II.1

Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Austria.

The ‘budget’ is an anticipated list of incomes and expenses of the state on the federal level for one ‘financial year’ (Finanzjahr). It binds the administration. It cannot be invoked in order to breach financial obligations with private parties.[1]

According to Art. 51 (1) B-VG (in its 2013 version), the National Council decides about a Federal Financial Framework Law (for one plus three years) and within its boundaries the Federal Financial Act (for upcoming financial year) on the basis of a proposal by the government. The content of these laws (and how they are supposed to be made) is determined in Art. 51 (2) to (13).

General change        
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

In 2008, a complete reform of the Federal Budget Law has been decided on constitutional level. In a first step, in 2009, amendments of the existing budget law came into force and a “Financial Framework Law” in which the legislator would fix spending limits for specific “clusters” (such as e.g. “Law and Security”) – around 5, “subdivisions” – around 30 and “global budgets” – around 70[2] for the financial year and also for the three subsequent years.[3] In a second step, the Federal Budget Law was completely substituted by a new one, the Bundeshaushaltsgesetz 2013 (BHG 2013). This new law contains the provisions from the 2009 amendments and several entirely new principles and provisions.[4] One of these new principles is the “output orientation” of the administration – costs should be related to output. The budget should further be better structured which is why the above mentioned new divisions were introduced.[5] All together it should be a “best practice” example of “steering instrument” that lays out not only resources but also effects and measures (to be) taken.

Institutional change   
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

The major innovation is the financial framework law that obliges the National Council to set limits for expenditures for four years (see question II.2 for further details).

Change of time-line       
II.4

How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

See questions II.3.

Miscellaneous
II.5
What other information is relevant with regard to Austria and changes to the budgetary process?

No other relevant information.

[1]              Öhlinger, 2009, p. 208.

[2]              Austrian Stability Program, (see section VI, note 4), p. 37

[3]              Öhlinger 2009, p. 208.

[4]              Explanations by the Government for their proposal of the Federal Budget Law 2013 (Bundeshaushaltsgesetz BHG 2013) at the National Council, December 9, 2012, at http://www.parlament.gv.at/PAKT/VHG/XXIV/I/I_00578/fname_174362.pdf.

[5]              Presentation of the Federal Ministry of Finance to explain the new budgetary law, at https://www.bmf.gv.at/budget/haushaltsrechtsreform/Workshop__Die_neue_Budgetsteuerung_im_Bund_%28Stand_8.10.2012%29.pdf?3vtkfo.

Belgium

Budgetary process       
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Belgium.

The main legal source is the Law of May 22nd, 2003 governing the budget of the federal state.

The four principles governing the governmental budget are the requirement of legislative basis, annual approval, universality of revenue and expenses, and specificity of all revenue and expenses.

The budgetary cycle consists of three steps: preparation, execution and closure. The three phases correspond roughly to three years: n-1, n and n+1. The Minister of Finance and Budget prepares the federal budget. The budgets of the regions and communities have a similar to near identical process.

The process consists of the following steps:[1]

April: general instruction to the administration to compile a budget for their department

May: each federal department composes a draft budget

June-September: political negotiation

October: definitive agreement in the plenary session of the executive

November-December: draft budget is submitted to parliament.

After the approval of the budget by the Parliament, the Government, assisted by the Inspectorate of the Finance department, supervises the execution of the budget.

The Court of Auditors is constitutionally charged with the jurisdiction over the accounts and the responsible administrative functionary.[2] Next to this jurisdictional oversight, the Court of Auditors submits an annual report to the House on the administrative compliance with the budget as put forward.

General change   
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

The main changes applied to the budgetary process consist of the timing. November used to be the final month for political discussion within the executive, but following Regulation 473/2013, October 15th has been marked as the new deadline.

Independent fiscal councils, macro-economic forecasts and the possibility to consolidate (i.e. put together) the budgets of the several governments in the federation were already in place.[3]

Institutional change 
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

No real shifts in institutional balance occurred.

The thorny issue of deciding on the responsibility of each government in ascertaining an overall balanced budget is relegated by Cooperation Agreement to the High Council for Finance, which is a semi-independent body under executive authority. See infra, IX.4.

The second point relevant in this discussion is the loss of real power of the parliaments, since the budget is drafted based on the national reform programs and mid-term objectives.[4] However, the power of parliaments, defined in juxtaposition to the executive, was in the past not much greater in political terms.

Change of time-line     
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

See question II.2.

Miscellaneous
II.5
What other information is relevant with regard to Belgium and changes to the budgetary process?

No other relevant information.

[1] See H. Matthijs, F. Naert, W. Marneffe & L. Vereeck, Handboek Openbare Financiën (Intersentia 2013) 147 ff.

[2] “rekenplichtige” in Dutch, the persons in the administration charged with the implementation of an account.

[3] H. Matthijs, F. Naert, W. Marneffe & L. Vereeck, Handboek Openbare Financiën (Intersentia 2013) 94.

[4] See for instance the remark by MP Vienne in the House: Report, Economic governance and the european semester: implications for the Belgian budgetary process, Parl. Doc., House, 53-1343/1 (March 31, 2011). http://www.dekamer.be/FLWB/PDF/53/1343/53K1343001.pdf

Bulgaria

Budgetary process

II.1

Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Bulgaria.

The regime of the budgetary process in Bulgaria is set out in three levels of norms. This is done at the level of (1) the Constitution of the Republic of Bulgaria (CRB), (2) laws and (3) regulations (norms standing lower than laws in the hierarchy of norms). There are four provisions in the CRB that relate to the budgetary process as such. First, Article 87 CRB sets out the exclusive power of the Council of Ministers to draw up and submit the draft Law on the State Budget (LSB) to the National Assembly. Second, Article 84 CRB sets out the power of the National Assembly to adopt the LSB and the Report on the Budget. Thirdly, Article 91(1) CRB provides that the Court of Auditors exercises control over the implementation of the budget. Fourth, Article 106 CRB states that the Council of Ministers manages the implementation of the budget.

There are several other provisions in the Constitution relating to the budget and setting out rules for the budgets of certain constitutionally defined organs. Under Article 62 CRB the National Assembly has an autonomous budget. Article 117(3) CRB states the same for the branch of the judiciary. The draft budget of the judiciary, according to Article 130a CRB, is proposed by the Minister of Justice and it is submitted to the Supreme Judicial Council which, according to Article 130(6)(4) CRB, approves the draft budget of the judiciary. Article 132a CRB provides for the creation of an independent Inspectorate which supervises the activities of the judiciary and the budget of this Inspectorate is approved by the National Assembly while being in the framework of the budget of the judiciary. Finally, Article 141 CRB states that the municipalities also have autonomous budgets and that the State supports the activities of the municipalities through inter alia the State Budget.

All of these constitutional provisions, however, need to be further supplemented and elaborated upon in order to be operationalised. This is done at the level of laws with the Law on the Public Finances (LPF).[1] Before going into the explanation of the budgetary process, it is first needed to explain the scope ratione materiae of the State Budget and its relationship with the other budgets that are set out in the CRB. According to Article 42 LPF the State Budget includes the central budget,[2] the autonomous budgets of the National Assembly and the judiciary, the budgets of the organs of the executive, the budgets of the other State organs and budgetary organisations excluding the autonomous budgets of the municipalities, social security funds and the budgets of the budgetary organisations under Article 13(3) and (4) LPF.[3] Although some budgets are excluded from the State Budget stricto sensu, they still have special relationship with the State Budget and are governed to a certain extent by the general provisions of the LPF but going in further detail on this point is beyond the scope of the present Report.

One of the said aims of the LPF, during the debates for its adoption, was to achieve a certain level of decentralisation, that is – to impose the obligations of following a budgetary discipline to a multitude of actors that hitherto participated in a certain way in the management of public resources through adopting a budget. As such, the LPF included a great number of entities in the budgetary process in one way or another. For the sake of clarity the current answer will focus only on the main actors. The main actors are summarised in Article 7(1) LPF. According to it, the Council of Ministers organises and manages the drafting, the submission to the National Assembly and implementation of the State Budget through the Minister of Finance and the primary authorising officers. Primary authorising officers are authorising officers that draft, implement and report a budget and are identified as such through law.[4] Article 7(1) is, of course, without prejudice to the special provisions on the Supreme Judicial Council, the National Assembly, the social security funds, the mayors and other authorising officers.[5] The Court of Auditors is another main actor, providing audits for the Report on the implementation of the State Budget. The Law for the Fiscal Council is still not adopted but when it is, that Council will also be one of the main actors in the budgetary process.

The cycle of the budgets is annual and the budgetary year starts on 1 January and ends on 31 December.[6] However, the cycle of a LSB is longer and can be divided in two – cycle of adoption and cycle of implementation. The cycle of adoption is divided by several temporal indicators. First, under Article 67(1) LPF, annually, until 31 January, the Council of Ministers acting on a proposal of the Minister of Finance adopts a budgetary procedure for the drafting of the medium-term budgetary forecast and the draft LSB. This procedure is adopted by a Council of Ministers’ Decision and represents the third level of norms that comprise the budgetary process. The Decision sets out the stages, the deadlines, the allocation of responsibilities and requirements for the drafting of the forecast and the draft Law in great detail. The Minister of Finance also provides Guidelines for the implementation of the budgetary procedure. In the framework of the budgetary procedure the Finance Minister prepares a spring and autumn macroeconomic forecast by 25 March and 25 September, respectively.[7]

Next, by 20 April the Council of Ministers, acting on a proposal of the Minister of Finance, approves the medium-term budgetary forecast and the revision of the Strategy for the management of the State debt.[8] The Minister of Finance also prepares, in collaboration with the primary authorising officers, the draft of the LSB and the draft of the revised medium-term budgetary forecast.[9] The Recommendations of the Council of the European Union and the divergences between the spring and autumn macroeconomic forecasts are reflected in the revised forecast.[10] The Council of Ministers approves the draft LSB and the revised medium-term budgetary forecast and adopts an Opinion that is prepared by the Minister of Finance on the budget of the judiciary. By 31 October the Council of Ministers submits the draft LSB to the National Assembly together with the revised medium-term budgetary forecast which serves as the explanations to the draft Law and the Opinion on the budget of the judiciary.[11] If the need arises the medium-term budgetary forecast may be amended by the Council of Ministers, acting on a proposal of the Minister of Finance, within a month of the promulgation of the Laws on the State Budget, the Budget for the Social Security and the Budget of the National Health Insurance Fund in accordance with the parameters of the adopted Laws.[12]

If the LSB is not adopted by 31 December, the revenues are collected in accordance with the applicable laws and the expenditures shall not be greater than the expenditures for the same period during the preceding year, unless the National Assembly or the Council of Ministers adopt acts providing for additional or decreased budgetary resources.[13] This regime can be applied for only three months after which the National Assembly adopts a Decision proposed by the Council of Ministers with which additional period of time is prescribed for collecting revenue and making expenditures.[14]

After the LSB is adopted and 31 December passes, the implementation cycle starts. The relevant point here is the oversight of the Court of Auditors and the preparation of the Report on the implementation of the State Budget. The Minister of Finance prepares the Report on the implementation of the State Budget and presents it to the Court of Auditors by 30 June. Together with the audits that are provided the Minister of Finance then submits the Report to the Council of Ministers by 30 September. The Report is then adopted by the Council of Ministers and submitted to the National Assembly. The National Assembly adopts the Report on the implementation of the State Budget by 31 December.

 

General change       
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

There have been two main stages of changes in the Bulgarian budgetary process in its broader meaning, since the beginning of the crisis. These two stages can be called pre-LPF adoption and post-LPF adoption.

Pre-LPF adoption

During this stage there was only one amendment of the budgetary process in its wider meaning at the level of laws. This was the amendment of the LPSB, which was made in mid-2011 and entered into force in 1 January 2012. The amendment put the fiscal rules of 2% deficit and a limitation of the State’s redistribution role at a level of up to 40% GDP in the LPSB as part of the Bulgarian self-imposed Pact for Financial Stability. This amendment changed the process by putting limits to the discretion of the Government while drafting the LSB. This amendment, itself, however, did not present a considerable change to the budgetary process stricto sensu. On a more subtle level, in order to appreciate the real change in the budgetary process, it is worth considering the Decisions of the Council of Ministers on the budgetary procedure and the Guidelines of the Minister of Finance since the beginning of the crisis. It is worth considering because these two instruments de facto channelled the budgetary process in the direction of the Euro-crisis measures, within the framework of the LPSB that was applicable at the time. In particular, in these instruments it can be seen how the Euro-crisis measures increasingly influenced certain parts of the budgetary procedure. The overview provided infra deals with the explicit references in one way or another to the Euro-crisis measures and not with integrated changes that are discussed in other answers.

The first mentioning of the financial crisis in one of these instruments was in the 27 August 2009 Guidelines for the preparation of the Three-year Budgetary Forecast (TBF) and the expenditure limits for 2010-2012 and the draft budgets of the authorising authorities for 2010. The Guidelines start with the need for the budgetary policy to be balanced between the goals for stimulating the economy and preserving macroeconomic stability. A recommendation addressed to the municipalities was also included. They were recommended to avoid structural deficits in their forecasts for 2010-2012 by optimising and limiting expenditures for local activities to the limits of the expected real revenues from own revenues and transfer from the central budget and other budgetary or extra-budgetary accounts and funds. There was no such recommendation addressed to the municipalities in the Guidelines for earlier years. The Guidelines from August 2010 make a less visible mentioning of the crisis but repeat the recommendation to the municipalities.

The following year, the 2011 Decision on the 2012 budgetary procedure[15] and the 2011 Guidelines had even greater emphasis on the crisis and the focus was, naturally, more on the Euro-Crisis. The 21 January 2011 Decision, starts with listing the rules that were to be followed in the procedure. One of these rules states that, with reference to Council Decision 2010/442,[16] the fiscal policy is to be in accordance with the recommendations of the European Council for adopting measures to terminate the existing at the time excessive budgetary deficit in the determined temporal framework. As mentioned in the answer to Question VII.8, this Decision also referred to the European Semester. In particular, the aligning of the procedure to the European Semester was also one of the rules to be followed. This transpired also in the fact that with the 2011 Decision the budgetary procedure was divided in two stages, while before there was only a schedule of the procedure. However, this division did not seem to introduce any specific consequences as such, other than operational clarity and convenience.

In the actual elaboration of the procedure there are two references made with Euro crisis relevance and are connected to the European Semester. First, the Decision states that the TBFs for 2012-2014 by policies and programmes (which were to be prepared by 28 February 2011 by following the Guidelines of the Minister of Finance) are to be in accordance with the bottlenecks identified by the Commission in Bulgaria’s National Reform Programme (NRP).[17] Second, by 2 September 2011, the Ministry of Finance prepares the draft LSB for 2012 on the basis of inter alia the guidelines and recommendations of Commission towards the budgetary policies for 2012.[18] Here a reference is made again to the answer to Question VII.8 and figure contained therein with respect to the alignment of the de facto alignment of the budgetary process to the European Semester which was not mandated as such by law.

The 2011 Guidelines of the Minister of Finance for the preparation of the TBFs, as in the Guidelines from the previous two years, a recommendation was made to the municipalities not to allow a structural deficit.[19] In the section on the budgetary forecast for local activities of the municipalities for 2012-2014, two references were made to the financial and economic crisis with which increased caution was recommended when preparing the revenue and expenditure parts of the forecasts.[20]

The 2012 instruments dealing with the 2013 budget also followed suit. The 2012 Decision[21] on the budgetary procedure for the 2013 budget contains increased focus on the Euro crisis in its first part, where the procedural rules are listed. First, it states that the bases for the developing of the TBFs and expenditure limits include the Council Recommendations of 12 July 2011concerning the NRP of Bulgaria (2011-2015) and the Opinion of the Council on the Convergence Programme (CP) of Bulgaria (2011-2014).[22] Second, the Decision states that the bases for the development of the draft LSB include (1) the above mentioned Council Recommendations and Opinion, with specific reference to the Country Specific Recommendations (CSR) on the preventative arm of the Stability and Growth Pact (SGP), recommendations on the employment policies and structural reforms; and (2) guidelines of the Commission on the development and revision of the NRP and the CP in accordance with the timeline of the European Semester in 2012. Third, the Decision states that the fiscal policy is to be in accordance with (1) the 2010 Council Decision and Recommendation concerning the excessive deficit of Bulgaria;[23] (2) the Commission assessment of the actions addressing the excessive deficit of Bulgaria;[24] and (3) the Economic and Financial Affairs Council (ECOFIN) conclusions of 15 February 2011 on the assessment of the actions addressing the excessive deficit of Bulgaria. Fourth, the Decision again stated that the budgetary procedure is to be aligned with the European Semester timeline.

In the part of the 2012 Decision on the procedural timeline, it is stated that by 16 July 2012 the Ministry of Finance (1) considers the Commission Recommendations that are approved by the Council concerning the NRP and the CP of Bulgaria for 2012 and (2), if necessary, develops additional measures and mechanisms.[25] These measures must (1) remove inconsistencies between the Council’s Recommendations, on the one hand, and the NRP and the CP, on the other; and (2) reflect the Council’s CSR that are connected to the SGP’s preventative arm, the recommendations on the employment policies and the structural reforms, as well as the recommendations on the macroeconomic imbalances. These, among other things, are to be taken into consideration by the Ministry of Finance when developing the draft LSB.[26]

In the 2012 Guidelines[27] one can find the same Euro crisis references and recommendation to the municipalities as in the 2011 Guidelines. The new addition in 2012 was a reference to the above mentioned Council Recommendations and Opinion as one of the bases for the development of the TBFs.

Post-LPF adoption

The new LPF was adopted on 31 January 2013 and entered into force on 1 January 2014. However, certain parts of it were applicable to the formation of the budget for 2014 which was being done during 2013. This included the budgetary procedure for drafting the budgets. This is why it can be said that the second stage of the change in the budgetary process starts with the adoption of the LPF. The LPF is a new law which repealed and replaced the LPSB as well as the Law on the Budgets of the Municipalities. It also introduced amendments in about sixty other Laws. The LPF implemented most of the Six-Pack and the Fiscal Compact and included the budgetary rules that were included in the last amendment of the LPSB.

When the draft LPF was being presented in the Committee on Legal Affairs on 24 October 2012 by the Deputy Minister of Finance and the President of the Court of Auditors, it was stated that a big part of the LPF is restating to a great extent the two repealed laws and is effectively codifying established budgetary practices ulterior to the LPSB.[28] The LPF also synchronises the use of terms in the Bulgarian legal system when it comes to the management of public finances. As such the new aspects of the Law are not that many but they are just as crucial. In particular, next to the implementation of the Euro-crisis measures, the LPF puts in one framework any and all entities that directly influence the State deficit in accordance with the Eurostat rules and imposes a system of unified fiscal principles on these entities.

Accordingly, with respect to the budgetary procedure, the change that the LPF introduced is mainly a codification of the main procedural practices hitherto. Those were for the most part the ones already discussed supra in relation to the European Semester. The annual Decisions on the budgetary procedure, however, remained and continued to set out the procedure in full detail. The Decisions on the budgetary procedure also preserved their main structure of setting out rules in the first part and the actual procedure in the second part. The 2013 Decision on the 2014 budgetary procedure was adopted on 24 January 2013 (few days before the LPF entered into force) but it is better to be considered here as the procedure ended up being regulated by the LPF.

The 2013 Decision[29] contains four Euro crisis-related rules in its first part. First, it states that the medium-term budgetary forecast for 2014-2016 is to be prepared by the Ministry of Finance on the basis of inter alia the Council Recommendation concerning the 2012 Update of Bulgaria’s NRP and the Council’s Opinion on the Bulgaria’s CP (2012-2015).[30] Second, with respect to the fiscal policy, the Decision no longer makes references to the excessive deficit procedure but instead makes reference to Directive 2011/85 and Regulation 1466/97. Third, the 2013 Decision, as in the previous Decisions, states that the budgetary procedure is to be aligned with the European Semester timeline. In its elaboration on the procedure and with respect to the Euro crisis the Decision mirrors its 2012 version with the only difference in putting later dates.[31] 

Fourth, the Decision states that the preparation of the draft LSB and the medium-term budgetary forecast are to be based on inter alia (1) the Council Recommendation on the NRP; (2) the Council Opinion on the CP (including the specific recommendations in the context of the MEIP); as well as (3) the Guidelines of the Commission on the development and revision of the NRP and the CP in accordance with the timeline of the European Semester for 2013. With respect to the medium-term budgetary forecast, a further clarification was made: it should reflect the fiscal effects of the application of the measures and mechanisms that were designed to (1) remove inconsistencies between the Council Recommendations, on the one hand, and the NRP and the CP, on the other; and (2) reflect the CSR of the Council that are connected to the preventative arm of the SGP, the recommendations on the employment policies and the structural reforms, as well as the recommendations related to the preventative part of the MEIP.

The 2013 Guidelines[32] for the development of the budgetary forecasts for 2014-2016 also mirrored its previous versions with respect to the Euro crisis. However, there was one new development. In Annex № 2d the Primary authorising officers are supposed to fill out a form in which they have to state the resources relating to financing the priorities and measures for (1) reaching the goals in the NRP, (2) realisation of measures in response to the Country Specific Recommendations of the Council of 10 July 2012, (3) as well as other measures implementing the seven leading initiatives in Europe 2020, the Euro-Plus Pact and the Annual Growth Survey for 2013.

The 2014 Decision[33] on the budgetary procedure for the 2015 budget, with respect to the Euro-crisis measures, mirrors almost completely the 2013 Decision. The only difference is in the part listing the rules of the procedure where it is stated that the fiscal policy is developed in accordance with the fiscal rules and limitations in the LPF without further reference to Euro-crisis measures. In the 2014 Guidelines[34] the Ministry of Finance has disposed of the innovation from the previous year introduced with Annex № 2d where the various authorising officers had to effectively identify financial resources for the Euro-crisis measures. It is not clear what the reason for the change was. For the rest, with respect to the Euro crisis, the Guidelines mirror the previous 2013 version.

The 2015 Decision[35] on the budgetary procedure for the 2016 budget is almost identical to its predecessor. Three of the changes made are of interest here. First, it is notable that one of the rules of the budgetary procedure that has been present in the Decisions for the previous two budgets is removed. This rule stated that the medium-term budgetary forecast is developed on the basis of inter alia “evaluation of the direct effect of the planned policies on the long-term sustainability of the public finances”.[36] Second, the lists of bases on which the LSB is to be drafted and the medium-term budgetary forecast to be updated was increased to include the approved by the Council of Ministers programmes for structural and functional reforms in the respective sectors.[37] Third, the part dealing with updating the medium-term budgetary forecast for 2016-2018 is missing the clarification introduced in the 2013 Decision (discussed above) that the medium-term budgetary forecast should also reflect the fiscal effects of certain measures and mechanisms adopted in light of the Council’s Recommendations.

 

In the 2015 Guidelines[38] there is scarce mentioning of the Euro-crisis measures. The only relevant one is that the primary authorising officers must develop their medium-term budgetary forecasts on the basis of inter alia the Council Recommendation of 8 July 2014 on the NRP and the Council Opinion on CP of Bulgaria (2014-2017). The directions towards the municipalities not to plan expenditures unless there are secured revenues have remained in the 2015 Guidelines as well.

Institutional change     
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

No institutional changes have been brought about by the changes in the way the budget is being made. The Fiscal Council has not yet been put in place and once it is, it will be the only change as a result of the legislative changes thus far.[39] The competences of the National Assembly, the Government or the judiciary did not change as a result of the legislative changes in any critical way. However, during the discussions of the LPF, some important developments have been identified with respect to competences. During the discussions in the Legal Committee its President – Iskra Fidosova (GERB) – questioned the actual extent of decentralisation, which was advocated to have been achieved in the (then) draft law. She considered that some of the independence of various organs has been taken away and given to the Ministry of Finance.

The Deputy Finance Minister – Vladislav Goranov – explained that the two are not mutually exclusive. The decentralisation that was being achieved with the draft law was with respect to the responsibility of the various organs that are participating in the State budget with their own budgets. This responsibility was also the underlying reason for the limited centralisation/loss of independence. The LPF includes provisions regulating the formation of the budget of inter alia certain constitutionally defined bodies by prescribing that they should observe certain rules and procedures with the aim to have a balanced budget. Such organs/bodies, for example, are the municipalities. Mr Goranov stated that the idea was not to interfere with the workings of those bodies but to give the Government a toolset for keeping under control the public finances as it was obliged to do under EU law. In particular, he stressed that in the current (at that time) framework, there was a mismatch between what was considered as State budget at the national level and what was being recorded as public finances at the EU level. Consequently, the balance of the budget that was voted upon in the National Assembly was different from what the European Commission puts down in its records. Therefore, the draft law was simply aligning the things considered at the national with those at the EU level and for that a limited level centralisation was needed.

Mr Goranov also mentioned that, in his opinion, with respect to the competences of the Finance Minister, they have actually been decreased with the new law. This was so because under the LPSB the Finance Minister could have unilaterally changed aspects of the budget after its adoption, while with the LPF for such changes the Minister needs an approval by the Government in the Council of Ministers. Such approval, according to Mr Goranov, requires a report that is public, which increases the transparency and hinders arbitrary changes.

Change of time-line
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

The timeline of the budgetary cycle has changed in terms of complexity due to the inclusion of the European Semester into it (see the figure in the answer to Question VII.8). The LPF to a large extent incorporated the temporal aspects of the practices that resulted from the incorporation of the European Semester.

Miscellaneous
II.5
What other information is relevant with regard to Bulgaria and changes to the budgetary process?

No other relevant information.

[1] Law on the Public Finances, SG 15 of 15 February 2013.

[2] The central budget is administered by the Minister of Finance in accordance with the LPF, the LSB and, according to Article 12(1) LPF, acts of the Council of Ministers.

[3] Article 13(3) refers to the Bulgarian Academy of Science, the public institutions of higher education, the Bulgarian News Agency, the Bulgarian National Television and the Bulgarian National Radio. Article 13(4) refers to the budgetary parameters of other economically defined entities and structural units that are included in the consolidated fiscal programme. These entities and structural units were not determined during the research.

[4] Law on the Public Finances (LPF), SG 15 of 15 February 2013, art 11(3). Such are, for example, (1) for the National Assembly – its President, (2) for the judiciary – the Supreme Judiciary Council, (3) for the municipalities – the mayors and (4) for the Ministries – the respective Ministers.

[5] Ibid., art 7(2)-(7).

[6] Ibid. art 10.

[7] Ibid. art 68(1).

[8] Ibid. art 72.

[9] Ibid. art 78.

[10] Ibid. art 79(1)(2).

[11] Ibid. art 79(5)(4).

[12] Ibid. art 79(5)(7).

[13] Ibid. art 87(1).

[14] Ibid. art 87(2)-(3).

[15] Council of Ministers, Decision № 40 for the Budgetary Procedure for 2012 of 21 January 2011.

[16] Council Decision (EU) 2010/422 on the existence of an excessive deficit in Bulgaria [2010] OJ L199/26.

[17] Council of Ministers, Decision № 40 for the Budgetary Procedure for 2012 of 21 January 2011.

[18] Ibid.

[19] Guidelines for the preparation of the budgetary forecasts for the period 2012-2014, of 4 February 2011, 7.

[20] Ibid., 16-17.

[21] Council of Ministers, Decision № 41 for the Budgetary Procedure for 2013 of 20 January 2012.

[22] Council Recommendation on the National Reform Programme 2011 of Bulgaria and delivering a Council Opinion on the updated convergence programme of Bulgaria, 2011-2014 [2011] OJ C 209/5.

[23] Council Decision (EU) 2010/422 on the existence of an excessive deficit in Bulgaria [2010] OJ L199/26; Council Recommendation 11307/10 to Bulgaria with a view to bringing an end to the situation of an excessive government deficit.

[24] Commission, Current state of the excessive deficit procedure in the Member States and assessment of the action taken by Cyprus, Finland, Bulgaria and Denmark in response to the Council Recommendations of 13 July 2010 with a view to bringing an end to the situation of excessive government deficit, COM(2011) 22 final, Brussels, 27 January 2011.

[25] Council of Ministers, Decision № 41 for the Budgetary Procedure for 2013 of 20 January 2012.

[26] Ibid..

[27] Guidelines for the preparation of the budgetary forecasts for the period 2013-2015, of 30 January 2012.

[28] Committee on Legal Affairs, Protocol № 147 of 24 October 2012.

[29] Council of Ministers, Decision № 48 for the Budgetary Procedure for 2014 of 24 January 2013.

[30] Council Recommendation on the National Reform Programme 2012 of Bulgaria and delivering a Council opinion on the Convergence Programme of Bulgaria, 2012-15 [2012] OJ C 219/9.

[31] Council of Ministers, Decision № 48 for the Budgetary Procedure for 2014 of 24 January 2013.

[32] Guidelines for the preparation of the budgetary forecasts for the period 2014-2016, of 1 February 2013.

[33] Council of Ministers Decision № 57 for the Budgetary Procedure for 2015 of 4 February 2014.

[34] Guidelines for the preparation of the budgetary forecasts for the period 2015-2017, of 10 February 2014.

[35] Council of Ministers Decision № 62 for the Budgetary Procedure for 2016 of 30 January 2015.

[36] Council of Ministers Decision № 57, for the Budgetary Procedure for 2015 of 4 February 2014.

[37] Council of Ministers Decision № 62 for the Budgetary Procedure for 2016 of 30 January 2015.

[38] Guidelines for the preparation of the budgetary forecasts for the period 2016-2018, of 11 February 2015.

[39] See the answer to Question VII.2.

Croatia

udgetary process
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Croatia.

In Croatia, the core of the budgetary process is regulated by the Constitution that points out to the rules on annual state budget. Accordingly, at the end of every year, the Croatian Government proposes the annual budget (article 112 of the Constitution) to the Croatian Parliament which adopts the annual budget (article 80 of the Constitution). All the details are regulated by a separate Law on Budget, an ordinary law, that is adopted every year and that regulates the entire system of budgetary income and distribution.

Besides the adoption of the Law on Budget, the budgetary process is a complex process that was materially affected by the Croatian accession into the European Union, and consequently in the European Semester. Now, the process looks as following: 

1) by mid-March, the Ministry of finance together with the Ministry of regional development and EU funds sends to all other ministries and state bodies the instructions for development of three year strategic plans taking into consideration National Growth Survey and Alert Mechanism Report as adopted by the European Commission and the Employment Guidelines as adopted by the European Parliament

2) by mid-April, all ministries and other state bodies send to the Ministry of finance their three year strategic plans

3) by the end of April, the Ministry of finance together with the Ministry of regional development and EU funds sends proposes to the Croatian Government the strategy for the period of three years

4) by mid-April (before EU, the deadline was mid-May), the Croatian Government shall adopt the strategy for the period of three years in order to be sent to the European Commission by the end of April

5) In May, the European Commission assesses Croatian national plan and makes recommendations

6) by the end of May, the Ministry of finance proposes to the Government the priorities of economic and fiscal policies taking into consideration recommendations made by the European Commission

7) by mid-June, the Government shall adopt the priorities of economic and fiscal policies that shall incorporate the recommendation of the European Commission from the month of May and of the European Council from the month of June

8) by the end of June, the Ministry of finance sends to all ministries and other state bodies the instructions for drafting of the proposal of the State budget 

9) in July, the European Council adopts final recommendations for each Member State, now including Croatia, that shall be taken into consideration while drafting the proposal of the State budget for the next year.

General change    
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

In 2010 Croatia adopted its Croatian Law on Fiscal Responsibility adopted in 2010 which entered into force on 1 January 2011[1] whose main goal is fiscal consolidation of Croatia. It requires a decrease of state spending of 1% of the GDR per year until the moment when primary fiscal amount does not become positive. This, rather short piece of legislation (only 15 articles) was proposed by the Croatian Government and adopted by the Croatian Parliament as an ordinary law.

The main goal of this law is strengthening and maintenance of fiscal responsibility, transparency and mid- and long-term objectives of sustainable public finances.[2]

The adoption of the Law on Fiscal Responsibility was not, at least in 2010 when the law was adopted, identified by the European Union as one of the necessary prerequisite for further progress of Croatia in its Euro-integration process. Passing of this law represents rather the result and means of the aim of relevant stakeholders in Croatia to establish clear and efficient rules of fiscal responsibility in the country.

The Ministry in charge of finance is in charge of monitoring over application of this law in practice. No particular role for the judiciary was envisaged by this law.

Institutional change   
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

On the ground of the Law on Fiscal Responsibility, the Croatian Government established the Committee for Fiscal Policy whose main task is assessment of the application of fiscal rules.

Change of time-line      
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

It has not changed.

Miscellaneous
II.5
What other information is relevant with regard to Croatia and changes to the budgetary process?

Not applicable.

[1] Official Gazette of Croatia No 139/2010

[2] Article 2(1) of the Law on Fiscal Responsibility 

Cyprus

Budgetary process        
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Cyprus.

Until 2012 Cyprus was among a handful of Member States that had neither fiscal rules nor a binding medium-term budgetary framework (MTBF), while it also lacked a fiscal council (see also questions 31 and 34).[1]  Although Cyprus announced in 2007 that it would introduce a three-year medium-term budgetary framework (MTBF) with the aim to better control public sector employment growth and contain other current expenditures,[2] this budgetary framework was eventually introduced only in 2012.

Details on the budget procedure are provided in Art. 81, 167 and 168 of the Constitution of the Republic of Cyprus. The Budget of the Republic of Cyprus undergoes the same procedure as described under Question 2 for the adoption of ordinary laws; that is the Parliamentary Committee of Finance submits for discussion the Budget Draft Bill, which is then discussed in the Parliament, sitting in plenary session, and approved (or rejected) by simple majority as an ordinary law. The Budget Law of Cyprus for 2013, Law 59 (II) of 2012 was published in the Official Gazette on 31 December 2012.[3] Following this publication the Minister of Finance issues a payment order which he addresses to the General Accountant of the State (Γενική Λογίστρια) and with which he authorizes the carrying out of the payments, as provided in the Budget Law.

The method and the form of drafting the budget is laid down by the Minister of Finance, in accordance with Art. 167 of the Constitution of Cyprus which provides that:

1. The Minister of Finance shall, upon receipt of the estimates of each Ministry and of each independent Office of the Republic, cause to be prepared in respect of every financial year a comprehensive Budget of the Republic for that year which, when approved by the Council of Ministers, shall be laid before the House of Representatives.

2. The estimates of expenditure in the Budget shall show separately

(a) the total sums required to meet expenditure charged on the Consolidated Fund; and (b) the sums respectively required to meet other expenditure.

3. The said Budget shall also show, so far as is practicable, the assets and liabilities of the Republic at the end of the last completed financial year, the manner in which those assets are invested or held and particulars in respect of outstanding liabilities.

4. The expenditure to be met from the Consolidated Fund but not charged thereon shall be submitted to the House of Representatives for adoption and if adopted shall be included in the Budget in respect of that financial year.

5. If in respect of any financial year it is found that the amount adopted by the House of Representatives for any purpose is insufficient or that a need has arisen for expenditure for a purpose for which no amount has been adopted a supplementary budget showing  the sums required shall be laid before the House of Representatives for adoption and if adopted by the House of Representatives shall be included in the Budget in respect of that financial year.

6. The House of Representatives may approve or refuse its approval to any expenditure contained in a supplementary Budget but may not vote an increased amount or an alteration in its destination. [4]

Eventually the Budget for every year is debated during the Parliament’s plenary session and approved by simple majority as an ordinary Law.

Under Article 81 of the Constitution, the budget then has to be brought before in the House of Representatives at least three months before the commencement of the financial year, i.e., by September 30 of each year, and it is to be voted upon by the House not later than December 31 of each year. The budget circular outlines the various parameters for the preparation of the budget and provides guidelines to all ministries. A separate, parallel circular is issued by the Planning Bureau for the development expenditure component of the budget, within the ambit of a five year strategic development plan drawn up by the Planning Bureau. The budget is presented on a line item basis. The budget and accounts classification are consistent and mainly based on an administrative classification, whereas a classification a classification by economic category of expenditures is also presented.[5]

The Budget preparation process and the relevant legal basis is provided in the following table, as provided by the Stability Programme of the Republic of Cyprus 2012-2015,[6] prepared by the Ministry of Finance in April 2012. No change in the budgetary process has been observed since then.

 

 

The drafting of the Budget is based on the fiscal targets –as these arise from the results and the estimations of previous years – as they are provided in the Governance programme and strategy of the government, the Stability programme of the Republic of Cyprus for 2008-2012, the National Reform Programme pursuant to the Lisbon strategy, as well as the guidelines and fiscal frameworks that were defined by the Encyclicals of the Minister of Finance according to the MTO and the MTBF.

General change    
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

The main change in the budgetary process since the beginning of the Eurozone crisis relates to the implementation of a binding Medium-Term Budgetary Framework (MTBF), which finally institutionalizes expenditure rules. As such greater emphasis is placed on multi-annual planning, via the medium term budgetary objective as laid out in the Stability Programme as an ‘anchor’ in budgetary policy.

The Ministerial Encyclical of the Ministry of Finance (for instance, Number 1478 of 29 May 2013) on the Strategical Framework of Fiscal Policy 2014 – 2016 – Budget 2014[7] provides for a separate chapter/section where the innovations in the drafting of the budget are summarized.  The main changes can be found in the substance of the budget itself and much less in the process.

One first change concerns the preparation of the Strategical Framework of Fiscal Policy (SFFP)[8] which is from 2013 drafted by taking into account not only the government’s commitments and programme but also the commitments undertaken in the framework of the MoU. Consequently, since the signature of the MoU the budget includes and incorporates all the measures prescribed in the MoU in relation to fiscal and structural measures.

As part of the budgetary  reform  process  it is further required  that  line  ministries  and  other government spending agencies will enter into a process of progressively redesigning their  annual  budgets,  reflecting  a  new  approach  based  on  Programme  and  Performance Budgeting (PPB).[9] The new PPB approach will become the official (and only) budget method from the financial year 2015 onwards.

Institutional change   
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

No institutional changes have taken place as a result of the changes in the budgetary process. The establishment of the Fiscal Council, as prescribed by Law 194 (I) of 2012 is foreseen to be established at the beginning of 2015.

What is more, it is anticipated by the end of December 2013 that a new Law on the ‘fiscal responsibility and budget systems’ will be submitted for discussion to the Parliament in order to address any remaining inconsistencies between the MTBF law and existing legislation, include supplementary secondary legislation and address other existing legal shortcomings.[10] The new law will further provide an enabling framework for a medium-term Public Financial Management (PFM) reform program.[11]

The Fiscal Responsibility and Budget Systems Law is expected to contribute to improving Cyprus’ fiscal position by setting out a broad framework of fiscal rules, fiscal discipline and fiscal transparency. “It will set the budget process in a medium-term framework consistent with a strategic approach to planning both domestic as well as EU and other externally financed resources. And it will allow line ministries to play a greatly enhanced role in planning and executing the budget in the policy areas for which they are responsible.”[12]

Change of time-line      
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

No major changes have been observed in the time-line of the budgetary cycle (see also questions V.8 and IX.1-IX.3).

Miscellaneous
II.5
What other information is relevant with regard to Cyprus and changes to the budgetary process?

Not applicable

[1] Fiscal Frameworks across Member States. Commission Services Country Fiches from the 2011 EPC Peer Review’, Occasional papers 91, February 2012, p. 9.

[2] http://ec.europa.eu/economy_finance/db_indicators/fiscal_governance/documents/1-a5a_analysis_en.pdf , p. 9

[3] Official Gazette of the Republic of Cyprus, Issue 4229 (31 December 2012).

[4] Translation from: http://www.presidency.gov.cy/presidency/presidency.nsf/all/1003AEDD83EED9C7C225756F0023C6AD/$file/CY_Constitution.pdf

[5] Stability Programme of the Republic of Cyprus 2012-2015, Ministry of Finance, April 2012, p. 65

[6] Stability Programme of the Republic of Cyprus 2012-2015, Ministry of Finance, April 2012, p. 65 – 66

 

[7] http://www.mof.gov.cy/mof/mof.nsf/All/967B393837E6A4FBC2257BFF0037546A/$file/%CE%95%CE%93%CE%9A%CE%A5%CE%9A%CE%9B%CE%99%CE%9F%CE%A3%20%CE%A0%CE%A1%CE%9F%CE%AB%CE%A0%CE%9F%CE%9B%CE%9F%CE%93%CE%99%CE%A3%CE%9C%CE%9F%CE%A5%202014%20-%202016.pdf

[8] The Medium Term Objective Framework is renamed into the ‘Strategic Framework of Fiscal Policy’.

[9] Stability Programme of the Republic of Cyprus 2012-2015, Ministry of Finance, April 2012, p. 41.

[10] IMF Country Report No. 13/125 (May 2013), Cyprus: Request for Arrangement under the Extended Fund Facility, p. 61

[11] Ibid.

[12] G. Panteli, A New PFM Reform Strategy for Cyprus, http://www.mof.gov.cy/mof/mof.nsf/All/8D5A50938A96AA6BC2257BA20035E774/$file/%CE%91%CF%81%CE%B8%CF%81%CE%BF%20%CE%93.pdf

Czech Republic

II       Changes to the budgetary process  

Budgetary process   
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in the Czech Republic.

This and the two subsequent questions will be answered with regard to the current legislative state. That means that the Fiscal Constitution Bill and its draft implementing laws will not be taken into account (there is a little chance that they will be adopted in the current version or that they will be adopted anytime soon).

With a draft of annual budget bill, the Government prepares medium-term expenditures frameworks. The Chamber of Deputies of the Parliament issues a resolution on the medium-term expenditures frameworks, where the expenditures for the two years following the upcoming budgetary year are set (that is a draft law of annual budget bill for 2014 will be accompanied with the medium-term expenditures frameworks for 2015 and 2016). The Chamber of Deputies consents to the expenditures for those two years following an annual budget by single amounts in the form of a regulation. These expenditures limits are binding for the preparation of the next annual budget. The medium-term expenditures frameworks are based on Government political programme – that is they work with a scenario that the Government policies for three upcoming years will be implemented.

A draft of annual budget bill (for central government) is prepared by the Ministry of Finance (MF) in cooperation with administrators of individual chapters of the budget, territorial self-governments, associations of municipalities, Regional Councils of Cohesion Regions and state funds.[1] Regions and the capital Prague submit data for municipalities upon request of MF within 30 days. Other legal and physical persons submit their requests for the state budget by April 30 of a current year.[2]

Preliminary results of macroeconomic forecasts are published in January and March of a current year. On their basis medium-term expenditure frameworks are prepared and updated. MF submits to the Government a preliminary draft of medium-term expenditures frameworks by April 15 of a current year; the Government discusses the draft and adopts changes by April 30 of a current year. In April, the Office of the Government prepares and submits the Convergence Programme and National Reform Programme to the Commission and the Council. MF subsequently prepares a draft of revenues and expenditures structured according to individual chapters for the purposes of annual budget; single amounts of medium-term expenditures frameworks for the purposes of the draft Chamber of Deputies resolution; draft revenues and expenditures of state budget and state funds for the purposes of the draft medium-term expenditures frameworks. MF submits these drafts to the Government by May 31 of a current year and the Government discusses the drafts and adopts changes by June 20 of a current year. MF announces the amounts (expenditures and revenues) and other binding numerical characteristics to the administrators of individual chapters of the central government budget by June 30 of a current year. The administrators of individual chapters (ministries and other central institutions of central government such as the Office of the Government, state security agencies, the Energy Regulation Office, competition authority, etc.) act accordingly towards organizations and state funds under their supervision. Based on these binding numerical characteristics, the administrators of individual chapters of the central government budget prepare draft budgets of their chapters and draft medium-term outlook and submit the drafts to MF by July 31 of a current year. MF prepares and submits to the Government draft annual budget and draft medium-term expenditures frameworks by August 31 of a current year.[3]

Meanwhile, during July, the Ministry of Finance evaluates the recommendations of the Council in reaction to the Convergence Programme in line with the Government approved limits on budget expenditures and revenues. In August, the Ministry preliminary incorporates the recommendations into the draft budget, so that the Government may discuss and approve a draft budget bill including the expenditures frameworks and medium-term outlook. At this time the Government and Ministry of Finance are given an opportunity to react on the Council recommendations, whether they are beneficial and acceptable. Subsequently, the Ministry of Finance works with the recommendations in detail, assesses their feasibility, and incorporates them into a draft budget bill in September.[4]

The Government shall submit annual budget bill and draft medium-term expenditures frameworks to the Chamber of Deputies of the Parliament three months before the start of a new budgetary year; that is by September 30 of a current year. The Chamber of Deputies is the only chamber of the Parliament that discusses and passes annual budget bill. Albeit in ordinary legislative procedure, the Senate does not have any competences over annual budget bill. Also, the President lacks, in comparison with ordinary legislative procedure, a competence to return annual budget bill. Three readings take place. The President of the chamber assigns budget bill to the Budgetary Committee. In the first reading, the Minister of Finance presents the budget. Only the overall revenues and expenditures, deficit and its financing, and relationship to territorial self-governments’ budgets (basic characteristics) are discussed. The Chamber of Deputies may adopt changes to the basic characteristics and set the deadline (20-30 days) for the Government to submit a revised budget bill. If basic characteristics are agreed to, they cannot be changed in the subsequent readings. Budget bill is assigned to competent Committees, which adopt their resolutions (after requesting an opinion of the competent administrator of the budgetary chapter) and submit them to the Chamber. The resolution may be accompanied by an opponent report. The Budgetary Committee may react to any part of the budget bill, while other Committees acts only within their specialization. In the second reading, Committees’ resolutions are discussed and amendments to the budget bill may be submitted. In the third reading, only technical, grammatical, and similar changes can be made. However, a proposal to repeat the second reading is admissible. All proposals from the second (content based) and third (technical) readings are voted individually and subsequently a vote on the amended budget bill takes place. The law on annual budget is published in the State Gazette. If the law on annual budget is not adopted, provisional budget procedure is activated – MF prepares indicators of provisional budget in cooperation with administrators of individual chapters. The administrators then prepare monthly budgets in the sphere of their competences. The maximum amount of expenditures for each month cannot surpass one twelfth of the overall expenditures of the previous budgetary year.[5]

The Government prepares and submits to the Chamber of Deputies a mid-year report on the performance of economy and observance of the state budget and an evaluation of the observance of territorial self-governments’ budgets, associations of municipalities, Regional Councils of Cohesion Regions, and the development of state assets, state guarantees, state debt, including their detailed analysis and outlook on observation of the budget in the second half of budgetary year, and in case of deviation from the agreed budget, an information on steps taken to ensure stability of budget management. MF surveys closely budgetary performance and informs the Government about it in the first and third quarters; the Government submits a report to the Budgetary Committee of the Chamber of Deputies the month following first and third quarters. The mid-year report and quarterly reports are published. All the participants in central government budget must submit data for these reports. Failure to do so results in suspension of budgetary funds.[6]

After the end of the budget year, MF prepares a draft central government final account, which is discussed by the Government and submitted to the Chamber of Deputies of the Parliament by April 30. The Chamber issues a resolution on the central government final account. It also decides on the financing of deficit or use of surplus in case these differ from the agreed budget.[7]

General change         
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

The timeline of a budget preparation changed (the first phase) with the introduction of the European Semester (see question VIII.8) and preparation and observance of medium-term expenditures framework was detailed.

Institutional change         
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

No substantial changes in the competences of central government institutions were made in reaction to the Euro-crisis. Some changes had been introduced before or independently of the Euro-crisis legislation (such as binding resolution of the Chamber of Deputies of Parliament on medium-term expenditures framework), other changes have been drafted (the Fiscal Constitution Bill and its implementing laws – see further).

Change of time-line
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

See question VIII.8.

Miscellaneous
II.5
What other information is relevant with regard to the Czech Republic and changes to the budgetary process?

Not applicable            .

[1] Sec. 8 of the Law No. 218/2000 Coll. on Budgetary Law as amended.

[2] Sec. 2 of the by-law of the Ministry of Finance of the Czech Republic No. 133/2013 Coll. setting the extent and structure of data for preparation of draft law on annual budget and draft medium-term outlook of state budget and the deadlines for submissions.

[3] Secs. 8, 8a, and 8b of the Law No. 218/2000 Coll. on Budgetary Law as amended.

[4] See “Minutes from the 12th session of the Budgetary Committee of the Chamber of Deputies of the Parliament, March 1 and 3, 2011”, p. 9.

[5] Secs. 101-106 of the Law 90/1995 Coll. as amended on the Rules of Procedure of the Chamber of Deputies of the Parliament.

[6] Sec. 20 of the Law No. 218/2000 Coll. on Budgetary Law as amended.

[7] Sec. 30 of the Law No. 218/2000 Coll. on Budgetary Law as amended. 

Estonia

Budgetary process   
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Estonia.

“Pursuant to [§ 115 of] the Constitution, the Riigikogu shall pass as a law the budget of all state revenue and expenditure for each year. The Government of the Republic shall submit a draft state budget to the Riigikogu not later than three months before the beginning of the budgetary year. The procedure of drawing up, adoption and implementation of the state budget has been established by the State Budget Act. The legislative proceeding of the draft state budget by the Riigikogu is conducted pursuant to the State Budget Act and the Riigikogu Rules of Procedure and Internal Rules Act. (…)

The draft state budget is deliberated by the Riigikogu at three readings. At the first reading, the Minister of Finance makes a report on general principles of the draft state budget and gives an overview of the condition of the Estonian economy and the main objectives of the Government of the Republic.”[1]

After the close of the first reading, members, standing committees and factions of the Riigikogu may submit motions to amend; the motions must conform to § 20 of the State Budget Act which requires that the amendments which have the effect of decreasing estimated revenue or increasing or reallocating expenditure be appended with financial calculations which demonstrate the sources of revenue necessary to cover the expenditure. “The Finance Committee considers the motions to amend and introduces the accepted amendments into the draft budget. The Government of the Republic also gives its opinion about the motions to amend.

At the second reading, deliberation of the provisions takes place. After the close of the second reading and at the third reading of the draft state budget, only factions and standing committees of the Riigikogu may submit motions to amend.

The state budget shall be passed by a majority of votes in favour (…). The adopted state budget shall enter into force at the beginning of the budgetary year. If the Riigikogu has not passed the state budget within two months after the beginning of the budgetary year, the President of the Republic shall declare extraordinary elections to the Riigikogu”[2] (according to § 119 of the Constitution).

General change         
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

No changes.

Institutional change         
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

No changes.

Change of time-line
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

No changes.

Miscellaneous
II.5
What other information is relevant with regard to Estonia and changes to the budgetary process?

Not applicable.           

[1] Passing the State Budget, available at: http://www.riigikogu.ee/index.php?id=35271&highlight=budget.

[2] Passing the State Budget, available at: http://www.riigikogu.ee/index.php?id=35271&highlight=budget. 

Finland

Budgetary process     
II.1

Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Finland.

The Budgetary process in Finland is rather informal. It centers on the Government and in particular the Ministry of Finance, which plays a key role in the elaboration of policy.

The budget procedure starts with the formulation of the Government’s budget proposal in January after the Ministries have presented their spending limits proposals to the Ministry of Finance. These proposals are an important part of the multi-annual planning of the Ministries and government agencies. Central government spending limits for future years are then drawn up at the Ministry of Finance, and are endorsed by the Government in March. The formulation of the budget then continues in the ministries on the basis of the decision on spending limits and on procedural guidelines issued by the Ministry of Finance. The Ministries issue their guidelines to the agencies, which draw up draft budgets during the spring. Thereafter, the Ministries formulate a draft budget for their whole branch of government and hand it to the Ministry of Finance in May. The Ministries propose changes to the decision on spending limits, based on reasoned adjustments, and the proposed changes are submitted to the Government for consideration with the budget proposal. The drafts of the Ministries are processed at the Ministry of Finance during the spring and the summer. The Minister of Finance then formulates a position paper on the budget proposal which is made public in the late summer and hands the proposed budget to the other Ministries.

Based on this position paper of the Ministry of Finance, there are negotiations between the Ministry of Finance and Ministries about the spending limits. After these negotiations, the whole Government considers the draft budget prepared by the Ministry of Finance in the Government budget session and the Government substantively endorses the content of the budget proposal. After the Ministry of Finance has finalized the proposal, it is presented to the Government and submitted to the Parliament at the start of its autumn session. In the Parliament, the Finance Committee presents its report on the proposal, after which the budget is adopted in a plenary session of Parliament. If essential needs to revise the adopted Budget arise, as often is the case, supplementary budget proposals are presented to the Parliament. The same procedures are applied in drawing up supplementary budget proposals. (More information is provided at http://www.vm.fi/vm/en/09_national_finances/index.jsp.)

General change
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

In principle, the annual budget is prepared much as it was before the crisis. This can actually be considered to constitute a problem, since the preparation of the budget in Finland is close to a cameralistic (Kameralismus) process and reflects more budget politics than genuine financial politics.

However, there might be a growing interest in the financial and fiscal policy involving an interest in the macro level care of the public finance and the relevant structure effects. The European Union based obligations are not the only quarters that require more refined argumentation. The two-pack legislation has provoked more interest in the control of public finance as a whole, not only at state level economy but also at its sub-levels, which enjoy from a high degree of autonomy in Finland. Still, it is unclear how the autonomy of municipalities and current Treaty obligations are balanced. The two-pack was not seen to affect the drawing up of the annual preliminary budget plans, since it did not contain an obligation to amend the budget proposal, if the Commission or the Euro Group would require it.

Institutional change          
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

The Act bringing into force the provisions of legislative nature of the Fiscal Compact (Act No 869/2012) introduced the correction mechanism which is build on duties of reporting and informing by the Government to the Parliament, including a plan for how the deviations will be corrected by the end of the year following the observation of the deviation (see question IX.2). According to the same Act, the duty to monitor the implementation of the Act falls under the responsibility of the National Audit Office (see question IX.2).

Change of time-line  
II.4

How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

The time line has not yet changed but some amendments might be forthcoming. In the autumn of 2013 a working group under the Ministry of Finance planned the possible changes (see Memorandum, Ministry of Finance, December 2013, Budjettikehysdirektiivin ja budjettisuunnitelmien ennakkovalvonta-asetuksen kansallinen täytäntöönpano, Ministry of Finance publications 29/2013) According to the working group, legislation and control mechanisms in Finland relating to the different sectors of general government finances contain many of the elements referred to by the on budgetary frameworks. The working group concluded that the management of general government finances as a whole required by the directive is not sufficient nor on the level required by the directive, and that it would be justified to anchor the implementation of the directive in the existing procedures and legislation. It was proposed that the Government prepares in future a general government finances plan in the beginning of the parliamentary term, which would be revised annually for the following four-year period. Provisions on the procedure for the general government finances plan would be included in a Government decree.

Miscellaneous
II.5
What other information is relevant with regard to Finland and changes to the budgetary process?

Not applicable.

France

Budgetary process       
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in France.

Instruments:

In several instances in this Report, the term “financial Acts” is used to refer more generally to a diversity of instruments.

The French Parliament (both the National Assembly and the Senate) adopts annually Budget Acts[1] and Social Security Financing Acts[2] (SSFAs), which are submitted in autumn, either by the Government (“projet de loi”) or by Members of Parliament (“propositions de loi”)[3].

 “Amending” Budget Acts[4] (“lois de finances rectificatives”) occurring later may modify provisions of the “Initial” Budget Act (“lois de finances initiales”). “Amending” SSFAs[5] may also be passed.

Accounting Acts[6] (“lois de règlement”) present the yearly results of public accounts.

Programming Acts[7] (“lois de programmation des finances publiques”) set out multiannual guidelines for public finances – including both SSFAs, Budget Acts and amending Acts – with a view to steer budgetary balance. The Programming Acts do not have a higher status than the other financial Acts in the hierarchy of norms, and are therefore not binding on them. Moreover, a Programming Act can be replaced by a new one before the end of its initially allocated period[8].

Finally, special “Article 45 Acts” (in reference to article 45 of the LOLF) can be adopted in exceptional cases where no budget has been adopted within the time limits, under precise conditions[9].

Under article 34 of the Constitution, Budget Acts “shall determine the revenue and expenditure of the State in the conditions and with the reservations provided for by an Institutional Act” (“loi organique”)[10]. This Institutional Act is the Organic Law on Budget Acts (Loi organique n° 2001-692 du 1 août 2001 relative aux lois de finances, also called LOLF) [11].

Article 34 of the Constitution also states that “Social Security Financing Acts shall lay down the general conditions for the financial equilibrium thereof, and taking into account forecasted revenue, shall determine expenditure targets under the conditions and with the reservations provided for by an Institutional Act”. This Institutional Act is the Organic Law on Social Security Financing Acts (Loi organique n° 2005-881 du 2 août 2005 relative aux lois de financement de la sécurité sociale)[12].

The same article of the Constitution provides that “Programming Acts[13] shall determine the objectives of the action of the State. The multiannual guidelines for public finances shall be established by Programming Acts. They shall be part of the objective of balanced accounts for public administrations”.

The much debated Organic Law on the Programming and Governance of Public Finances[14] (Loi organique n° 2012-1403 du 17 décembre 2012 relative à la programmation et à la gouvernance des finances publiques) redefines the function of Programming Acts and aims at fulfilling the requirements of the Fiscal Compact as interpreted by the Constitutional Council (see also section IX on the Fiscal Compact), as well as parts of the requirements of the Six-Pack[15] (see also section VII on the Six-Pack).

Adoption procedure:

Budget Acts and SSFAs are to be adopted after one reading by both Houses of the Parliament, after submission by the Prime Minister or by members of Parliament, within constraining time limits[16]. The Committee in charge of examining Budget Acts in both the National Assembly and in the Senate is the Finance Committee. The Committee in charge of examining SSFAs in both Houses is traditionally the Social Affairs Committee, advised by the Finance Committee[17]. The vote of the project is undertaken by each of the Houses, starting with the National Assembly. If one reading is not enough for an agreement on the proposal in the same terms by both Houses, a conciliation process in the form of a “joint committee” (“commission mixte paritaire”) is set in motion to reach an agreement[18].

For ordinary laws, joint committees are formed only after two readings in both Chambers fail to produce an identical text. The financial procedure is therefore similar to the “accelerated procedure” available for ordinary laws, as it reduces to one the number of readings in each House before resorting to joint committees[19].

Under article 47 of the Constitution: “Parliament shall pass Finance Bills in the manner provided for by an Institutional Act.

Should the National Assembly fail to reach a decision on first reading within forty days following the tabling of a Bill, the Government shall refer the Bill to the Senate, which shall make its decision known within fifteen days. The procedure set out in article 45 shall then apply.

Should Parliament fail to reach a decision within seventy days, the provisions of the Bill may be brought into force by Ordinance.

Should the Finance Bill setting out revenue and expenditure for a financial year not be tabled in time for promulgation before the beginning of that year, the Government shall as a matter of urgency ask Parliament for authorization to collect taxes and shall make available by decree the funds needed to meet commitments already voted for.

The time limits set by this article shall be suspended when Parliament is not in session.

Under article 47-1 of the Constitution: “Parliament shall pass Social Security Financing Bills in the manner provided by an Institutional Act.

Should the National Assembly fail to reach a decision on first reading within twenty days of the tabling of a Bill, the Government shall refer the Bill to the Senate, which shall make its decision known within fifteen days. The procedure set out in article 45 shall then apply.

Should Parliament fail to reach a decision within fifty days, the provisions of the Bill may be implemented by Ordinance.

The time limits set by this article shall be suspended when Parliament is not in session and, as regards each House, during the weeks when it has decided not to sit in accordance with the second paragraph of article 28.

The Parliament may propose Acts or amend proposals of Acts. However, article 40 of the Constitution constrains this power by forbidding that an amendment either increases public spending or leads to a diminution of public resources: “Private Members’ Bills and amendments introduced by Members of Parliament shall not be admissible where their enactment would result in either a diminution of public revenue or the creation or increase of any public expenditure.” This interdiction has become more flexible since the approval of the Organic Law on Budget Acts in 2001 since it allows for Parliament to increase public expenditure of one program as long as it equally diminishes the expenditure of another program pertaining to the same mission[20].

The Organic Law on the Programming and Governance of Public Finances:

This Organic Law does not so much impact directly on Budget Acts or SSFAs but rather on Programming Acts, which are now to integrate in French law the requirements of budgetary balance laid down in the Fiscal Compact (in particular, setting Medium Term Objectives, defining a Reduction Deficit Trajectory, in a multiannual perspective)[21] and parts of the requirements of the Six-Pack[22].

However, Budget Acts, SSFAs, their amending Acts, and Accounting Acts have also undergone changes under the Organic Law, which was accompanied with changes in the LOLF. Additional elements of information are now required of Budget Acts concerning their impact on and the evolution of structural and real budgetary balance. Modes of calculation for such information are also required, as well as an explicit consistency between the calculations and targets included in the financial acts over time, as well as with the calculations and targets set out in their multiannual objectives[23].

The Organic Law also creates a High Council of Public Finance[24] (HCPF), another requirement of the Fiscal Compact. The HCPF assesses the macroeconomic forecasts projected by the Government in financial acts. It evaluates the compliance of the objectives of budgetary balance set out in financial acts with the objectives of budgetary balance (Medium Term Objectives and Reduction Deficit Trajectory) laid out in the Programming Acts in a multiannual perspective. The coherence of the budgetary objectives and of the modes of calculation used throughout the financial acts is also scrutinized.

The HCPF’s assessment of the proposals of financial acts takes place before the proposal is transmitted to the Council of State and to the Parliament, so that it is joined to the proposals of Acts submitted to them[25]. The HCPF also examines the government projections stated in the Stability Programs, before they are sent to the Council of the EU and to the European Commission[26].

Importantly, the HCPF is key to the Correction Mechanism established with the Fiscal Compact, requiring the Government to give justifications and to lay down correction measures for significant gaps (0,5% or 0,25% of GDP) identified by the HCPF between budgetary results and the multiannual orientations defined in the Programming Acts[27].

Main other instruments for budget scrutiny:

The provisions presented above strengthen already existing principles of budgetary balance. Thus, Article 34 of the Constitution already provided that “(…) Social Security Financing Acts shall lay down the general conditions for the financial equilibrium thereof (…)”. Moreover, the “multiannual guidelines for public finances“, which are to be “established by Programming Acts”, “shall be part of the objective of balanced accounts for public administrations”. However, these provisions have been analyzed as setting objectives rather than obligations, and generally as lacking constraining force[28].

The Court of Auditors (Cour des Comptes) is composed of independent magistrates. The tasks of the Court of Auditors are defined in article 47-2 of the Constitution:

“The Cour des Comptes shall assist Parliament in monitoring Government action. It shall assist Parliament and the Government in monitoring the implementation of Finance Acts [=Budget Acts] and Social Security Financing Acts, as well as in assessing public policies. By means of its public reports, it shall contribute to informing citizens.

The accounts of public administrations shall be lawful and faithful. They shall provide a true and fair view of the result of the management, assets and financial situation of the said public administrations.

Over the past years, the public reports issued by the Court of Auditors increasingly insisted on reducing public deficit[29].

The Parliament has set up its own procedures, in each of the Houses – and in relation with their Finance Committees – dedicated to the examination of public accounts and the evaluation of the projects of financial Acts.

The government is committed under the Stability and Growth Pact to issue periodically National Reform Programs and Stability and Coordination Programs, monitored at European level. One important development brought by the European Semester is that the government and Parliament sought, as soon as 2010, to modify the budgetary calendar in order to allow the Parliament to take a stance on the Stability Programs before their transmission to the Commission. This reform was supposed to be made constitutional in the failed attempt at Constitutional revision in 2011; however, this practice seems to have been put in place anyway.

 
General change   
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

See also question II.1.

The two main changes came arguably from the adoption of an Organic Law on the Programming and Governance of Public Finances (“the Organic law”), on the one hand, and of the European Semester, on the other hand (see also question II.1). The Organic law provided for the creation of a new institution, the High Council of Public Finance[30], which started producing opinions on the economic forecasts and assessments made by the government in its financial Acts. It should be noted that the government has already started to refer publicly to the works of HCPF to add credibility to its economic assessments[31].

Information of the Parliament (and beyond) was thus reinforced, also because new elements of information on economic forecasts and assessments had to be included in or associated to the financial acts proposed by the government.

Programming Acts were given new functions, the most important of which pertained to setting multiannual objectives of budgetary balance within the meaning of the Fiscal compact.

However, the Constitutional Council has not shown yet if these new elements would dramatically change its review of financial acts, in particular on the basis of the principle of faithfulness (see question IX.7). This could partly be explained by the fact that no Programming Act has yet been adopted after the creation of the High Council of Public Finance. Hence, it has not yet had the opportunity to provide an assessment on such law that could eventually be used by the Constitutional Council when assessing the respect of the principle of faithfulness. A new Programming Act will be adopted in Autumn 2014 and will be subject to such control for the first time.

The European Semester has accentuated the monitoring of France’s budgetary and economic policies. One of its effects was to allow for Parliament to be transmitted the Stability Programs before they be sent to the European Commission (see section VII on the Six Pack).

Institutional change 
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

See also question II.1

Overall, one may arguably consider that information and involvement of the Parliament increased compared to the pre-crisis era. The Organic Law on the Programming and Governance of Public Finances (“the Organic law”), in particular, obliges the government to include more information on its economic forecasts and assessments when a financial Act is proposed to Parliament[32].

However, in other respects it is unclear if the powers of Parliament have not been reduced in budgetary matters, compared to the ones of the government. Parliament has several times only ratified or voted decisions engaging the guarantee of the State for considerable amounts of money, often already promised by the government in European and intergovernmental fora. Under the pressure of the crisis, these votes and ratifications were arguably difficult to deny. The Parliament also enjoyed a very limited role in the negotiation of the instruments benefiting from these guarantees, and in the use made by it once the guarantee was voted.

The Constitutional Council declines to review French law on the basis of the international commitments of the State, and authorized that the Fiscal Compact be ratified without amendment of the constitution[33]. The main route for constitutional review of Budget Acts, already tried twice[34] by the political opposition in Parliament, appears to rely on the principle of faithfulness of public accounts – which never led until now to declaring a financial act unconstitutional. In this way, the government and Parliament keep a margin of maneuver in budgetary matters in respect with the Constitutional Council.

The Court of Auditors (Cour des Comptes) assists the Parliament in the scrutiny of public accounts, and issues independent assessments of the state of France’s economy and budget. It is now shouldered by the High Council of Public Finance, whose assessments determine the triggering of the correction mechanism (see also question II.1).

Change of time-line     
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

See questions II.1 and II.3.

Miscellaneous
II.5
What other information is relevant with regard to France and changes to the budgetary process?

Not applicable.

[1] http://www.senat.fr/role/fiche/loi_fin.html

[2] http://www.senat.fr/role/fiche/loi_secsoc.html

[3] See articles 39, 45, 47 and 47-1 of the Constitution, as well as the organic laws pertaining to the Budget Acts and the SSFAs (more details below). Guy Carcassonne notes that article 40 of the Constitution constrains the power of initiative the Parliament, as it forbids that an Act proposal or amendment either increases public spending or leads to a diminution of public resources: “Private Members’ Bills and amendments introduced by Members of Parliament shall not be admissible where their enactment would result in either a diminution of public revenue or the creation or increase of any public expenditure”. Guy Carcassonne, La Constitution, Editions du Seuil, onzième édition (2013), §316.

[4] http://www.senat.fr/role/fiche/loi_fin.html

[5] http://www.senat.fr/role/fiche/loi_secsoc.html

[6] http://www.senat.fr/role/fiche/loi_fin.html.

[7] http://www.vie-publique.fr/decouverte-institutions/finances-publiques/ressources-depenses-etat/budget/0405-qu-est-ce-qu-loi-programmation-finances-publiques.html

It should be noted that Programming acts are a fairly new kind of financial acts since they were introduced by the constitutional reform of July 2008.

[8] Idem.

[9]  These acts are considered to be rarely used. For more information, see C. Waline, P. Desrousseaux and S. Godefroy, Le Budget de l’Etat, La Documentation Française, Direction de l’information légale et administrative, Paris, 2012, pp.58-59.

[10] http://www.conseil-constitutionnel.fr/conseil-constitutionnel/english/constitution/constitution-of-4-october-1958.25742.html

[11] http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=LEGITEXT000005631294&dateTexte=vig. For a summary of the main features of the Organic Law, see also (in French): http://www.performance-publique.budget.gouv.fr/le-budget-et-les-comptes-de-letat/le-cadre-organique-des-lois-de-finances.html

[12] http://www.legifrance.gouv.fr/affichTexte.do;jsessionid=236CDE83C52CCC4298BAB6ECE8F61677.tpdjo16v_2?cidTexte=JORFTEXT000000813423&dateTexte=20131118 . For a summary of the main features of the Organic Law on Social Security Financing Acts, see also (in French): http://www.performance-publique.budget.gouv.fr/les-enjeux-des-finances-publiques/le-financement-de-la-securite-sociale/lessentiel/le-pilotage-des-finances-sociales.html

[13] http://www.vie-publique.fr/decouverte-institutions/finances-publiques/ressources-depenses-etat/budget/0405-qu-est-ce-qu-loi-programmation-finances-publiques.html

[14] http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000026785259&dateTexte=&categorieLien=id . See also, for a synthesis: http://www.performance-publique.budget.gouv.fr/le-budget-et-les-comptes-de-letat/les-lois-de-finances/approfondir/lactualite/la-loi-organique-relative-a-la-programmation-et-a-la-gouvernance-des-finances-publiques.html

[15] http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000024833359&dateTexte=&fastReqId=1240780889&fastPos=1&oldAction=rechExpTransposition .  Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States is said to be partially transposed in the Organic Law in its articles 1 to 5 and 11 to 23. However, it is not always clear which provisions of the Organic Law should be referred to the requirements of Directive2011/85 or to those of the Fiscal Compact.  Only article 5(7) of the Organic Law mentions explicitly Directive 2011/85, in order to clarify the meaning of the requirements pertaining to the inclusion of the projections of the government on public finances in the informational reports annexed to the Programming Acts.

[16] Guy Carcassonne, La Constitution, Editions du Seuil, onzième edition (2013), §§ 316 and 321.

[17] http://www.senat.fr/role/fiche/loi_secsoc.html ; http://www.assemblee-nationale.fr/connaissance/fiches_synthese/septembre2012/fiche_41.asp

[18] Idem.

[19] Guy Carcassonne, La Constitution, Editions du Seuil, onzième édition (2013) p.316.

[20]C. Viessant and L. Philip, La loi organique de 2001 relative aux lois de finances, La Documentation Française, Direction de l’information légale et administrative, Paris, 2014, p.4.

[21] Idem.

[22] http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000024833359&dateTexte=&fastReqId=1240780889&fastPos=1&oldAction=rechExpTransposition .

[23] Idem.

[24]http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000026785259&dateTexte=&categorieLien=id . See also : http://www.hcfp.fr/

[25] Idem. This correction mechanism was activated in May 2014.

[26] However, in this case its role is rather limited since it only checks the liability of the Government’s proposal, not the trajectory of public finance itself.

[27] Idem.

[28] Guy Carcassonne, La Constitution, Editions du Seuil, onzième édition (2013) §§232-233.

[29] http://www.ladocumentationfrancaise.fr/rapports-publics/104000325/index.shtml; http://www.ladocumentationfrancaise.fr/rapports-publics/114000083/index.shtml; http://www.ladocumentationfrancaise.fr/rapports-publics/114000546/index.shtml; http://www.ladocumentationfrancaise.fr/rapports-publics/124000069-rapport-public-annuel-de-la-cour-des-comptes-2012 ; http://www.ladocumentationfrancaise.fr/rapports-publics/124000316-rapport-sur-la-situation-et-les-perspectives-des-finances-publiques-juillet-2012 ;  http://www.ladocumentationfrancaise.fr/rapports-publics/124000590-etat-des-lieux-du-financement-de-la-protection-sociale ; http://www.vie-publique.fr/actualite/alaune/negociations-emploi-accord-flexicurite-20130116.html;

[30] http://www.hcfp.fr/

[31] See for instance: http://discours.vie-publique.fr/notices/136002523.html

[32] This further reinforces a tendency of a stronger role for Parliament started in 2001 with the adoption of the Organic Law on Budget Acts in 2001.

[33] Decision 2012-653 DC of 9 August.

[34] Decision 2002-464 DC of 27 December and Decision 2011-644 DC of 28 December.

Germany

Budgetary process       
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Germany.

 

The legal basis for the budgetary process on the federal level in German is Article 110 Grundgesetz (GG).

 

The yearly federal budgetary process is determined by the budget law and the budget plan. The budget plan contains all the expenses and revenues of every federal authority and is annexed to the budget law. In order to assemble the budget plan the budget units in the federal ministries and the supreme federal authorities have to develop drafts of their budget plan for the next budgetary year which have to make sure that expenses and revenues are balanced. The Federal Finance Ministry collects all the drafts and assesses whether they are in line with the tax estimation.

 

When the Finance Ministry has combined and approved all the drafts, the Federal government adopts the budget plan. Usually, the outline of the budget plan is published in the summer prior to the next budgetary year. The draft of the budget plan is sent simultaneously to the Bundestag und the Bundesrat, a requirement of Article 110 (3) GG. The draft budget plan is assessed in light of another budget plan which covers several fiscal years (usually five years). Within sex weeks the Bundesrat comments on the draft of the yearly budget plan. The comment of the Bundesrat is sent to the Bundestag along with a statement of the Federal Government to the Bundesrat’s comments.

 

Like every other federal law, the budget law and the annexed budget plan require three readings in the Bundestag. However, the procedure is partly different from other legislative procedures. The first reading in plenary is mainly the presentation of the budget plan accompanied by discussions between the government and the opposition in parliament which end with the referral of the budget law (including the annexed budget plan) to the Budget Committee of the Bundestag. The Committee looks intensively at every budgetary position and gives recommendations. The recommendations of the Committee are presented to the Bundestag in its plenary composition. They are subject to the second reading. During the second reading, every single budget plan of the whole budget plan, for example for a single ministry, must be adopted separately. During the third reading, the budget law annexed with the budget plan as a whole must be adopted.

 

After the adoption by the Bundestag, the budget law is sent to the Bundesrat which has the right to refuse the law and call for a mediation in the Conciliation Committee. If the Bundesrat agrees with the draft budget law, the Federal Finance Minister, the Chancellor and the Federal President sign the law and it is published in the Federal Law Gazette. Within the time indicated in the law, it enters into force.

 

The Federal budget is permanently supervised by the Accounting Committee, a sub-committee of the Bundestag’s Budget Committee. In addition, the Federal Court of Auditors controls how the public spending was carried out and publishes remarks which are important for the Bundestag when it comes to the decision about the formal approve of the Federal Government.

 

General change   
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

 

Before the Eurozone crisis there were no specific laws determining how financial assistance to Member States of the EU can be granted. Discussions in Parliament and Constitutional Court Decisions have led to a law which lays down the requirements for financial assistance for Member States in the framework of the ESM in the ESM Financing Act (ESM-Finanzierungsgesetz, briefly ESMFinG). According to this law it is in general the Budget Committee of the Bundestag which decides about financial assistance (§ 5 ESMFinG). The law also defines in which cases an approval of the Budget Committee is necessary before the German representative in the ESM can vote in favour of an ESM proposal or abstain. As long as there is no approval by the Budget Committee or the Plenary the German representative has to refuse the proposal.

 

The Budget Committee is not authorized to vote about an ESM proposal when the overall budgetary responsibility of the Bundestag is concerned. In this case, the Bundestag as a plenary has to decide (§ 4 ESMFinG). One of the most controversial norms concerns the special Committee, a sub-Committee of the Budget Committee. While the Budget Committee consists of around 40 MPs, the special Committee has around 9 MPs. According to § 6 ESMFinG it is only competent when there is a proposal to buy government bonds at the secondary market (Art. 18 TESM). Only in this case it is necessary to restrict the information to a reduced number of MPs in order to guarantee secrecy of the decision.

 

Institutional change 
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

 

In relation to decisions about financial assistance for Member States the Act on the Financing of the ESM contains rules for the distribution of competences (see question II.2). In addition, the Stability Council (Stabilitätsrat) has received more competences (see questions VII.5 and IX.4).

 

 

Change of time-line    

II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

The budgetary circle has not changed as a result of the implementation of Euro-crisis law.

 

Miscellaneous
II.5
What other information is relevant with regard to Germany and changes to the budgetary process?

 

No other relevant information.

Greece

Budgetary process   
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Greece.

According to article 72 of the Constitution, the Budget and the Annual Report of the State and Parliament is voted in the Parliament Plenary Session. The details of the budgetary process were until recently defined by statute 2362/1995,[1] which was extendedly amended in August 2010, some months following the conclusion of the first loan agreement to Greece, by statute 3871/2010.[2] The amended statute was focused on budgetary stability and discipline,[3] was much more detailed concerning the content of the budget and the calculation methods of the various capitals,[4] and was characterized by the attribution of extended competences to the Minister of Finance, who became responsible for the economic management of General Government.

The Budget of Central Government and the connected budgets of General Government[5] (hereafter Budget) comprise many documents. First of all, the Annual Budget of Central Government defines the revenues, the expenses and the sources of income for Central Government for each economic year. The Medium Term Framework of Budgetary Strategy defines the budgetary objectives and goals for General Government for the year it refers to and the three following years, it defines the main general policies concerning the annual budget, and it announces the main sources of risks for the financial situation of General Government. The Annual Social Budget defines the revenues, expenses, deficit/surplus of the unified system of social security and for each one of the main funds of social security and the main hospitals. The unified annual budgets of Local Authorities define the budget of each unified domain of local administration. Finally, the unified annual budgets of the remaining sectors of General Government, define the unified budgets of the sectors of General Government which are not covered by the previous documents.[6]

The Medium Term Framework of Budgetary Strategy is drawn up by the General Accounting Office of the State, under the guidance and surveillance of the Minister of Finance. It is submitted for approval to the Ministerial Council before the 15th of April. After its approval, the Minister of Finance submits it to Parliament for voting before the 15th of May. During September, if substantial changes have occurred, the Minister of Finance can submit to Parliament an up-to-date Medium Term Framework of Budgetary Strategy, which is voted by Parliament within 10 days from its submission.[7] The various annual budgets must be in conformity with the Medium Term Framework of Budgetary Strategy.[8]

The Annual Budget of Central Government is drawn up by the General Accounting Office of the State, under guidance and surveillance by the Minister of Finance. For its redaction, the method of “top-down budgeting” is employed, which entails the determination of binding maximum limits of expenses per Central Government sector, inside of which the various capitals are allocated.[9] A draft of the Annual Budget is submitted by the Minister of Finance to the competent parliamentary committee on the first Monday of October, before the beginning of the economic year that it concerns.[10] According to the Standing Orders of Parliament,[11] the Permanent Committee of Financial Affairs deliberates on the draft and the proceedings are communicated to the Minister of Finance.[12] The Minister, after taking into consideration the remarks of the Committee, introduces to Parliament the final draft bill of the Annual Budget, at least 40 days before the beginning of the economic year that it concerns.[13] The bill is voted during the normal annual parliamentary session, after a second examination by the permanent committee of Financial Affairs.[14] After its approval by Parliament, the Annual Budget is binding. However, the Minister of Finance can submit a proposal for the amendment of the credits of the Annual Budget of Central Government, with a complementary budget; he/she is obliged to do so in certain cases. The Minister of Finance can approve expenses exceeding the amounts of the credits provided for in the Annual Budget, in order to fulfill obligations of the State according to loan agreements, international conventions, and obligations to the European Union.[15]

The execution of the Annual Budget of Central Government is assured by the General Accounting Office of the State, which manages public property and must cooperate in every general act entailing expenses.[16] Moreover, the execution of the Annual Budget is monitored by the Committee of Review and General Balance of the State and of the Monitoring of the Execution of the Budget of Central Government. This Committee is informed by the Minister of Finance every three months on the execution of the Annual Budget and on the management of public finances. Further, the Minister of Finance submits a monthly report on the revenues and expenditure of the Budget.[17] For the collecting of the necessary information, a special Office has been created by the new statute, the Office of the Budget of Central Government to the Parliament, which compiles and submits trimestral and annual reports on public finances.[18] Until the end of July, the General Accounting Office of the State compiles the Review of the execution of the Annual Budget of Central Government and the Balance-sheet, which represents the clear image of the financial status of Central Government, as well as other financial reports. These documents are based on information given by the competent authorities. They are submitted to the Court of Audit, which must scrutinize their correctness within two months. Then, the Minister of Finance introduces them, together with the decision by the Court of Audit and his/her own comments, to Parliament (the same committee is competent) for approval, before the end of November and, in any case, before the introduction of the new Annual Budget.[19]

The annual budgets of the rest of the institutions of General Government are compiled and executed under the guidance and surveillance of the competent Minister or head officer, who are responsible for their correct execution.[20] The drawing up of these budgets is coordinated by the Minister of Finance and the time-line is defined by the General Accounting Office of the State for each economic year.[21] Their execution is monitored and reviewed by the General Accounting Office of the State and the Minister of Finance, with the cooperation of the Head of Financial Services, which is a new organ, appointed in every institution of General Government for the monitoring of the management of its finances.[22] The General Accounting Office of the State must cooperate in any general act entailing expenses to the annual budgets.[23]

Statute 4111/2013 established fiscal rules and practices for General Government institutions and services. Most importantly, every institution or service must set monthly and trimestral budgetary objectives according to the Annual Budget voted by Parliament.[24]

A summary of the rest of the annual budgets of General Government are annexed to the Annual Budget of Central Government, when submitted for approval to Parliament. Also, they are accompanied by a declaration by the Minister of Finance for their conformity to the Medium Term Framework of Budgetary Strategy.[25] Moreover, the Minister of Finance also submits to Parliament the various reports of the competent Directors of taxation services and of the General Accounting Office concerning public revenues and expenses, as well as the report of the General Director of Public Property, which concerns the results of the exploitation of public property. Finally, the Minister of Finance informs Parliament on the total amount of the public debt and on any other subject, in order to render public finances transparent and accessible to the public.[26]

Article 98 of the Constitution attributes an important role to the Court of Audit for the monitoring of the management of public finances. According to the first paragraph of this article,

1. The jurisdiction of the Court of Audit pertains mainly to:


a) The audit of the State’s expenditures, and of local government agencies or other public law legal persons subject to its audit by special laws.

b) The presentation to Parliament of the financial report and balance sheet of the State.

c) Advisory opinions concerning statutes on pensions or on the recognition of service for granting of the right to a pension, in accordance with article 73 paragraph 2, and on all other matters specified by law.

d) The audit of the accounts of accountable officials and of the local government agencies and public law legal persons specified in subparagraph (a).

e) The trial of legal remedies on disputes concerning the granting of pensions and the audit of accounts in general.

f) The trial of cases related to liability of civil or military servants of State and local government agency civil servants for any loss, through malicious intent or negligence, incurred upon the State or upon the above agencies and legal persons.

2. The authority of the Court of Audit shall be regulated and exercised as specified by law.

The provisions of article 93 paragraphs 2 and 3 shall not be applicable in the cases specified in (a) through (d) of the preceding paragraph.

3. The judgments of the Court of Audit in the cases specified in paragraph 1 shall not be subject to the control of the Supreme Administrative Court.[27]

The comments by the Court of Audit on the financial management of the State, included in its annual report, are communicated to the various Ministers. The responses to the comments are communicated to the President of the Court of Audit who communicates them together with the report to the President of the Parliament. All these documents are published to the Official Gazette of the Government.[28]

The above characteristics were subsequently incorporated into a new systematic text on budgetary process, which entered into force with law 4270/2014 on 28th of June 2014.[29]

The public debt is managed by a legal entity in public law (Οργανισμος Διαχειρισης Δημοσιου Χρεους, Public Debt Management Agency).[30]

General change           
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

Statute 3871/2010[31] introduced important changes to the budgetary process, a few months after the conclusion of the first loan agreement for Greece. The goal of the statute was “the creation of contemporary budgetary rules and principles for the management of public finances” and “the reestablishment of the credibility of the budget of our country”. The statute aimed at the modernization of the budgetary management with rules, principles, and models according to what exists in other developed countries; the modernization of the budgetary monitoring according to the internationally valid monitoring models; the establishment of the responsibility of all the organs which participate to the management of public finances; the amelioration of the effectiveness and the creation of confidence to the economic management of the country; the harmonization of the budgetary process with the respective process of the Member States of the EU; the consolidation of transparency; the strengthening of the role of Parliament in the monitoring of the budgetary policy of the government and its execution by the ministries; the strengthening of the role of the Minister of Finance with responsibility and surveillance of the budgetary management of General Government.[32]

The statute established many rules and deontological principles (principle of the prudent budgetary management, of responsibility, of impartiality and justice, of sincerity, and of transparency) concerning the content of the Budget. Moreover, it extended the competences of the Minister of Finance to General Government and the competences of the General Accounting Office of the State, as well as of the various competent Ministers. What is more, it appointed a Head of Financial Service in each institution of General Government. Further, it introduced the instrument of the Medium Term Framework of Budgetary Strategy, which comprises the goals of the government for the whole General Government for the three years following its redaction. The statute also introduced the top-down method for the compilation of the Annual Budget of Central Government and it changed the time-line of the compilation of the Budget. Concerning statistics and accounting, the Statute put in place a double-entry accounting system.[33] It defined in detail the content of the Budget and the various documents constituting it. Moreover, it introduced the complementary budgets, thus regulating the exceeding of the credits provided for in the Budget. The expenses from the Central Government Budget and the Local Authorities Budget, as well as the other annual budgets, are submitted to scrutiny by the Court of Audit, which also exercises a preventive scrutiny in certain cases. Also, a special office in Parliament was created for the better supervision and monitoring of the execution of the Budget and of the Medium Term Budgetary Frameworks. Finally, the statute established certain rules for the enforcement of budgetary stability.

The application of the statute met obstacles in the beginning. For example, the first scientific committee of the special budget office in Parliament was dismissed after having concluded that the debt was not sustainable.[34]

Further, statute 4111/2013 established fiscal rules and practices for General Government institutions and services. Most importantly, every institution or service must set budgetary objectives according to the Annual Budget voted by Parliament.[35]

Finally, statute 4270/2014 incorporated these changes in a systematic code of budgetary process and added further changes aiming at the harmonization of domestic law to the precepts of the “six-pack”.[36] Namely, it instituted an Independent Fiscal Council; it established the Medium term budgetary objective procedure and an adjustment path procedure, as well as a corrective mechanism in case of important deviation from these objectives; it harmonized the Greek budgetary time-line with the European semester and it established the legal framework for the fiscal surveillance of General Government sub-sectors. Further, the statute clearly defines the institutional framework of the budgetary process and the competences of the various authorities (articles 18 f.). It states the general principles governing the management of General Government finances (principle of reasonable financial management, of responsibility and reason giving, of transparency and of sincerity –article 33). The statute also enounces some principles concerning pluriannual fiscal planning (article 34): it should give priority to the repayment of the debt and to the consolidation of fiscal and economic stability, it should be unitary and concern all General Government sectors, it should be based on medium term forecasts, it should be transparent and subject to scrutiny by independent authorities.[37]

Institutional change        
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

Statute 3871/2010[38] of 2010 (see also question II.2) brought about important institutional changes in the budgetary process. These changes were subsequently incorporated into statute 4270/2014, which instituted a wholly new budgetary process.[39]

First of all, it has importantly increased the competences and powers of the Minister of Finance, who now has the power and competence to exercise the general management of public finances of Central Government, as well as the coordination and surveillance of the General Government finances. Among his/her particular competences are the submission of the Medium Term Framework of Budgetary Strategy and its eventual up-to-date versions to Parliament; the submission of a draft of the Annual Budget of Central Government, the Annual Report and the Balance of the State to Parliament; the surveillance of the redaction and execution of the annual budgets and of the budgetary reports of the institutions of General Government; the submission of a report concerning the budgetary developments of General Government to Parliament and its publication on the internet; the conclusion of loan agreements as a representative of the Greek State; the surveillance and monitoring of programmes which are financed by the EU or other international organizations.  The Minister of Finance also determines the models, the regulations and the procedures that govern the economic management of the public sector. Together with the co-competent Minister or head officer, he/she is responsible for the correctness and accuracy of the information and the elements included in all the documents of the Budget and in the various reports. Moreover, ministerial decrees by the Minister of Finance define the procedure and the time-line of the redaction of all the Annual Budgets, except from the unified annual budgets of Local Administration. They also define in detail the competent State organs and the procedure for credits, the major categories of expenses in the Budget of Central Government, the categorization of the revenues and expenses for the domains of General Government and any other detail for the redaction of the Budget.

The General Accounting Office of the State has also been attributed extended competences. Among them are the following: the General Accounting Office draws up the Medium Term Framework of Budgetary Strategy and its eventual amendments; communicates through circulars to all institutions of General Government the time-line for the redaction of the Budget of the next economic year; compiles the draft of the Annual Budget of Central Government, and proposals for complementary budgets; compiles the Annual Report and Balance-sheet of the State, as well as the rest of the financial reports of Central Administration; manages public property and monitors the execution of the Budget; obligatorily approves the enactment of general acts causing expenses to the expense of the Budget; compiles reports for the execution of the annual budgets of the institutions and services of General Government; exercises review to the financial management of the local authorities and of the legal persons depending on them; monitors the financial management of various legal persons which are financed by the Budget; monitors the management of programs which are financed by the EU or other international organizations; collects the information for the exercise of its competences; enacts directives and circulars concerning the budgetary process and the public financial management.

According to the new budgetary process, the competent Ministers and head officers of the remaining General Government institutions are attributed the following budgetary competences and responsibilities: they manage and execute the budget of their institution according to the legal statute; they compile and present a draft of their annual budget, according to the maximum limits of defined in the Medium Term Budgetary Framework; they execute the annual budget; they supervise and direct the organs under their surveillance for the compilation of the budget in conformity with the Medium Term Budgetary Framework and their correct execution; they manage public property and resources; they work out reports for the execution of the budget of their institution and the institutions under their surveillance; they work out and submit information on the financial situation of these institutions.

Moreover, a new official has been appointed to the financial service of each Minister and each institution of General Government, the Head of Financial Service. He/she is responsible for guaranteeing a prudent budgetary management of the institution where he/she is appointed and of the institutions financed by it. He/she also supervises the procedures concerning the budget and the accounting information, according to the directives of the General Accounting Office of the State. Law 4270/2014 separated the function of Authorizing Officer from that of the Head of Financial Service and made them incompatible. It also attributed more competences to the Head of Financial Service. Both the Authorizing Officer and the Head of the Financial Service of each institution must sign decisions concerning the assuming of obligations by General Government sectors.

Further, since 2010 (Kallikratis plan, concerning the Local Authorities)[40] the budget of the Local Authorities is monitored ex ante by the Court of Audit. The statute of 2010 introduced the ex post review of the execution of the budget of these authorities (for the first and second degree), as well as of their enterprises and organizations.

For the better information of the Parliament, the Office of Budget to the Parliament has been created, which assists the various competent committees in their work, especially through the collection of the necessary information.

Statute 4055/2012 charged the Court of Audit with the scrutiny of the new fiscal governance introduced by the 2010 statute.[41]

Finally, statute 4270/2014 instituted an independent Fiscal Council, thus incorporating Directive 2011/85/EU into the domestic order. Among the Council’s competences are the evaluation of public macroeconomic forecasts and the monitoring of the State’s observance of fiscal rules.[42]

Change of time-line 
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

According to the statute 3871/2010, the time-line of the budgetary cycle is divided in calendrical stages accordingly:

1) January-March (1st Stage): the General Governmental Strategy is defined and the Medium Term Framework of Budgetary Strategy is compiled.

2) April-May (2nd Stage): The Medium Term Framework of Budgetary Strategy is approved by the Ministerial Council and is approved by the Parliament.

3) June-July (3rd Stage): The budgetary process for Central Government begins, together with the preparation of the budget of the rest of the institutions of General Government.

4) August-October (4th Stage): Negotiations between the Ministry of Finance and the Ministries concerning their budget and timely preparation of the Social Budget.

5) November-December (5th Stage): Submission and voting of the Central Government Budget by Parliament with a parallel publication of the budget of the remaining institutions of General Government (Social Security Funds, Hospitals, Local Authorities).[43]

Before this statute, no budgetary time-line was legally defined.

Statute 4270/2014 incorporated this time-line into the new budgetary process that it instituted and further harmonized domestic law to the “European semester”.[44] Thus, it provided that the Fiscal Council (an independent administrative authority instituted for the first time by the same statute) will publish twice per year, in conformity with the “European Semester” time-line, a report in which it will elaborate its conclusions concerning the macroeconomic and fiscal forecasts, the fiscal objectives and the fiscal results.[45]

Miscellaneous
II.5
What other information is relevant with regard to Greece and changes to the budgetary process?

It is important to note that, independently from the legally determined budgetary process, since the first loan agreement on May 2010, a de facto process is taking place, under the directives and surveillance of an international formation, the so-called “troika”. The “troika” is composed by one representative of each one of the country’s creditors, that is, the IMF, the ECB, and the European Commission, representing the Eurozone MS. Any important evolution concerning the planning of the budgetary strategy, the execution of the Budget and the Medium Term Budgetary Framework, and the management of public property and finances, is negotiated with and approved by this sui generis institution, which functions as an independent technocratic council. The report by the “troika” constitutes the basis of the Eurogroup decision for the disbursement of the tranches of the financial assistance to Greece.[46] Even though the Government formed after the 2015 elections refused to negotiate with the “troika”, negotiations are still taking place with the “institutions” (ECB, IMF and Commission) in order to conclude an agreement as to financial assistance to Greece.

Moreover, according to article 4 of statute 4063/2012,[47] the reimbursement of the public debt has priority to any other expenses. Thus, the revenues of the Budget from the EFSF and other determined revenues are deposed into a special account which is created exclusively to this objective.

[1] ΦΕΚ Α’ 247/27.11.1995, concerning the accounting of public finances, the monitoring of the expenses of the State, and other provisions.

[2] ΦΕΚ Α’ 141/17.8.2010, budgetary management and responsibility.

[3] The new articles 1, 1A and 5 Law 2362/1995 define a large number of general principles which govern the budgetary process.

[4] See the Interim Progress Report on the implementation of Council Directive 2011/85/EU on requirements for budgetary frameworks of the Member States http://ec.europa.eu/economy_finance/publications/occasional_paper/2013/pdf/ocp128_en.pdf.

[5] According to article 1B, General Government comprises the Central Government, first and second degree Local Administration  and the Social Security Organizations of. The Central Government comprises the Central Administration (Presidency, Ministries, Decentralized and Independent Authorities), the legal persons of public law and the legal persons of private law that are monitored and financed by the Central Administration.

[6] Article 6 Law 2362/1995.

[7] Article 6Γ Law 2362/1995.

[8] Article 6Δ Law 2362/1995.

[9] Article 6E Law 2362/1995.

[10] Article 8 par. 1 of the statute. According to article 4, the economic year begins on the 1st of January and finishes on the 31st of December of the same year. It includes the administrative act and the events that are relative to the management of the public accounts and the movement of the public property of the State.

[11] http://www.hellenicparliament.gr/UserFiles/f3c70a23-7696-49db-9148-f24dce6a27c8/kanonismos-Thematiko-syntagma%202010.pdf.

[12] Article 121 of the Standing Orders of Parliament.

[13] Article 8 par. 2 Law 2362/1995.

[14] Article 121 of the Standing Orders of Parliament.

[15] Article 8A Law 2362/1995. The Minister of Finance must submit a report within 60 days for these expenses.

[16] Article 3 par. 8 Law 2362/1995.

[17] Article 31A of the Standing Orders of Parliament.

[18] Article 8B Law 2362/1995. Cf. also http://www.hellenicparliament.gr/Dioikitiki-Organosi/Ypiresies/Grafeio-Proypologismou-tou-Kratous-sti-Vouli/ and http://www.pbo.gr/.

[19] Articles 72 f.

[20] Article 3.

[21] Articles 2 and 3.

[22] Article 3B.

[23] Article 3 par. 8

[24] Cf. Law 4111/2013, ΦΕΚ 18 Α‘/25.01.2013, available at http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-Nomothetikou-Ergou?law_id=3cde3e1c-d018-4244-af66-c69249f657f6.

[25] Article 8.

[26] Article 8.

[27] Source of translation: http://www.hellenicparliament.gr/UserFiles/f3c70a23-7696-49db-9148-f24dce6a27c8/001-156%20aggliko.pdf

[28] Article 77 of the legal statute.

[29] ΦΕΚ Α’ 143/28-6-2014, principles of fiscal management and supervision, public accounting and other provisions.

[30] http://www.pdma.gr/index.php/en/

[31] ΦΕΚ Α’ 141/17.8.2010, budgetary management and responsibility.

[32] See the informative note accompanying the bill, http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-Nomothetikou-Ergou?law_id=22cdbbfe-ed73-4fe5-8f49-d6a1c6f88494. See also the explanatory report to the bill, available at http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-Nomothetikou-Ergou?law_id=22cdbbfe-ed73-4fe5-8f49-d6a1c6f88494.

[33] See also Presidential Decree 15/2011, ΦΕΚ Α’30/2.3.2011.

[34] Cf. the Interim Report by the Budget Office in Parliament, “The New Economic Governance in the Eurozone and Greece [in Greek]”, January 2014, available at http://www.pbo.gr/Home/TabId/1081/ArtMID/5211/ArticleID/1092/THE-NEW-EUROPEAN-ECONOMIC-GOVERNANCE-IN-THE-EURO-ZONE-AND-GREECE-Surveillance-mechanisms-and-solidarity-after-the%E2%80%9CMemorandum%E2%80%9D.aspx.

[35] Cf. Law 4111/2013, ΦΕΚ 18 Α‘/25.01.2013, available at http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-Nomothetikou-Ergou?law_id=3cde3e1c-d018-4244-af66-c69249f657f6.

[36] ΦΕΚ Α’ 143/28-6-2014, principles of fiscal management and supervision, public accounting and other provisions. See the explanatory report to the statute, available at http://www.hellenicparliament.gr/UserFiles/2f026f42-950c-4efc-b950-340c4fb76a24/a-apred-eis-olo.pdf.

[36] On this, cf. questions VII.1 f.

[37] On this, cf. questions VII.1 f.

[38] ΦΕΚ Α’ 141/17.8.2010, budgetary management and responsibility.

[39] ΦΕΚ Α’ 143/28-6-2014, principles of fiscal management and supervision, public accounting and other provisions.

[40] Statute 3852/2010, ΦΕΚ Α’87/7.6.2010.

[41] See article 80 of the statute 4055/2012, ΦΕΚ Α’ 51/12-3-2012.

[42] ΦΕΚ Α’ 143/28-6-2014, principles of fiscal management and supervision, public accounting and other provisions.

[43] See the informative note accompanying the bill, http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-Nomothetikou-Ergou?law_id=22cdbbfe-ed73-4fe5-8f49-d6a1c6f88494. See also the explanatory report to the bill, available at http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-Nomothetikou-Ergou?law_id=22cdbbfe-ed73-4fe5-8f49-d6a1c6f88494.

[44] ΦΕΚ Α’ 143/28-6-2014, principles of fiscal management and supervision, public accounting and other provisions.

[45] Article 2 paragraphs 4 f.

[46] For more information, see the questions relevant to the financial assistance to Greece (X.1 and following).

[47] ΦΕΚ Α’ 71/30.3.2012. With this legal statute the Parliament ratified the TFEU amendment, the Fiscal Compact and the ESM Treaty.

Hungary

Budgetary process   
II.1

Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Hungary.     

The basis of the budgetary process is governed by the Fundamental Act of Hungary, in Article 36. Act CXCV of 2011 on State Finances regulates the budgetary process in detail, from Articles 12 to 22.

The dates of the budgetary process are different in the year of elections, because the new Government is usually in office from May. Based on the proposal of the Minister for National Economy the Government defines the main directions of the economic and fiscal policies, in particular the goals of the tax policy and the budgetary policy, and ascertains that the goal balance shall be in accordance with the reduction of the public debt. The Minister for National Economy works out the detailed plan of the schedule.[1]

The budget consists of chapters. The government body responsible for a chapter plans the incomes and expenses.[2] The Minister for National Economy prepares the draft of the budgetary act and submits it to the Government.

The Government presents the draft to the Fiscal Council. The Council forms an opinion about the draft in 10 days. If the Council does not support the draft the Government redesigns the proposal. The Government can only submit the proposal to the Parliament if the Fiscal Council supports the text.[3] The Government presents the proposal to the Parliament no later than the 15th of October.[4] Each committee of the Parliament comments on the draft, but it is the Budgetary Committee that presents the draft to the plenum of the Parliament.[5]

The Parliament discusses the draft together with the opinion of the State Audit Office and the Fiscal Council. The Parliament decides about the main numbers of the incomes and expenses of each chapter and the balance of the budget with the deadline of the 30th of November. After this point there can be no amendments to these numbers.[6]

As mentioned before, the approval of the Fiscal Council is needed before the approval of the Parliament. The Council examines if the budget is in accordance with the balance requirements incorporated in the Constitution. If the Council refuses to approve the Budgetary Act until the 31th March of the year into the Budgetary Act the President can dissolve the Parliament.[7]

General change           
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

Before the financial crisis, the budgetary process was really similar to the current one. There were less strict deadlines in the system. Most of the deadlines were decided by the Government that released governmental statutes about the budgetary process. The only strict deadline was the 30th November, the date before which the Parliament had to decide about the main numbers of the budget that could not have been changed after this date.

The rules concerning the Fiscal Council were not part of the budgetary process, because the Fiscal Council was created after 2008, as described in the answer to questions II.1 andVII.5.

Institutional change        
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

Apart from the introduction of the Fiscal Council with its far-reaching powers, no changes were introduced.

Change of time-line 
II.4

How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

No changes were introduced.

Miscellaneous
II.5
What other information is relevant with regard to Hungary and changes to the budgetary process?

No other relevant information.

[1] Article 11 of Act CXCV of 2011 on State Finances

[2] Article 14 of Act CXCV of 2011 on State Finances

[3]Article 24 of Act CXCIV of 2011 on Economic Stability

[4] Article 22 paragraph 2 of Act CXCV of 2011 on State Finances

[5]Standing Order No. 120 paragraph 3 of the Resolution 46/1994 (IX. 30.) OGY on the Standing Orders of the Parliament of the Republic of Hungary

[6] Article 22 paragraphs 6 and 7 of Act CXCV of 2011 on State Finances

[7]Fundamental Law of Hungary, Article 3 paragraph 2 point b

Ireland

Budgetary process     
II.1

Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Ireland.

The budgetary process in Ireland is remarkably informal and centralised with Government and in particular the Department of Finance playing a key role in the elaboration of policy and the Oireachtas (Parliament) having a minimal role with the Dáil authorising the relevant appropriations and spending and performing ex post review through committee hearings. The Seanad does not have legislative power in relation to money bills but instead may give recommendations.[1] It should be noted that Ireland operates a fused executive-legislative system with the Government being elected by a majority of the Dáil (lower house) and Ministers being members of the Oireachtas (Parliament). A system whereby 11 of the 60 members of the Seanad are nominated by the Taoiseach (Prime Minister) of the day generally ensures that the Government also holds a majority in the Upper House. The Irish state was founded at a time when the party whip system had been firmly established and it has remained a dominant element of the political culture.[2] Thus, while in theory the Parliament is to control the Government in reality the Government, through the party whip system effectively controls the Parliament.[3] This control follows through to the budgetary process.

The following description of the Budgetary Process is that which operated prior to reforms introduced by Euro crisis law.[4] Changes are described in the answer to question II.2.

In June or July of each year the Government considers a Budgetary Strategy Memorandum (BSM) drawn up by the Department of Finance as a basis for planning the following year’s budget. This document is not made public.

Between July and September individual government Departments prepare requests for resources for the following year in light of the BSM.

By the end of September the Department of Finance submits and publishes the Eurostat figures for the previous four years and the forecasts for the following year.

Between September and November negotiations take place between the Department of Finance and other Departments regarding the forthcoming Budget and decisions on the annual ‘Estimates of Expenditure’ are made collectively at cabinet level.

In October or November the Government publishes a ‘Pre-Budget Outlook’ giving an indication of the state of public finances and containing medium term macro-economic growth prospects.

On the Saturday before the Budget the ‘White Paper on Receipts and Expenditure’ is published showing the pre-Budget position for the following year.

In December the Minister for Finance makes a Budget speech, known as the Financial Statement and contains a list of budget measures, statistics and tables with multi-year projections and a stability programme update. Any immediate changes in taxation (usually excise measures) are contained in the financial resolutions that are passed on the evening of Budget day. The Social Welfare Bill and the Pensions Bill are passed by the Dáil in the following weeks and the Finance Bill, the final component, is usually signed into law within 120 days of Budget day (generally April of the following year).[5]

In January the Department of Finance publishes monthly profiles for tax revenues and debt servicing with expenditure profiles published. The Revised Estimates of Expenditure are published in February and contain the expenditure profiles of each month and may include some minor additional expenditure. These Revised Estimates of Expenditure are considered by Dáil committees before being voted on by the Dáil.

General change
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

There has been a general tendency to reform the budgetary process over the past number of years under a variety of documents including the National Recovery Plan 2011-2014,[6] the Memorandum of Understanding completed as part of the programme of financial assistance, the six pack of regulations, the Fiscal Compact and the two pack. Reform of the budgetary process was proposed in a Discussion Document published by the Department of Finance in March of 2011[7] that proposed reforms of the budgetary process in order to achieve two broad goals:

§  Firstly to introduce a more year-long process in contrast to the then procedure that focused on a number of events leading up to the beginning of December. It was proposed that publication of the Stability Programme would be brought forward to the early part of the year to be discussed by the relevant Oireachtas committees and a fiscal advisory council before being finalised and forwarded to the EU in April in accordance with the European semester.

§  Secondly to place a greater emphasis on multi-annual planning, in particular by placing greater emphasis on the medium term budgetary objective as laid out in the Stability Programme as an ‘anchor’ in budgetary policy. This would be supplemented by a detailed multi-annual expenditure framework including general economic assessments and expenditure envelopes for individual departments.

The Stability Programme Update is now produced and published in April rather than being included in the Budget Speech. In 2012 it was forwarded to the Joint Committee on Finance and Public Expenditure on 30 April and was discussed with the Minister the same day. In response to questioning the Minister was not forthcoming on whether more time would be allocated to the Joint Committee or whether the Stability Programme Update would be debated by the Dáil in plenary in following years.[8]

Following the adoption of Regulation 473/2013/EU the Budget Speech will now take place on or before October 15 and the legislative process for the subsequent year will be completed by the end of December.[9]

Institutional change          
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

The major institutional change has been the creation of the Irish Fiscal Advisory Council (IFAC) that was given a statutory footing in the Fiscal Responsibility Act 2012.[10] The purpose of the IFAC is to assess whether the Government is complying with its financial targets, in particular the fiscal rules established under the Fiscal Responsibility Act 2012. It shall also provide an assessment of each Budget and stability programme.[11] It is envisaged that the IFAC will take over responsibility for providing official forecasts on which the Budget is based (currently provided by the Department of Finance).[12]

Change of time-line  
II.4

How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

See answer to questions II.1 and II.2 above.

Miscellaneous
II.5
What other information is relevant with regard to Ireland and changes to the budgetary process?

The Irish High Court has decided a case on the issuance of promissory notes by the Irish Minister for Finance (see below and Annex I.1 for an analysis).

Collins v Minister for Finance and Others [2013] IEHC 530

(26 November 2013)

1.      Name of the Court

Irish High Court (Divisional Court – Kelly, Finlay Geoghan and Hogan JJ)

2.      Parties

Joan Collins (independent Member of Parliament) vs Minister for Finance, Ireland and the Attorney General.

3.      Type of action/procedure

Constitutional challenge (Plenary Summons)

4.      Admissibility issues

The defence raised two issues of admissibility. Firstly, whether the fact the plaintiff was elected after the date impugned legislation was adopted affected her standing to bring the case. Secondly, whether the delay in bringing the case compromised the action. The defendants expressly dropped the matter in relation to standing. It was unclear whether the defence maintained the objection based on delay. In any event the point was moot in light of the conclusions of the Court. 

5.      Legally relevant factual situation

In late September 2008 the Irish government issued a blanket guarantee covering all the liabilities and obligations of the Irish banks in an effort to stabilise the banking sector in Ireland. On 2 October 2008 the Credit Institutions (Financial Support) Act 2008 was passed by the Oireachtas (Irish Parliament) in order to provide for financial support to credit institutions covered by the guarantee. Under section 6 of the 2008 Act the Minister was authorised to extend financial support to credit institutions if he was of the opinion that it was necessary to safeguard the financial stability of the institution, that there was a threat to the stability of the financial system and finally that there was a threat to the stability of the economy as a whole. The Minister was to make such support available with regard to the resources available to him for that purpose. That support was to be funded from the Central Fund.

Under s 6 of the 2008 Act a number of banks were recapitalised. Three particularly problematic institutions, Anglo-Irish Bank, Irish Nationwide Building Society (INBS) and the Educational Building Society (EBS) were issued with promissory notes to be paid at yearly intervals. These promissory notes totalled approximately €30 billion out of a total €64 billion provided to recapitalise the Irish banking sector. They were considered assets and were deposited with the Irish Central Bank in exchange for emergency liquidity funding.

Anglo-Irish Bank and INBS were later merged to form the Irish Bank Resolution Corporation (IBRC) and EBS was merged with another, largely nationalised Irish bank, Allied Irish Banks (AIB). After securing the agreement of the ECB and European partners, the IBRC was liquidated in 2013. Pursuant to a Special Master Repurchase Agreement the ownership of the notes would then vest in the Central Bank. However, under the Irish Bank Resolution Corporation Act 2013 (the 2013 Act) they were exchanged for a set of government bonds with low interest rates and a long maturity. The promissory notes issued to Anglo-Irish Bank and INBS were therefore transformed into government bonds with more favourable conditions attached, thereby reducing the real financial burden on the State. The promissory note of €250 million issued to EBS remained.

A member of the public, David Hall, challenged the issuance of the promissory notes before the High Court in 2012 claiming that issuing the notes by the Minister without any further authorisation circumvented the legislative and budgetary powers of the Parliament.[13] His claim was rejected for want of standing with both the High and Supreme Courts finding only a Member of Parliament (Teachta Dála (TD)) would have standing. Joan Collins, a member of the Dáil (lower house), then challenged the issuance of the promissory notes before the High Court. She claimed that in issuing the notes the Minister had gone beyond the powers delegated to him under the legislation (had acted ultra vires) and secondly that the 2008 Act itself was an unconstitutional delegation of legislative authority and a circumvention of the powers of the parliament in budgetary matters.

6.      Legal questions

§  Whether, in issuing the promissory notes without further Dáil authorisation, the Minister had acted outside his powers (ultra vires) under the 2008 Act and the 2013 Act.

§  Whether the 2008 Act breached provisions of Bunreacht na hÉireann (the Irish Constitution) relating to the legislative and budgetary prerogatives of the Parliament.

7.      Arguments of the parties

In relation to the first claim, the Plaintiff argued that the actions of the Minister in issuing the notes went beyond the powers (ultra vires) delegated to him under the 2008 Act and the 2013 Act under three headings. Firstly, she claimed that the notes were issued in contravention of time limits contained in s 6(3) of the 2008 Act providing that support could not be provided after a date specified in the act. Secondly, she argued that by providing that the Minister shall have regard to the ‘resources available to him or her for that purpose’ under s 6(1)(c) of the 2008 act the legislator intended that a further act of appropriation was required for the purpose of providing specific financial support. Thirdly, she argued that the promissory notes were not ‘obligations or liabilities’ owed by the Government to the Central Bank under s 17 of the 2013 Act. In particular she contended that the promissory notes only constituted obligations of the Government to Anglo Irish Bank and not the Central Bank. Accordingly the Minister was not authorised to issue bonds in exchange for the notes under the 2013 Act.

She also claimed that the section 6 of 2013 Act was unconstitutional. The plaintiff contended that the concept of appropriation contained in Article 11 read in combination with Article 15.2.1 of Bunreacht na hÉireann implied that ‘neither the Dáil may vote supply nor the Oireachtas pass a law appropriating public moneys unless the sums to be so disbursed are pre-determined in advance’.

The defendants arguments were not mentioned specifically by the Court.

8.      Answer by the Court to the legal questions and legal reasoning of the Court

The Court dealt first with the arguments based on the powers of the Minister under the legislation before dealing with the constitutionality of the 2008 Act.

a) Whether the Minister acted within his powers under the legislation.

Firstly, the Court found that the time limits contained in s 6(3) prohibited both the issuance of support measures and their continued payment after the dates specified. However, the notes were issued within the relevant period. The notes issued to Anglo-Irish Bank and  INBS were also paid within the relevant period by means of a government bond. However, payments would continue beyond the specified date in the case of the EBS promissory note. Accordingly, in order for the continued payments on the EBS note to be lawful that period will have to be extended. Following amendment of the legislation the Minister is now empowered to extend the period by ministerial order. 

Secondly, the Court found that, given the context in which the 2008 Act was passed and the reference to the Central Fund in that act, it was clear that by referring to ‘the resources available to him or her for that purpose’ in s 6(1)(c) the Oireachtas did not intended that a further vote was required to authorise specific funds for the purposes of the act.

Finally, the Court found that under the Special Master Repurchase Agreement ownership of the promissory notes had vested in the Central Bank. The Government therefore had incurred an obligation or liability under the promissory notes vis-à-vis the Central Bank and was empowered to issue bonds in exchange for the notes under the 2013 Act.

b) Whether section 6 of the 2008 Act was unconstitutional.

The Court considered the constitutional question in two stages. It firstly considered whether by failing to provide for a predetermined limit on the financial support to be advanced by the Minister, the 2008 Act constituted an unauthorised delegation of legislative power under Article 15.2.1 Bunreacht na hÉireann (the Irish Constitution). It then considered whether the term ‘appropriation’ contained in Article 11 Bunreacht na Éireann, read in light of the broader budgetary process contained in the constitution, implied a need for the amount of any appropriation to be determined by the authorising legislation.

The Court found that the power to provide financial support under s 6 did not constitute an unconstitutional delegation of legislative power from the Oireachtas to the Minister. After considering the relevant test developed in the case law, the Court concluded that the general principles and policies were contained in the 2008 Act. Section 6 outlined detailed conditions under which the Minister was authorised to provide financial support. Furthermore, any such decision by the Minister would be reviewable before the Courts in light of these conditions. It did not provide the Minister with an unfettered discretion but rather was tailored to meet a specific need and pursue a particular policy outlined in the legislation.

Secondly, the Court did not consider that the concept of appropriation contained in Articles 11 and 17 Bunreacht na hÉireann implied that the Oireachtas was required to provide a pre-determined limit when it authorised the Government to appropriate moneys. An assessment of the text of the provisions and a comparison of the linguistic versions (Irish and English) did not lead to the conclusion that the concept ‘appropriation’ contained in Articles 11 and 17 implied an upper limit. The Court pointed out that a variety of policies required an open-ended financial commitment including health, social welfare and educational policies. A requirement that upper limits be placed on moneys that could be spent by Government on such matters would either lead to a continuous raising of the limit or the creation of absurdly high ceilings. The result would be either manifest inconvenience or a legislative charade. Furthermore, the existence of an upper limit would have a negative impact on the State’s ability to borrow money on the international markets.  Finally, the Court noted that the equivalent provision in the US constitution was described by Alexander Hamilton and confirmed in US practice as meaning that ‘no money can be expended, but for an object, to an extent and out of a fund, which the laws have prescribed’. This interpretation was applied to Article 11 Bunreacht na hÉireann. It concluded that the 2008 Act properly described the object, extent and fund out of which the money shall be paid. While the Oireachtas did not know the precise sums that were at stake under the 2008 Act, the conditions on the issuance of financial support contained in the act did circumscribe the extent of the appropriation by reference to the objects of the legislation.

9.      Legal effects of the judgment

The promissory notes provided to Anglo-Irish Bank and INBS were found to have been legally issued and paid. The promissory notes provided to EBS were found to be legally issued. However, the relevant date in the legislation would have to be amended in order to ensure that the Government could continue to make payments on the outstanding promissory note.

Section 6 of the 2008 Act was held to be in conformity with the constitution. More generally, the court found that authority to appropriate and spend funds flowed from the Oireachtas by means of legislation. When authorising expenditure the Oireachtas should specify the ‘object, extent and the fund’ out of which the money can be spent. However this did not extend to including a precise amount or pre-determined limit on the amount the Government was authorised to spend under the legislation.

10.  Main outcome of the judgment and its broader political implications

The promissory notes were politically symbolic. The payments under the promissory notes were being made to what was effectively a dead bank, no longer in operation and one that had cost the taxpayer a considerable sum of money. They were perceived as a particularly absurd consequence of the banking guarantee and attracted considerable political opposition and also constituted a lightening rod for criticism of the ECB’s supposed role in forcing Ireland to fully support all its banks. To some extent the challenge was moot in light of the liquidation of IBRC and the exchange of the promissory notes for bonds issued on more favourable terms. However, the case did discuss important issues relating to the constitutional roles of the Oireachtas and the Government in the budgetary process. A useful discussion of the constitutional provisions relating to the budgetary process and its underlying democratic philosophy is contained in paragraphs 82 to 97. While emphasising the democratic nature of the budgetary process and the key role played by the Oireachtas in the appropriation and control of moneys raised, the judgment nonetheless reserved the possibility of granting considerable and effectively unlimited discretion to the Government regarding the amount of money to be spent in pursuing a particular goal. It therefore contained a balance between parliamentary and democratic control and Governmental discretion and effectiveness. This was based on both textual but also policy based arguments. While claiming to eschew an analysis of the merits or demerits of a particular economic policy, the Court was clearly cognisant of the financial and economic context under which the guarantee was extended and the notes issued and mentions it at a number of points in the judgment. In a tone that is repeated in other cases dealing with the effects of the financial crisis the Court describes a state of national economic emergency.

Ms Collins has appealed the judgment to the Supreme Court that is currently pending.


[1]               Bunracht na hÉireann art 21.

[2]               Modern Ireland was born in an age of party government and its parliamentary institution has never acquired the dignity and respect of older bodies which knew real power in the Nineteenth Century. [Parliament lacks] any but the most nominal role in the formulation of public policy and the management of the State’, Barry Desmond as quoted by Gwynn Morgan, ‘The Constitution and the Financial Crisis in Ireland’ (n 139) 69. 

[3]               Discussion has recently focused on possible reform to the Dáil in an effort to provide a larger role for the opposition (such as election of the Speaker by secret ballot and supermajorities for certain organizational matters), particularly in light of the Government’s stated desire to abolish the Seanad (upper house).

[4]               The following description is drawn from Reforming Ireland’s Budgetary Framework – A Discussion Document (Department of Finance, March 2011, 2011) 1-2.

[5]               See Theresa Reidy, ‘The Budget Process’ (The Irish Politics Forum, 7 December 2010)  <http://politicalreform.ie/2010/12/07/the-budget-process/> accessed 11 June 2013.

[6]               Finance, National Recovery Plan 2011-2014, 59-60.

[7]               Reforming Ireland’s Budgetary Framework – A Discussion Document (n 26).

[8]               See comments of Stephen Donnelly and Michael Noonan Joint Committee on Finance, Public Expenditure and Reform: Stability Programme Update: Discussion with Minister for Finance, 30 April 2013, 14-15.

[9]               See comments of Aidan Carrigan Joint Committee on Finance, Public Expenditure and Reform, Six Month EU Scrutiny Report: Discussion with Department of Finance, 9 May 2013, 3-4. Thus the 2014 Budget was announced on 15 October 2013.

[10]             See Fiscal Responsability Act 2012, pt 3. 

[11]             ibid, s 8.

[12]             See comments of Aidan Carrigan Joint Committee on Finance, Public Expenditure and Reform, Six Month EU Scrutiny Report: Discussion with Department of Finance, 9 May 2013, 2.

[13]Hall v Minister for Finance and others [2013] IEHC 39 (before the High Court) and Hall v Minister for Finance and others [2013] IESC 10 (before the Supreme Court).

Italy

Budgetary process 
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Italy.

Art. 81 of the Italian Constitution has always provided, both before and after its amendment in 2012 (see Question IX.4) and any Eurozone-crisis-related reform, the role for the Chambers of the Parliament to «(…) approve every year the budget and the accounts submitted by the Government».

In this respect, Law n. 39/2011 has recently amended Law n. 196/2009 (the new law of accounting and public finance), modified its budgetary cycle and the means used for budget planning, and fostered an alignment between national planning and the timing of the European Semester and a centralization of the role of Italian local authorities, for which a more intense involvement in the definition of the economic financial objectives was provided (in close connection with the implementation of Article 119 of the Constitution defined by the law of 5 May 2009, n. 42, in the area of fiscal federalism).

According to the new text of the Law n. 196/2009, the Government, by the 10th of April of each year, has first of all to submit to the Parliament what it is called today the “Economy and Finance Document” (DEF, Documento di Economia e Finanza, Art. 10 Law 196/2009, which has replaced the Public Financing Decision introduced in 2009).

This document has become «the linchpin of economic and financial planning»,[1] is divided into three sections, and includes both the Public Financing Decision – which, in its original version (law n. 196/2009) was to be submitted mid September – and the content of the Economy and Public Financing Report.

The DEF (Art. 10(3) Law 196/2009) has to contain of course an analysis of the revenue account and the cash account of all the public administrations for the previous year, the related forecasts for the following three years, the identification of general rules on the evolution of expenditure of all the public administrations, and detailed information on the results and predictions of the accounts of the major areas of spending, at least for the following three years, with particular reference to those relating to public employment, social protection and health, as well as on the public administrations’ debt.

The DEF also defines the Stability Plan scheme (Art. 10(1) Law 196/2009) – which will have to contain measures to accelerate the reduction of public debt – and the National reform plan scheme (Art. 10(5) Law 196/2009, with an outline of the country’s priorities, the main reforms to be made, national macro-economic imbalances and the macro-economic factors that affect competitiveness, the progress of reforms which have already been set up, the foreseeable effects of suggested reforms in terms of economic growth, the strengthening of competitiveness of the financial system and the increase in employment). Both these documents, according to Art. 9 Law 196/2009 («Relations with the European Union in the field of public finance») are then to be submitted to the European Union Council and to the European Commission by 30 April of each year.

In order to integrate the DEF, by the 30th June, the Minister of Economy and Finance submits to Parliament an attachment outlining the effects of the monitoring on the public financing balance deriving from the measures stated in the budget manoeuvres implemented even during the year.

With regard to the involvement of the local authorities in economic and budgetary planning, Article 7(3) of Law 196/2009 foresees that the DEF scheme should be sent to the Permanent Conference for the Coordination of Public Financing (on its role see also Question VII.12) for its recommendations. The Committee has to give its recommendations in time to permit Parliament to decide on the DEF itself.

An Updating Note to the Economy and Finance Document (Article 10-bis of Law 196/2009) is then to be submitted to the Parliament by the 20th September: the presentation of this document – in coherence with the new European economic planning procedures – is «no longer prospective and connected to the occurrence of considerable gaps in public financing fluctuation patterns»,[2] but mandatory, and may contain an updating to the programmatic objectives and macro-economic and public financing estimate.

Article 10-bis of Law 196/2009 also regulates the cases of possible changes to the public financing objectives stated in the Economy and Finance Document and in its Updating Note, or of considerable gaps in public financing patterns that require remedial action, with obligations for the Government (respectively) to send an update to the guidelines regarding the distribution of objectives to the Permanent committee for the coordination of public financing or to submit a motivated report to Parliament.

The Stability bill (Disegno di legge di stabilità) and the State Budget bill (Disegno di legge del bilancio dello Stato) have to be submitted to Parliament by 15 October of every year: these documents together conclude the budget cycle and compose the three-year Manouvre of public finance (Manovra di finanza pubblica, Article 11 of Law 196/2009), laying down all the measures necessary to achieve the programmatic objectives.

Finally, according to Article 12 of Law 196/2009, the Minister of Economy and Finance shall submit to the Chambers, in the month of April, a General Report on the economic situation of the Country for the previous year.

General change        
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

As already emphasized, the financial/Eurozone crisis had a strong impact on the reorganization and the reform of the Italian budgetary process, but this could be considered to be already in place.

In particular, the process of reform can be described as involving three different stages:[3]

1) the first phase led to the adoption, at the end of 2009, of the original version of the aforementioned new Law of accounting and public finance n. 196/2009, which updated the previous Law 468/1978, and systematized some of the innovations previously introduced on an experimental basis, such as the “reclassification” of the balance and the method of the three-year-planning of resources;

2) the second phase, centered in 2011 with the enactment of Law n. 39/2011, which introduced a number of amendments to Law n. 196/2009 to ensure the consistency of the budgetary and financial planning cycle of the public administrations with the new rules and procedures established by the European Union within the framework of the European Semester, the ex ante coordination of economic policies and budgets of Member States and a tighter financial surveillance;

3 ) the third phase, again a result of the further development of the European discipline and in particular of the adoption of the Fiscal Compact, was realized by the approval of the Constitutional Law 20th April 2012, n. 1 – which introduced into the Constitution the principles of a balanced budget and the sustainability of government debt (see Question IX.4) – and the subsequent Law of 24th December 2012, n. 243, which laid down specific provisions for the implementation of these principles under the new sixth paragraph of Article 81 of the Constitution.

In this complex framework, one can conceptualize the main changes in the process as follows:[4]

– an extension of the scope and boundaries of the accounting rules, with the establishment of a unified regulatory framework for all the subjects of the complex aggregate of Italian public administrations, and the introduction of new procedures for the coordination of public finance between the different levels of government;

– an extension of the scope in time as well of the system of budgetary decisions, now set over three years, both in terms of scheduling policies, objectives and resources, and in terms of implementation of public finance manoeuvres;

– a qualitative improvement of the information supplied by the documents of public finance, in terms of planning, management and reporting, through estimates of income and expenditure described in the different institutional subsectors – central government, local authorities and social security authorities – and through the drafting of several explanatory notes and informative annexes about the methods of study of trends of public finance and the effectiveness of financial maneuvers;

– the formal institutionalization of the system of functional reclassification of the state budget in “missions” and “programs” (previously operated on an experimental basis), with programs as new units of parliamentary vote, and associated with specific performance indicators;

– the redefinition of the content of the instruments of economic and financial planning and of the timing of the budget cycle, which have been revised in the light of the role of the different levels of government in the pursuit of financial goals and the need to harmonize the national budget decisions with the decisions adopted by the European Union under the European semester framework;

– the strengthening of the rules for the financial coverage of the laws and of the instruments for monitoring and quantitative and qualitative control of public spending, coupled with the extension of methods of measurement and evaluation of the results of public policies (so called “spending review”).[5]

Institutional change   
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

It has been remarked by the scholars how the budgetary process has always been placed, in the history of the constitutional state, «on the ground of the contrast and of the clash» between representative assemblies and executive power.[6]

In this respect, it has been common in the literature to  see in the Italian budgetary process of the last decades a symptom of certain pathological dynamics of the two institutions: of the Parliament, unable to exercise a proper control on the financial choices of the Government given the absence of specific parliamentary procedures and powers, and also the traditional difficulties in the access by the two Houses to the information and the data on accounting and finance;[7] but also of the Government, which has no specific tools to contrast the negative legislative influence of the Parliament on the content of its accounting and financial documents, and it is often forced to resort to extreme procedural remedies, such as the abuse of the vote of confidence to contrast maxi-amendments.

In any case, a certain progressive empowerment of the executive branch in relation to the powers of the legislature has been highlighted, since the government has many tools to guide and control the decisions relating to public finance, not coupled with proper control powers of the Parliament:[8] both during authorizations, i.e. in the ordinary legislative procedure of approval of Laws containing effects of expenditure (also by vetoing parliamentary legislation with effects on budget), and during the final balance (“sede consuntiva”), namely when, in implementing the budget, the expenditure laws exercise their legal and, above all, financial effects, and finally through the production of delegated legislation, with which the executive acquires a substantial legislative power.

The same dynamics of creeping empowerment on the form of government and the system of sources were detected by scholarship in the new European constraints and in the ones informally placed by the financial markets[9] : in particular, in the strong forms of prior coordination and convergence of the EU and Eurozone Member States’ economic policies, and the risk of a mere role of ratification left for the Parliament.

In this respect, it will be interesting to study the possibility of a reform of the Standing orders of the Houses of the Parliament (see Questions VII.6, VII.16, and I.1), and, after its establishment in 2014, the role of the new Fiscal Council, the so called «Parliamentary Budget Office» («Ufficio parlamentare di bilancio», see Question VII.5), not by chance established in the Chambers.

Change of time-line       
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

The details, including the recent changes in the time-line, were discussed under questions VII.8, but also II.1 and II.2.

It is in any case important to highlight, as already done in those contexts, that the process of reorganization and reform of the Italian budgetary process was already in place since 2009 at least, and therefore not only directly linkable to the formal “implementation of Euro-crisis law” (though surely linked to the deterioration of the macroeconomic and growth prospects of the country).

So, summarizing, the new Law of accounting and public finance n. 196/2009 took the place of the previous Law 468/1978.[10]

This last provided for a system as follows: a “Combined report on the economy and public finances” was issued by 28 February of each year; an “Economic and Financial Planning Document” by 30 June (as well as a “Final Statement of Accounts” and a “Budget adjustment bill”, these two not being planning documents); a “Forecasting and Planning Report”, as well as the formal “Finance Bill” and “Budget Bill” were submitted by 30 September. Any accompanying legislation (bills) followed, by 15 November.

The new system changed as follows: a “Report on the economy and the public finances” due by 15 April; again, a “Final Statement of Accounts” and a “Budget adjustment bill” (not planning documents) by 30 June; a “Public Financing Decision” (see Question II.1) by 15 September; the Stability bill (Disegno di legge di stabilità) and the State Budget bill (Disegno di legge del bilancio dello Stato) (see again Question II.1) submitted to Parliament by 15 October, any accompanying legislation (bills) following, by 28 February.

The main amendment in the new system made by Law 39/2011 (see Question II.1) is the anticipation of the obligation of the Government to submit by 10 April of each year to the Parliament (and not by mid-September) what it is called today the “Economy and Finance Document” (DEF, Documento di Economia e Finanza, Art. 10 Law 196/2009, which has replaced and includes the Public Financing Decision introduced in 2009).

Miscellaneous
II.5
What other information is relevant with regard to Italy and changes to the budgetary process?


The Constitutional Law n. 1/2012 (see Question IX.4) also calls for a reform (still to be implemented) of the internal procedural rules of the two parliamentary Chambers, which are the other relevant sources of law to be studied in the budgetary process, apart from what described above. They will possibly contain new rules on the monitoring of the national and subnational budgets, and maybe also new tools pertaining to the envisioned “permanent dialogue” of art. 13 of Regulation (EU) No 1176/2011 with the European Institutions.

[1]               L. Mercati, The ‘European Semester’ and Changes to the National Accounting Discipline. Annual Report – 2011 – ITALY, in Ius Publicum Network Review, available at the site http://www.ius-publicum.com/repository/uploads/21_07_2011_16_50_Mercati2UK.pdf, p. 3.

[2]               L. Mercati,  The ‘European Semester’ and Changes to the National Accounting Discipline. Annual Report – 2011 – ITALY, in Ius Publicum Network Review, available at the site http://www.ius-publicum.com/repository/uploads/21_07_2011_16_50_Mercati2UK.pdf, p. 4.

[3]               See, on this, the conceptualization made by the website of the Camera dei Deputati, in its pages on the “Topics of Parliamentary activity”: http://www.camera.it/Camera/browse/292?area=8&Contabilit%C3%A0+e+strumenti+di+controllo+della+finanza+pubblica.

[4]               Again relying also on the “official” view of the website of the Camera dei Deputati, in its pages on the “Topics of Parliamentary activity”: http://www.camera.it/Camera/browse/292?area=8&Contabilit%C3%A0+e+strumenti+di+controllo+della+finanza+pubblica.

[5]               See on this http://www.camera.it/Camera/browse/522?tema=535&Il+controllo+della+spesa+e+la+spending+review.

[6]               See the rich historical analysis of M. Luciani, Costituzione, bilancio, diritti e doveri dei cittadini, in Questione Giustizia n. 6/2012, with a reference to K. H. Friauf, Der Staatshaushaltsplan im Spannungsfeld zwischen Parlament und Regierung, Bad Homburg v.d.H.-Berlin-Zürich, Gehlen, 1968.

[7]               See E. Griglio, Il “nuovo” controllo parlamentare sulla finanza pubblica: una sfida per I “nuovi” regolamenti parlamentari, in Osservatorio sulle Fonti, fasc. 1/2013, p. 12.

[8]               See for instance A. Brancasi, Le misure urgenti per il controllo, la trasparenza ed il contenimento della spesa pubblica, in Diritto pubblico, 2003, p. 962; M. Degni La decisione di bilancio nel sistema maggioritario, Ediesse, Roma, 2004, p. 244 ff.

[9]               See for instance G. Rivosecchi, Parlamento e sistema delle autonomie all’ombra del governo nelle trasformazioni della decisione di bilancio, Rivista AIC, 1/2012, available at the website http://www.associazionedeicostituzionalisti.it/sites/default/files/rivista/articoli/allegati/Rivosecchi_2.pdf .

[10]              See also the short explanatory note published by the Ragioneria generale dello Stato in its website: http://www.rgs.mef.gov.it/_Documenti/VERSIONE-I/Servizio-s/Note-brevi/La-legge-d/Versione-inglese-La-legge-di-contabilit—e-finanza-pubblica-.pdf.

Latvia

Budgetary process   
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Latvia.

At the moment the budgetary process is as follows:

The yearly state budget is adopted in the form of a law by the Parliament upon the proposal of the government.

The Annual Budget and the Budgetary Framework are developed and approved in accordance with the Law on Budget and Financial Management (LBFM)[1] and Law on Fiscal Discipline (LFD)[2] . Both Annual Budget and Budgetary Framework are adopted by the Parliament in the ordinary procedure (two readings, simple majority vote). In case the budget is not approved, that is understood to be a non-confidence vote concerning the Government and the Government is considered to be dismissed.[3] According to Article 16 LBFM the Minister for Finance is responsible for the development of the Draft Medium Term Budget Framework Law and the Draft Annual State Budget Law (package of budget bills).

Article 66 of the Constitution provides that the Parliament determines, before the beginning of the fiscal year, the State Revenues and Expenditures Budget and that the Cabinet of Ministers submits the draft budget law to the Parliament. At the end of the budgetary year, the Government submits an accounting of budgetary expenditures for Parliamentary approval. Budget laws are among those, which cannot be submitted to a national referendum (Article 73 Constitution).

The Cabinet of Ministers ensures the formulation and implementation of the State budget, as well as determines the procedure for financial activities of local governments and bodies non-financed by the budget (Art 2(2) LBFM). The State budget funds may be allocated or received only according to the appropriation provided for in the Annual State Budget Law (Art 5(3) LBFM). The State budget appropriations are determined by the Annual State Budget Law (Art 9(1) LBFM).

According to Article 16.1(1) LBFM, the Minister of Finance until 15 December of the current year submits a Draft Schedule for the Development and Submission of the Draft Medium Term Budget Framework Law and the Draft Annual State Budget Law for the next year to the Cabinet of Ministers. In accordance with Article 16.2(2) LBFM each year the Minister of Finance in co-operation with the Minister of Economics and in consultation with the Bank of Latvia up-dates the medium term macroeconomic development forecasts and develops the Draft Medium Term Budget Framework Law for the subsequent three financial years and submits it to the Cabinet in accordance with the Schedule for the Development and Submission of the Draft Medium Term Budget Framework Law and the Draft Annual State Budget Law.

When the Government decides on the Draft Medium Term Budget Framework Law or on amendments to the Medium Term Budget Framework Law, it has to take into account the opinion of the Chancellery of the President, the Supreme Court, the Constitutional Court, the Council of Justice, the State Audit Office, the National Electronic Mass Media Council, the Office of the Ombudsman, the Public Utilities Commission and the Office of the Prosecutor General regarding the maximum permissible total amount of State budget expenditure for the relevant institution (Article 16.2(8) LBFM). The norms of the previous Medium Term Budget Framework Law applying to the second and third year of operation become invalid by the coming into force of the next Medium Term Budget Framework Law (Article 16.2(9) LBFM). The Cabinet submits the Draft Medium Term Budget Framework Law for the subsequent three years to the Parliament before 30 April of the current year (Article 16.2(10) LBFM).

Ministries and other central State institutions shall develop and submit to the Ministry of Finance the State budgetary requests prepared in conformity with the basic principles for the development of the budgetary requests (Article 18(1) LBFM). In general, ministries and other central State institutions shall develop the State budgetary requests within the scope of the maximum permissible amount of the State budget expenditure specified in the Medium Term Budget Framework Law for the relevant year (Article 18(11) LBFM). The Minister for Finance has to develop the Draft Annual State Budget Law on the basis of the Medium Term Budget Framework Law and the submitted budgetary requests (Article 19(2) LBFM). All the ministries and other central State institutions, after they receive the Draft Annual State Budget Law (the package of budget bills), can within two weeks submit to the Minister for Finance reasoned objections concerning the Draft Law (Article 20(1) LBFM). Afterwards the Minister of Finance submits the Draft Law to the Cabinet of Ministers (Article 20(3) LBFM). Followingly, the Cabinet of Ministers decides on submission of the Draft Law to the Parliament (Article 20(5) LBFM).

The Cabinet of Ministers has to submit the Draft Annual State Budget Law for the next financial year to the Parliament by 1 October (Article 21(1) LBFM). In a year when the Parliament is elected the Draft Annual State Budget Law (a package of budget bills) has to be submitted to the Parliament not later than four months following the newly elected Parliament has given its vote of confidence to a new Government (Article 21(3) LBFM). Any amendments to the Annual State Budget Law also have to be submitted for to a vote in the Parliament (Article 21(4) LBFM).

The Parliament examines and approves the Draft Annual State Budget Law (the package of budget bills) submitted by the Cabinet in accordance with the legislative procedure (Article 22(1) LBFM). The Budget is approved in two readings[4] and if in any of them the draft budget law is rejected, it is assumed that it is a “no-confidence” vote for the Government (Article 30 of the Parliament Rules of Procedure). Hence in such cases there is a need to establish and approve a new Government.

According to Article 9 LBFM the Minister of Finance can perform reallocations for a ministry or other central State institutions within the appropriation determined in the Annual State Budget Law among the programmes, sub-programmes and expenditure codes. This has to be done in conformity with economic categories and from the appropriation planned in a separate budget programme for undivided financing for implementation of the European Union policy instruments and other foreign financial assistance projects and measures to ministries and other central State institutions, as well as appropriations from ministries and other central State institutions for implementation of the European Union policy instruments. After informing the Parliament, the Minister of Finance can change the appropriations among ministries and other central State institutions for the use of foreign financial assistance funds granted to the State budget institutions and for the use of the surplus of foreign financial assistance funds at the beginning of a financial year. The Minister of Finance also has the right to reallocate the appropriations among ministries and other central State institutions, including in cases of function reallocation or structural reforms, if a Cabinet decision has been taken and the Parliament has agreed with such reallocation by a separate decision.

If prior to the beginning of a financial year, the Annual State Budget Law has not come into force, the Minister of Finance shall approve the State budget expenditure, loans and borrowings required for the activities of the State (Article 15 LBFM).

The Minister of Finance issues an opinion regarding draft laws providing for additional expenditure or changes in the revenues and which were not submitted to the Parliament by the Cabinet but by some other institution (Article 10(1) LBFM). If, following the coming into force of the State Budget Law, the Parliament adopts laws or the Cabinet takes decisions causing an increase in local government expenditure or a decrease in their revenues in the current financial year, the State budget funds from which the increase in the local government expenditure or the decrease in their revenue will be covered have to be specified in these laws or decisions (Article 10(2) LBFM).

To reduce general economic risks, to avoid socio-economic crises or to reduce their impact and to ensure the availability of financial resources in the case of an emergency situation, the Law on Long-Term Stabilisation Reserve determines the procedure for the establishment and use of the long-term stabilisation reserve (Article 8(1) LBFM).

The Constitutional Court has determined the limits of its own competences for when it is asked to decide on the compatibility of a state budget law with hierarchically higher legal norms (e.g. the Constitution). The court checks only whether in the preparation and approval of the state budget the Parliament and the Cabinet of Ministers have complied with the law.[5] Therefore the Constitutional Court carries out more procedural rather than substantial checks.

General change         
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

Please see Questions VI.2, VI.7, VI.10, II.1 and III.8.

Fiscal discipline

In general before the crisis the Budgetary Framework could easily be amended and was not binding. It was not adopted in the form of law by the Parliament (as it is now) but was adopted by a decision of the Cabinet of Ministers. Before the introduction of the Budgetary Framework in a form of law it was possible to update the framework twice a year and the ceilings for expenditure established by the framework were not binding upon the Government; therefore, no strict fiscal discipline was ensured. The necessity to improve this system was recognized and in the conception of the Law on Fiscal Discipline it was proposed to elevate the adoption of the framework to the Parliamentary level, make its character more binding, limit the possibility to amend it by allowing amendments only in a particularly bad economic situation.[6] These changes were introduced by amending the Law on Budget and Financial Management (amendments of 25 April 2013)[7] and by adopting the Law on Fiscal Discipline in 2013. When the medium-term budgetary framework law is prepared it has to be taken into account that general government debt at the end of the year cannot exceed 60% GDP in factual prices. The adjusted maximum allowed expenses for the appropriate year have to be determined by taking into account the balance and expenditure growth conditions.[8]

It was also proposed to ensure that the possibility to amend the yearly budget is limited in order to ensure stable and deliberative fiscal policy. It was proposed that amendments in the state budget could be made only if they do not influence the expenditure of the following years and if the budgetary income is essentially lower for the one determined by the state budget law in order to ensure measures of fiscal consolidation.[9] This was achieved by amending the Law on Budget and Financial Management.

Law on Fiscal Discipline

One of the greatest changes affecting the budgetary process was the adoption of the Law on Fiscal Discipline (LFD) in early 2013. The LFD determines the principles and conditions of fiscal policy in order to ensure a balanced budget within the economic cycle and in this way facilitates sustainable state development, macroeconomic stability and aims to reduce the negative influence of outside factors on the economy. The LFD intends to realise counter-cyclical fiscal policy.[10]

As the main instrument for responsible and well-thought fiscal policy the Medium-term Budgetary Framework Law has been foreseen. This has to be prepared every year for the period of the next three years. The maximum budgetary expenditure for the first and second year will be inherited from the second and third year from the previous framework law. The medium-term budgetary framework draft law has to be supplemented by a declaration on fiscal risks, which determines the necessary measures for ensuring the stability of fiscal indicators. The general governance of fiscal risks is carried out by the Cabinet of Ministers.[11]

The LFD ensured the fulfilment of Maastricht criteria and conditions of Stability and Growth Pact which establish that the state budgetary deficit within a year cannot exceed 3% GDP and the state debt to GDP ratio cannot exceed 60%.[12]

Fiscal Discipline Council

The Fiscal Discipline Council has been established. For more information in this regard please refer to Question VII.5.

Law on Budget and Financial Management

The amendments to the Law on Budget and Financial Management (LBFM) established the process for adopting the medium-term budgetary framework. These amendments provided that a medium-term budgetary framework will be prepared every year for a three year period and it will include the main medium-term budgetary objectives and priorities as well as the main state macroeconomic and budgetary indicators. The amendments also determined the main inheritance principles of budgetary indicators and in this way created a legally binding framework for medium-term budgetary planning.[13] The first medium-term budgetary framework law already has been adopted.[14]

During the crisis the Constitutional Court considered the Budget Package and the way changes were made to the state budget to be problematic (Case No 2011-03-01, para. 18). In order to ensure consolidation of the state budget the Cabinet of Ministers repeatedly submitted the draft laws for introducing reforms in the budgetary process together with the annual budget law or its amendments. By doing this the Government achieved their adoption in shortened periods of time and the Government control over their content was maintained. The Constitutional Court in this regard argued that the draft annual budget law package can contain only issues which refer to the particular budgetary year and are closely connected with the use of state financial means.[15]

In order to ensure medium-term budget planning changes have been introduced in the LBFM. The changes provide that in the future every year a Law on the Medium-term Budget Framework for three years will be prepared which will contain the main meiumd-term budget objectives and priorities, as well as the main state macroeconomic and budget indicators.[16] This new approach is aimed at improving the budgetary planning and avoiding situations where the state suddenly finds itself in the midst of crisis. In addition, the law will provide the inheritance principles regulating the projected values of financial indicators by thus creating a legally binding medium-term basis for budgetary planning. At the time it was planned that the framework law for the first time will be prepared together with the 2013 budget and will be submitted to the Parliament until 1 October 2012. Starting with the period 2014-2016 the framework law will be prepared yearly until 20 April in accordance with the changes implemented in the Law on Fiscal Discipline.[17]

On 1 October 2013 new amendments to the LBFM were submitted to the Parliament. The proposed amendments would amend Article 9 by stating that “The Minister of Finance has a right to increase the appropriation established in the yearly state budget law for state debt obligations and broaden the limits for Government action in case of unforeseen circumstances by informing the Cabinet of Ministers and the Budget and Finance (tax) Parliamentary Comission within five working days.” As well the Article 39 will provide: “The expenses for fufillment of the state debt obligations have to be carried out in accordance with the agreement provisions independently from the budgetary means allocated for this in the yearly state budget and the determined limits for Government action. If the Minister of Finance finds out that expenses for fulfilment of the state debt obligations exceed the appropriated means for this within the state budget, the Ministry of Finance increases the appropriation in the state budget and broadens the scope of allowed Government action in case of unforeseen circumstances.”[18] This amendment has been included in the budgetary package for 2014 and will be approved together with the budget law for 2014.

In general it is complicated to differentiate between the changes implemented purely due to the crisis and changes due to the crisis measures adopted at the EU level. The changes to some extent can be seen as a response to both. Concerning the changes foreseen because of the Six-Pack please refer to Section VII.

Institutional change         
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

The Fiscal Discipline Council has been established. Please see Question VII.5.

Bank of Latvia

The amendments to the Law on the Bank of Latvia specified the objectives and tasks of the Bank of Latvia, and specified the functional, institutional, personal and financial independence of the Bank of Latvia. The Law on the Bank of Latvia now provides that its main objective is to maintain price stability and, by not endangering this objective, the Bank of Latvia as well supports the general economic policy in the EU. The law provides that in accordance with the Statutes the Bank of Latvia takes part in the fulfilment of the ESCB tasks (the defining and exercising of the EU monetary policy, carrying out of the foreign currency operations, holding and management of the external reserves of the EU Member States, collecting of statistical data, preparation of statistics and its dissemination). The Law also provides the rights and instruments of the Bank of Latvia in order for it to be able to achieve its objectives and manage its tasks.[19] In addition the amendments have removed the possibility to liquidate the central bank, since liquidation of the central bank would be a breach of the ECB Statute and TFEU. At the same time this still did not remove the possibility for the Parliament to liquidate the Bank of Latvia as an institution, if at the same time succession – establishment of a new central bank – is ensured.[20]

Parliament

The Parliament also has gained new competences. First, the Parliament now adopts the medium-term budgetary framework law which previously was approved by the Cabinet of Ministers (see also question II.1). Second, in case of the situation when the state has to borrow money from international lenders, if the loan exceeds 20% of the GDP, then the Parliament has to vote on this matter (see also Question X.4).

Independent institutions

The rights of the independent institutions in the budgetary process have been specified. Now the Government when it approves the Framework Budgetary law has to hear the opinions of the independent institutions, record this information and submit it to the legislator by annexing the proposed draft budgetary framework law. Also in the process of approving the annual budget the Government has to hear these institutions and has to submit the information to the legislator. In this way it is ensured that the Parliament decides on the expenditure of independent institutions.[21]

Reform management task force

During the crisis the international lenders encouraged public consultation in discussing the ‘crisis law’. In response the Government created a ‘reform management task force’. This body included officials from the Ministry of Finance, trade union representatives, the head of the Budget and Finance Commission, the representative of the Latvian Chamber of Commerce and Industry and the Latvian local governments associations.[22]

Change of time-line 
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

At the moment the deadline for submitting the draft Budgetary Framework law is 30 April which at the same time is the deadline for submitting the Convergence Programme of Latvia to the European Commission. Both Budgetary Framework Law and Convergence Programme are prepared on the basis of the same macroeconomic forecasts. However at the same time the framework is more detailed than the Convergence Programme and therefore for its drafting additional time is necessary. Therefore it was proposed together with the 2013 Budget package to introduce changes in Article 16.2(10) Law on Fiscal Discipline that the framework law has to be submitted to the Parliament before 15 May (instead of 30 April). Thus, it was ensured that the Budgetary Framework Law is based on the most topical evaluation of the macroeconomic situation and is compatible with the data incorporated in the Convergence Programme.[23]

The Law on Budget and Financial Management was amended by providing that the Finance Minister submits the plan for preparing a new Budgetary Framework Draft Law and Budget Draft law before 15 December. Thus, there is a greater probability that the work concerning the annual state budget law adoption in the Parliament will be already finished.[24]

Miscellaneous
II.5
What other information is relevant with regard to Latvia and changes to the budgetary process?

Not applicable.

[1]  “Latvijas Vēstnesis”, 41 (172), 6 April 1994, “Ziņotājs”, 8, 28 April 1994 (http://likumi.lv/doc.php?id=58057), last amended on 19 September 2013.

[2] “Latvijas Vēstnesis”, 36 (4842), 20 February 2013 (http://likumi.lv/doc.php?id=254896), last amended on 12 September 2013.

[3] Article 30 of the Parliament Rules of Procedure. Available under: http://likumi.lv/doc.php?id=57517 (last visied 24 June 2013)

[4] The budget laws, legislative proposals which are considered urgent and draft laws proposing adoption (ratification) of international agreements are the only proposals which have to always be adopted in only two readings according to Article 114 of the Rules of Procedure of the Parliament.

[5] D. Amoliņa, U. Ķinis, ‘Konstitucionālā kontrole valsts finanšu jautājumos Satversmes tiesas praksē’, JV 8(759), 26 February 2013. Available under: http://www.juristavards.lv/index.php?menu=DOC&id=254978 (last visited 23 June 2013).

[6] Annex XVIII Koncepcija Finanšu ministrija 190510, p. 8.

[7] Grozījumi likumā par Budžeta un Finanšu vadību. Available under: https://www.vestnesis.lv/?menu=doc&id=256253 (last visited 18 Nov 2013).

[8] Saeima, Saeima pieņem Fiskālās disciplīnas likumu, 31 January 2013. Available under: http://www.saeima.lv/lv/aktualitates/saeimas-zinas/20578-saeima-pienem-fiskalas-disciplinas-likumu (last visited 24 June 2013)

[9] Annex XVIII Koncepcija Finanšu ministrija 190510, p. 29-30

[10] Saeima, Saeima pieņem Fiskālās disciplīnas likumu, 31 January 2013. Available under: http://www.saeima.lv/lv/aktualitates/saeimas-zinas/20578-saeima-pienem-fiskalas-disciplinas-likumu (last visited 24 June 2013).

[11] Ibid.

[12] Likumprojekta „Grozījumi likumā „Par valsts budžetu 2012.gadam”” sākotnējās ietekmes novērtējuma ziņojums (anotācija). Available under:

https://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CCwQFjAA&url=http%3A%2F%2Fwww.mk.gov.lv%2Fdoc%2F2005%2FFMAnot_150812_groz2012.1897.doc&ei=mUWKUo6YOqqm4ASpqIDQBw&usg=AFQjCNGw71GFI2E-LM4p5b_mNSQszGUacQ&bvm=bv.56643336,d.bGE (last visited 18 Nov2013). p. 18.

[13] Annex XIV Programma Ekonomikas ministrija 240412, p. 12-13

[14] Par vidēja termiņa budžeta ietvaru 2013., 2014. un 2015.gadam,  “Latvijas Vēstnesis”, 192 (4795), 6 December 2012. Available under: http://likumi.lv/doc.php?id=253191 (last visited 23 June 2013).

[15] D. Amoliņa, U. Ķinis, ‘Konstitucionālā kontrole valsts finanšu jautājumos Satversmes tiesas praksē’, JV 8(759), 26 February 2013. Available under: http://www.juristavards.lv/index.php?menu=DOC&id=254978 (last visited 23 June 2013).

[16] Ibid, p. 46.

[17] Ibid.

[18] Draft amendment to the LBFM is available under: http://titania.saeima.lv/LIVS11/saeimalivs11.nsf/0/E96ED95DA3BDE159C2257BF70048E934?OpenDocument (last visited 18 Nov 2013).

[19] Annex XIX Informatīvais ziņojums Finanšu ministrija 010313, p. 2.

[20] Draft amendments to the “Likums Par Centrālo Banku”. Available under: http://titania.saeima.lv/LIVS11/saeimalivs11.nsf/0/8DE49309797F67C5C2257AB8004711B8?OpenDocument#b (last visited 24 June 2013)

[21]  Annotation of the proposed amendments to the Law on Budget and Financial Management. Available under: http://titania.saeima.lv/LIVS11/saeimalivs11.nsf/0/BF8D8373B02B1B8DC225795A00322B26?OpenDocument#b (last visited 24 June 2013)

[22] Samuel Dahan, ‘The EU/IMF Financial Stabilisation Process in Latvia and Its Implications for Labour Law and Social Policy’, ILJ 41(3), pp. 305-327, p. 318.

[23] The Proposals for 2013 Budget Package. Available under: http://titania.saeima.lv/LIVS11/saeimalivs11.nsf/0/EC3DA085A3613F14C2257A87002CE827?OpenDocument (last visited 24 June 2013)

[24] The proposal for amendning Article 16.2 Law on Budget and Financial Management. Available under http://titania.saeima.lv/LIVS11/saeimalivs11.nsf/0/ADBE62E274221367C2257A87003B276B?OpenDocument (last visited 24 June 2013)

Lithuania

Budgetary process   
II.1

Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Lithuania.

The general legal framework for the budget, the relationship between the Seimas and the Government in the budgetary process is governed by the Constitution of the Republic of Lithuania, adopted by a referendum on 25 October 1992.

The budgetary system consists of an independent State budget as well as independent municipal budgets (Art. 127 Constitution).

The main law governing the State budget is the Law on the Budget Structure (July 1990).[1] It defines the content of both State and municipal budgets, the legal grounds for raising revenues and using appropriations, as well as the duties of their managers.

The Law on Fiscal Discipline (2007)[2] sets an objective of a balanced budget in the medium term and long term sustainability. The Law was adopted in reaction to the fact that on 23 May 2007 Standard and Poor’s downgraded Lithuania’s credit debt rating.[3] The Ministry of Finance concluded that the only way to persuade the markets of a stable economic perspective of the country would be to adopt a law which would be difficult to amend and would oblige the country to engage in a stable fiscal policy in a long and medium-term perspective.[4] However, the Law on Fiscal Discipline did not establish a binding medium-term expenditure framework, and did not provide for an enforcement mechanism. Furthermore, as it was a simple law, its amendment was not more difficult than that of any other ordinary law.  

The Seimas has a constitutional duty to approve the budget by law prior to the start of the new budgetary year, (Art. 131 (1) Constitution) i.e. by 1 January (Art. 129 Constitution). The Law on the Budget Structure enshrines a stricter requirement to approve the budget at least 14 calendar days prior to the start of the new budget year (Art. 20).

The Constitution allows the Seimas to increase the expenditure only provided that the Seimas identifies the financial resources that can cover it. However, if certain expenditure is provided by law, it may not be reduced until that law is amended (Art. 131(2) Constitution).

The municipal budgets are approved by the municipal councils. They include municipal revenues which are calculated on the basis of the rules defined in the Law on the Methodology of Determination of Municipal Budgetary Revenues[5] and funds transferred from the State to exercise delegated functions of the state.

Under the Constitution the budget is approved for one calendar year. Since 11 July 2000 Art. 17(3) of the Law on Budgetary Structure provides that the State budget will be planned for three years (the budget year plus two succeeding years) based on the principle of strategic planning.[6] Beginning with the budgetary year of 2014 the three-year planning rule is extended also to municipal budgets. The latter change implements the requirements of article 9 of the directive 2011/85 to establish a credible, effective medium-term budgetary framework providing for a fiscal planning horizon of at least 3 years (see also question VII.2).

The Budget is drafted and submitted for consideration to the Seimas by the Government (Art. 94(4) Constitution) no later than 75 days before the end of the budget year (ie by 17 October). (Art. 130 Constitution, Art. 18 of the Law on Budget Structure). The procedure of approval of the State budget is governed by chapter 27 of the Statute of the Seimas, which has a status of a law.[7] There is no formal pre-budget consultation with the Parliament, although the Minister of Finance may consult the chair of the Budget and Finance Committee during the drafting process. The main focus of parliamentary scrutiny follows the presentation of the draft budget by the Minister of Finance in mid-October.

Following the Government’s presentation the Seimas has at least 15 days to consider the draft budget. Having received the draft, the Seimas then submits it to the National Audit Office of Lithuania. Art. 173 (1) of the Statute of Seimas requires the Office to present its conclusions on the Draft Budget to the Seimas’ Budget and Audit Committees by 15 November. The conclusions may also be submitted to the Seimas on its request and on the date set by it.

The National Audit Office also has constitutional powers to control the execution of the budget (Art. 134 Constitution). 

The committees may submit their comments and proposals to the Budget and Finance Committee by 10 November.

Following an amendment of the Law on Budget Structure of 16 October 2012, starting with 2014 the Bank of Lithuania presents a report to the Seimas on the impact of the implementation of the general structural government balance impetus target on the confidence in the stability of the financial system and prices.[8] Prior to this amendmend the scope of the report of the Bank of Lithuania was narrower and concerned only its duties as a central bank with respect to the banking sector.

The first reading of the Law on the draft budget in the plenary session is held on 25 November, followed by a second reading in the plenary session and approval in mid-December. The State budget and the main financial indicators of municipal budgets are approved by the Seimas adopting a Law on Approval of the Fiscal Indicators of the State Budget and Municipal Budgets.[9] The Law covers the revenue and expenditure of the Government’s ministries and other budgetary institutions, and includes state allocations to the municipalities.

Should parliamentary approval be delayed beyond the beginning of the relevant budget year, Art. 132 Constitution allows monthly expenditure not exceeding one-twelfth of the State budget expenditure approved for the previous budget year. Under Art. 29 of the Law on the Budget Structure the monthly appropriations of every appropriation manager may not exceed one-twelfth of the previously appropriated funds. Such interim funding cannot be used for new activities but only for ‘continuous activities’, obligations established by laws and debt-servicing obligations. The Law explicitly exempts EU financial support and co-funding and other financial support from these restrictions. During the budgetary year, the Constitution allows the Seimas to approve adjustments to the budget under the same procedure as applicable for the main budget, and it may approve an additional budget if necessary (Art. 132 Constitution).

Following the parliamentary approval of the budget, the Government issues a decree that contains a breakdown of expenditure on the programme level and by economic category.

Under Article 5 of the Constitutional Law on the Implementation of the Fiscal Treaty Seimas is empowered to establish the medium-term objective by 15 March, for a maximum period of three years (see also question VII.10).

The government presents a report to the Seimas on the implementation of the structural impetus target and on the general government sector balance indicator by 1 May. If the structural impetus target is not implemented, the Government must also submit the reasons for that to the Seimas and to the National Audit Office. The National Audit Office then presents its report on the validity of such reasons and whether the measures on the implementation of the structural impetus target are appropriate. In view of this report, the Government must present the Seimas with the final list of reasons why the structural impetus target was not achieved. The Government has an obligation to do it at a time when the draft Law on Fiscal Indicators of the State and Municipal Budgets is submitted to the Seimas (eg by 17 October).

General change           
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

There have been no significant changes affecting the timeline of the budgetary process. The content of documentation has changed, as the European Semester and the relevant documents are now integrated in the budgetary process. 

One more notable change is that since 2011 the budget formulation procedure has been amended allowing for an increased minister’s role in establishing priorities for their ministries.

Under the system used in 2008-2010, each year in May the Budget Department of the Ministry of Finance prepared preliminary allocations for the State budget taking into account the strategic goals, macroeconomic projections, preliminary limits on public investment for three years and preliminary data about EU fiscal support. In May or June, the Government would approve overall ceilings and limits on public investment for the budget year and the two succeeding years. The Ministry of Finance then set individual ministry ceilings and distributed planning guidance to appropriation managers, who on their own turn submitted their budget proposals by early September, followed by negotiations between the Ministry of Finance and the appropriation managers. As the Government approves the plan on fiscal indicators at the end of February – March, it takes into consideration the deadlines when it has to submit the relevant documents to the European institutions. Also, under the Law on Budget Structure the Government is under an obligation to submit to the Seimas the documents received from the European institutions adopted during the European Semester and to discuss their recommendations in the Draft Law on Fiscal Indicators of State Budget and Municipal Budgets.

In October 2012 the Law on Budget Structure was also supplemented with a 6th chapter which sets out the procedure with respect to a breach of fiscal discipline. It provided for the Government’s obligation to present to Seimas the report on the implementation of the government balance structural impetus target. If it becomes clear that the target is not met, the Law requires the Prime Minister to verbally explain to the Seimas the reasons for such failure. If the causes identified do not fall within the list of the escape clauses identified in Art. 39 of the Law on Budget Structure, the Prime Minister must explain them and suggest the specific measures which would enable avoiding them in the future. The Prime Minister is also requested to explain the causes of the hightened tax risk indicator as well as its medium term management perspectives. Art. 39 also lists the permissible causes justifying the failure to implement the structural impetus target or provisions on surplus and balanced medium term budget.

This duty applies to the planning of the 2014 budget and to subsequent budgets. 

Institutional change        
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

The major change is an extension of the competence of the National Audit Office empowering it to exercise the functions of an independent fiscal institution. (see also question VII.5).

This was done by the Constitutional Law on the Implementation of the Fiscal Treaty[10] and the amendment of the Law on National Audit Office (No.I-907),[11] both of which were adopted on 6 November 2014 and entered into force on 1 January 2015.

Another amendment enhanced the involvement of the Bank of Lithuania in the budgetary process. Starting with the budget of 2014 under Art. 19(3) of the Law on Budgetary Structure within 15 days after the Government presents the draft Budget to the Seimas the Bank of Lithuania is to present its report on the impact of the implementation of the general structural government balance impetus target on the confidence in the stability of the financial markets and prices. Also, after the adoption of the Constitutional Law on the Implementation of the Fiscal Treaty the Bank of Lithuania is under an obligation to submit to the monitoring authority its macroeconomic forecasts each time they are updated, but at least twice per calendar year (see also question VII.4). The provision also empowers the Bank to request information from state and municipal institutions for the performance of this function (Art. 9(2) Constitutional Law on the Implementation of the Fiscal Treaty).

Change of time-line 
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

The timeline has not changed significantly. The requirement to make public the draft budget for the forthcomming year by 15 October almost coincides with the national constitutional deadline to submit the draft budget to Seimas by 17 October. Consequently there was no change of legal regulation on this issue.

 

Miscellaneous
II.5
What other information is relevant with regard to Lithuania and changes to the budgetary process?

No further relevant information.

 

[1] Lietuvos Respublikos biudžeto sandaros įstatymas [Law on the Budget Structure] Nr. IX-1946, 2003-12-23, Žin., 2004, No. 4-47. An official translation of the law in English is available at https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.440733?jfwid=cxhrny4f3

[2] Lietuvos Respublikos fiskalinės drausmės įstatymas [Law on Fiscal Discipline] Nr. X-1316, 2007-11-8, Žin., 2007, Nr. 120-4881.

[3] Aiškinamasis raštas dėl Lietuvos Respublikos fiskalinės drausmės įstatymo projekto [Explanatory memorandum on the Draft Law on Fiscal Discipline] Nr. XP-2394, 2007-07-09.

[4] Ibid.

[5] Lietuvos Respublikos savivaldybių biudžetų pajamų nustatymo metodikos įstatymas [The Law on the Methodology of Determining Budgetary Income of the Municipalities], Nr. VIII-385, 1997-07-02, Žin., Nr.69-1743.

[6] B. Sudavičius, V. Vasiliauskas, Narystės Europos Sąjungoje įtaka Lietuvos Respublikos biudžeto planavimui, [The Impact of the EU Membership on the Budgetary planning in the Republic of Lithuania] in: G. Švedas (ed.), The 10th anniversary of the Lithuanian Membership in the European Union (Vilnius university: 2014) p. 469- 487.

[7] Lietuvos Respublikos Seimas, Statutas [Statute of Seimas of the Republic of Lithuania] Nr. VIII-1000, Žin., 1999, Nr.5-97.

[8] Lietuvos Respublikos biudžeto sandaros įstatymo 1, 2, 3, 8, 10, 14, 17, 18, 19, 20, 21, 24, 30, 32, 33, 35, 37 straipsnių, penktojo skirsnio pavadinimo pakeitimo, Įstatymo papildymo šeštuoju skirsniu ir priedu bei 16 straipsnio pripažinimo netekusiu galios įstatymas [The Law amending articles 1, 2, 3, 8, 10, 14, 17, 18, 19, 20, 21, 24, 30, 32, 33, 35, 37 of the Law on the Budget Structure] XI-2274, Žin., 2012-10-31, Nr. 126-6323.

[9] E.g. Lietuvos Respublikos 2015 metų valstybės biudžeto ir savivaldybių biudžetų finansinių rodiklių patvirtinimo įstatymas [Law on Approval of the Fiscal Indicators of the State Budget and Municipal Budgets for 2015], Nr. XII-1408. TAR, 2014-12-23, No. 20611.

[10] Lietuvos Respublikos Fiskalinės sutarties įgyvendinimo konstitucinis įstatymas [Constitutional Law of the Republic of Lithuania on the Implementation of the Fiscal Treaty], Nr. XII-1289, 2014-11-06, TAR No. 2014-17028. An official translation in English is available at http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=1012060 [last accessed on 23 November 2015].

[11] Lietuvos Respublikos valstybės kontrolės įstatymo Nr. I-907 2, 4, 6, 9 ir 23 straipsnių pakeitimo įstatymas [Law on amendment of arts. 2, 4, 6, 9 and 23 of the Law of the Republic of Lithuania on National Audit Office] Nr. I-907, 2014-11-06, TAR Nr.2014-16779.

Luxembourg

Budgetary process   
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Luxembourg.

In Luxembourg, the public budget is passed on a yearly basis by a parliamentary law. Three steps are usually provided. The first is a general discussion about the budget on the occasion of the governmental declaration on the ‘l’etat de la nation’ in the first half of the year. Every minister has to send the report of his ministry for the last year until 1 March to the parliament. Not later than three weeks before the declaration of the Prime Minister on the state of the nation, the ministers have to hand in their budgetary plan for the next year.[1] The Finance Minister has to send the updated version of the next years public budget to the parliament, at the latest in the third week of September.[2] Stakeholder groups, the Conseil d’Etat and the Court of Auditors deliver opinions on the governmental plans within a period of six weeks.[3] The most important institution in the framework of control is the Court of Auditors, whose role is very dominant since the amendment of the Constitution in 1999. Article 105 of the Luxembourg Constitution grants the Ccourt of Auditors with the highest competence of control for the national budget, including the control of efficiency and quality of budgetary policy (la bonne gestion financière). The second step is the adoption of the budgetary law in December after the discussion at parliament. The third and final one is the discussion in the framework of the examination of the law approving the budgetary balance (loi portant approbation des comptes généraux de l’Etat).


General change           
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

The budgetary process will be changed in 2014. Since the legislative proposal (projet de loi 6597 relatif à la coordination et à la gouvernance des finances publiques et modifiant (a) la loi modifiée du 8 juin 1999 sur le budget, la comptabilité et la trésorerie de l’Etat et (b) la loi modifiée du 10 mars 1969 portant institution d’une inspection générale des finances)[4] is still under discussion, it is difficult to predict its outcome. Questions VII.2, VII.3, VII.4, VII.5, IX.4 and IX.5 deal with the changes contained in the legislative proposal.

Institutional change        
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

The budgetary process will be changed in 2014. See the answer to question II.2.

Change of time-line 
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

The budgetary process will be changed in 2014. See the answer to question II.2.

Miscellaneous
II.5
What other information is relevant with regard to Luxembourg and changes to the budgetary process?

No other relevant information

[1] Michael Schroen, Parlament, Regierung und Gesetzgebung, in: Wolfgang H. Lorig/Mario Hirsch (eds.), Das politische System Luxemburgs – eine Einführung, 2008, p. 106 (127).

[2] Michael Schroen, Parlament, Regierung und Gesetzgebung, in: Wolfgang H. Lorig/Mario Hirsch (eds.), Das politische System Luxemburgs – eine Einführung, 2008, p. 106 (128).

[3] Michael Schroen, Parlament, Regierung und Gesetzgebung, in: Wolfgang H. Lorig/Mario Hirsch (eds.), Das politische System Luxemburgs – eine Einführung, 2008, p. 106 (128).

[4] For an overview about the current status of the legislative procedure see http://www.chd.lu/wps/portal/public/RoleEtendu?action=doDocpaDetails&backto=/wps/portal/public&id=6597

Malta

Budgetary process
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Malta.

The Maltese Constitution contains several provisions concerning the budgetary process in its articles 102 to 108. The Finance Minister of Malta has to present estimates of the revenues and expenditure of Malta in front of the Parliament. He has to present them in the actual year, before or not later than 30 days after the commencement of each financial year. Parliament has to adopt the revenues and expenditures in an appropriation bill. Therefore, the usual parliamentary procedure is used, which contains three reading stages, including a commission stage as part of the second reading and the report stage. The law is published as a ‘Budget Measures Implementation Act’.

The Constitution also contains the obligation to create an Auditor General who shall be an officer of the House of Representatives. He has the competence to audit all accounts annually.

General change
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

No information known. A new Fiscal Responsibility Act has been announced, but there has been no proposal yet (see question IX.4).         

Institutional change
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

No information known.

Change of time-line
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

No information known.

Miscellaneous
II.5
What other information is relevant with regard to Malta and changes to the budgetary process?

Not applicable.

Netherlands

Budgetary process   
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in The Netherlands.

The main characteristics of the budgetary process are as follows. Article 105 (1) Dutch Constitution determines that the budget is to be determined by law (government and parliament combined). The parliamentary budgetary rights have internal effect with the exception that only (budgetary) laws can authorize government spending. That is to say that they are mostly relevant for the relationship between parliament and government. As such a disregard of the budget rules can only have political effects. The yearly budget proposals are submitted on – traditionally called – Prinsjesdag (third Tuesday of September). Government submits its budget plans. Every ministerial department submits one budget plan that is to be approved by parliament. Thereby parliament – as most parliaments – has a so-called budget-right. That is to say the right to reject the proposed budget of the government. Parliament exercises this right through financially limiting the amounts that government can spend within specific policy areas. This is a form of external control on government spending. Thereby parliament exercises the political control of spending. Technical control is based on the justifiability of spending and its effectiveness and exercised by the general auditing chamber (Algemene Rekenkamer). In this way the general auditing chamber assists parliament in controlling the spending of the budget. The budget-right is anchored in the CW that was mentioned before.  As such the parliamentary involvement with the budget is twofold. It has political control through its rights of approval and technical control through the checks on the justifiability of government spending.

An important part of these rights is the parliamentary right on information on the basis of article 68 of the Dutch Constitution. Effective parliamentary control of the budget is only present if parliament is in the possession of sufficient information – the material budget right (see further below) is relevant here.

Approved budgets have the status of law and authorises government to spend money. It is considered to be a rule rather than exception that authorised government budgets are considered insufficient or that authorised policy-objectives change. In these cases the Compabiliteitswet (CW) prescribes that new authorisation has to be provided by parliament through ad hoc supplementary budget measures (suppletoire begrotingsmaatregel), which are passed through parliament.

Next, there exists a separation between the formal and material budget-right of parliament. The formal budget-right prescribes that parliament always has to be informed prior to any spending that is not in accordance with the approved budget. The material budget–right applies for those situations where the exercise of policy is urgent and cannot await the outcome of the formal procedure. In these instances parliament is informed of on-going changes in policy and the accompanying budgetary impact to avoid a situation where parliament is confronted with accomplished facts. This information is shared through separate policy letters or through budgetary notes. Parliament either (silently) accepts or rejects this and thereby exercises its material budget-right.[1]

Since a number of years the government policy proposals are accepted by parliament on the last day before the Christmas recess. Formally the senate also has approval rights of the budget. In practice senate has since 1907 not used its power to reject the budget proposal. Since 1971 there exists a rule that budgets that have not yet been approved in May of the relevant budget year are treated as formalities provided that the government comes to the Senate to discuss its policy plans substantively. This is how the senate has mainly used its budget rights.[2]

General change           
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

This question has been answered specifically with respect to the crisis measures in previous answers. As a general observation it is relevant to note that the basic budgetary process has not been changed. Instead all the specific measures have been implemented by aligning the measures within the existing budgetary framework. As noted in previous answers, government has made specific procedural agreements with parliament on how to inform them of measures and as far as possible guarantee the functioning of its existing budget rights in the application of, for example, the ESM Treaty.[3] These arrangements have, so far, been made on an informal basis. The exact legal status of these information arrangements between government and parliament is therefore a bit unclear. Parliament has expressed a preference to make the arrangements official and legally sound information protocols on the basis of article 100 of the Dutch Constitution, but this has been refused by government. Instead there will probably be made a slight amendment to the existing CW in order to implement the informal information arrangements and thereby provide them with a stronger legal grounding.[4]

These agreements guarantee the involvement of parliament every time that aid is provided. In principle this happens before the aid is granted (confidential if necessary) by a policy note and debate with the minister. In cases where the urgency of the situation does not allow for the prior communication with parliament the minister will make a parliamentary reservation, meaning that there is no final commitment for the aid measure until parliament has been informed. Parliament can then decide whether it wants to utilise this reservation or not. In cases of urgent voting procedures (art. 4 ESM Treaty) there is no possibility nor use in making the parliamentary reservation since there are no veto rights. In these cases the minister will as soon as possible defend its position within parliament. With respect to the actual payments the minister periodically informs parliament. 

Wet HOF

Overview of Wet van 11 december 2013 inzake houdbare financiën van de collectieve sector (Wet houdbare overheidsfinanciën, Staatsblad 2013, 531)

Summary: The Law on Sustainable Government Finances of the collective sector (hereafter “HoF”) implements legal instruments to reach and maintain sustainable Government spending for current and future governments in the Netherlands. It is the main legislative instrument introduced in the Netherlands to implement the requirements that follow from the Fiscal Compact Treaty.

Key instruments and aims of HoF: The main aim of HoF is to implement instruments to establish a so-called trend-based budgetary policy on the central and local levels of government. The essence of the Dutch trend-based budget policy is that the budget balance is allowed to fluctuate within certain limits. Those limits are determined by what deficit is allowed for the medium-term (trend-based). It is characterised by the use of realistic economic premises, a strict separation of revenues and expenditures, a fixed multi-annual expenditure framework and one principle moment of decision-making on next years’ budget.

Article 2 sections 1-3 is a key part of HoF and determines that the Minister of Finances has to run a trend-based budgetary policy taking into account the norms that have been established by the institutions of the European Union for: i. The MTO for the structural EMU-balance; ii. The yearly EMU-balance; and iii. The yearly EMU-debt.   Section 4-11 provide the operational procedural means through which recommendations from the EU institutions are implemented on a national level.

Articles 3-8 decentralise the obligations by imposing on local governments and specified legal entities with public spending capacities an equivalent effort obligation to reach the norms that have been established by the institutions of the European Union. These articles also determine the sanction mechanism that can be applied in case the equivalent effort obligation is breached. 

Comments: A legal commentator highlights that the norms that article 2 Hof refers to are unclear.[5] This un-clarity is caused by the phrase ‘the norms that have been established by the institutions of the European Union’. If Article 2 is intended to implement the obligations arising from the Fiscal Compact Treaty then the article erroneously refers to the institutions of the European Union since the norms in that Treaty have not been made by the institutions of the European Union but, jointly, by all the Member States together.  As such it can be debated whether, due to this un-clarity, the Netherlands has actually sufficiently implemented the Fiscal-Compact Treaty. Another main issue that has come up in the comments on the Wet HoF is that the requirements of a trend-based budgetary policy conflicts with the conventional budgetary processes of local governments that tend to spread out budget spending over multiple years. This is no longer possible under the Wet HoF.

Institutional change        
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

The relevant changes have been described in questions II.1 and II.2.

Change of time-line 
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

So far no changes have been made to the time-line of the budgetary cycle. On the basis of the CW national budget has to be approved before the 1st of January – as such it is in alignment with the EU framework. In practice the budget is always approved later and this could therefore affect the time-line of the budgetary cycle and necessitate some changes in the established practices of parliament in the approval of the budget.[6]

Miscellaneous
II.5
What other information is relevant with regard to The Netherlands and changes to the budgetary process?

Not applicable.

[1] 05 ESM Treaty – Diamant/Van Emmerink ‘Het Nederlandse budgetrecht in Europees perspectief’

[2] Ibid.

[3] 01 EFSM&EFSF – 180112 first policy letter on parliamentary involvement efsf measures and 01 EFSM&EFSF – 130912 second policy letter on parliamentary involvement efsf measures replacing the first.

[4] 05 ESM Treaty – 100812 discussion on budget right parliament.

[5] 06 Fiscal Compact – Reestman 2013 De ondoorgrondelijke systematiek van het wetsvoorstel HOF NJB 2013, p. 299-302

[6] Government intends to adopt these changes in the CW. 05 ESM Treaty – Diamant/Van Emmerink ‘Het Nederlandse budgetrecht in Europees perspectief’

Poland

Budgetary process     
II.1

Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Poland

The Polish Constitution enshrines the general principles of the budgetary process. Art. 221 PC indicates that the Council of Ministers has an exclusive right to introduce legislation concerning the Budget (ustawa budżetowa), an interim budget, amendments to the Budget, a statute on the contracting of public debt, as well as a statute granting financial guarantees by the State. The project of the budget has to be approved by the Council of Ministers as a whole before presenting it to Sejm (Art. 146 par. 4 pt 5 PC). Infra-constitutional acts[1] (normative acts, such as statutes, regulations, etc., they are generally binding) provide that the Council of Ministers has to consult the project of the Budgetary act (first draft of the future budgetary act which is often called Budget; budgetary act contains an economic projection of the state budget; it has a form of a legislative act (ustawa), the Constitution and the Public Finances Act contain the rules for creating budget, see question III.3). Next, no later than three months before the fiscal year starts, the Council of Ministers submits to the Sejm a draft Budget for the next year.[2] In exceptional instances, the draft may be submitted later.[3]

After the approval of the Budget in the Sejm, the Budget is passed to the Senat. The Senat may amend the Budget within 20 days, but it cannot reject the Budget.[4] Next, the President of Poland signs the Budget or interim Budget within seven days of submission by the Marshal of the Sejm and orders its promulgation in the Journal of Laws of the Republic of Poland (Dziennik Ustaw).[5] Before signing the Budget (which is an obligation), the President of Poland may also refer to the Constitutional Court to review the conformity of the Budget or interim budget with the Constitution. The Constitutional Court is obliged to adjudicate this issue within two months from the day of submission of the reference by the President.[6]

If within four months after the draft Budget was referred to the Sejm it is not presented to the President for the signature, the President may within fourteen days shorten the parliamentary term.[7]

The Council of Ministers executes the Budget.[8] Within five months following the end of the fiscal year, the Council of Ministers presents to the Sejm a report on the implementation of the Budget together with information on the condition of the State debt.[9] The Sejm has to consider the report within 90 days following its receipt, and, after seeking the opinion of the Supreme Chamber of Control, it passes a resolution on whether to grant or refuse to grant approval of the financial accounts submitted by the Council of Ministers, so-called absolutorium.[10] The lack of approval does not cause any negative consequences for the government; the government is not obliged to resign.[11]

In general, the Budget is characterised by two principles enshrined in Art. 219 PC.[12] The Budget is provided for one year and has to have a form of a legislative act (statute; ustawa). Moreover, Art. 220 PC enshrines a principle of limitation and control over the budgetary deficit. It means that the increase in spending or the reduction in revenues from those planned by the Council of Ministers may not lead to the adoption by the Sejm of a budget deficit exceeding the level provided in the draft Budget. In this regard, the budgetary deficit cannot be covered by loans from the central bank.[13]


General change
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

The main change is the new stabilising fiscal rule (Cf. Question VII.7) and in the timeline since the date of publication of the actual convergence program was changed to April, which hence accelerated works on the Multi-Year Financial Plan of the State (Cf. Questions VII.8 and II.4).

Institutional change          
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

No institutional changes in the functions of the judiciary have taken place in Poland. In the same vein, the competences of the parliament have not been amended. The competences of the parliament have been reformed in 2010 regulating the information from the government to the parliament before the Council meetings.[14] The main change is the new fiscal rule (See Question VII.7), which limits the spending of the government.

Change of time-line  
II.4

How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

In the time-lime of the budgetary process, due to the European Semester, only the date of publication of the actual convergence program was changed to April, which hence accelerated works on the Multi-Year Financial Plan of the State.

Miscellaneous
II.5
What other information is relevant with regard to Poland and changes to the budgetary process?

A study published in 2013 by the European Parliament found that only a few member states had held parliamentary debates on their National Reform Programmes (NRPs).[15] With regard to Poland, the study indicates that the NRP has not been discussed in the parliament.[16]

 

In fact, the NRP in Poland was only briefly mentioned in the plenary debate of 9 November 2012, when the MPs discussed government’s information on Poland’s participation in the EU.[17] It was underlined in the debate that the Commission positively assessed Poland’s “macroeconomic scenario” and the Polish government also internally confirmed the indicated necessary reforms.[18] The Commission recommendations of 2013 within the European Semester were discussed at the Sejm’s European Affairs Committee on 7 June 2013.[19]

 

[1] For example Art.3 pt 5 Ustawa o Komisji Wspólnej Rządu i Samorządu Terytorialnego, 6.5.2005.

[2] Art. 222 PC.

[3] These are, however, not defined in the Constitution or infra-constitutional law. Cf. Zbigniew Ofiarski, Prawo Finansowe, C.H.Beck 2010, p.185.

[4] Art. 223 PC.

[5] Art. 224 par.1 PC.

[6] Art. 224 par.2 PC.

[7] Art. 225 PC.

[8] Art. 146 par. 4 pt 6 PC.

[9] Art. 226 par. 1 PC.

[10] Art. 226 par. 2 PC,

[11] Zbigniew Ofiarski, Prawo Finansowe, C.H.Beck 2010, p. 188.

[12] Zbigniew Ofiarski, Prawo Finansowe, C.H.Beck 2010, p. 186.

[13] Zbigniew Ofiarski, Prawo Finansowe, C.H.Beck 2010, p. 187.

[14] Ustawa z dnia 8 października 2010 r o współpracy Rady Ministrów z Sejmem i Senatem w sprawach związanych z członkostwem Rzeczypospolitej w Unii Europejskiej, Dz.U. Nr 213 Poz. 1395.

[15] European Parliament, The European Dimension in the National Reform Programmes and the Stability and Convergence Programmes, Study, September 2013, Available at: http://www.europarl.europa.eu/document/activities/cont/201311/20131105ATT73932/20131105ATT73932EN.pdf.

[16] Id, see Table 3 and Table A1.

[17] 25. Posiedzenie Sejmu w dniu 9.11.2012, p.352, http://orka2.sejm.gov.pl/StenoInter7.nsf/0/9A3DFC35F9453901C1257AB600326B6A/%24File/25_c_ksiazka.pdf.

[18] Id.

[19] Sejm, European Affairs Committee and others, 7.06.2013, http://www.sejm.gov.pl/Sejm7.nsf/biuletyn.xsp?skrnr=SUE-160.

Portugal

Budgetary process       
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Portugal.

 Pursuant to art. 105/2 CRP, the budget,[1] a law with enhanced value, is prepared in accordance with the annual Broad Economic Plan and taking into account obligations determined by law or contracts.[2] The Plan Options are voted by Parliament (art. 91 º CRP) and constitute the guidelines for which the Plan itself is organized; they must obey the budget, since they also represent, according to the Constitution, the financial expression of the annual plan. The Government is in charge of submitting the budget proposal to the Parliament. The budget proposal draft is prepared by the Ministry of Finance, and then subject to approval of the Government. By the 15th October of each year, the Government must present the draft State Budget Law to the Parliament. Besides the actual proposal, also budget maps and informative annexes are included.

The Parliament then has to vote the proposed Budget until the 15th of December. This is discussed in a plenary session, being matters such as the creation and extinction of taxes and loans and other financing means taken to a discussion in specialised committees. If one tenth of the deputies so requires, other matters relating to the fiscal regime can also be discussed in committee.

Once the Budget starts being executed, the peculiarity of the system resides with the expenses: each credit cannot be used entirely at once. This means that the expenses should be made and the payments authorized by amounts not exceeding the accrued twelfths. The Parliament, upon approval of the Budget, fixes not only the maximum amount of total expenditure, but also the expenses relating to each chapter and function. The Government cannot, in principle, transfer funds from chapter to chapter/function to function, nor can it open credits which can raise the total expenditure predicted on the Budget. There are some exceptions, amongst which the need for the Government to respond to unforeseen and unavoidable expenses – for such purpose, a reserve fund is annually made in the budget of the Ministry of Finance. One should furthermore note the ‘brake’ provision contained in article 167/2 of the Constitution: no proposals to amend the budget can be submitted during the financial year if they involve an increase in expenditure to a decrease of the State revenue, as provided for in the Budget.

As for the inspection of Budget execution, the control over revenue is made by reference to the duty of the entitled services to collect certain amounts. The expenses’ control is made by reference to the predictions made in the Budget. This control is exercised by the Public Accounts and the Court of Auditors, both a priori and a posteriori, by considering each service’s allocation and the law.[3]

 

General change   
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

The budget is applied by means of the so-called LEO, which establishes the framework for budget application. Since 2001 this law (L-91/2001) suffered several amendments during the Eurozone crisis. Its most meaningful amendment is nevertheless the inclusion of the Balanced Budget Rule (so called ‘golden rule’) (See question IX.5).

 

The LEO also incorporates new principles, as well as serves as means of implementation of Directive 2011/85/EU. A new budgetary model was proposed, based on a reform to be led by the Ministry of Finance. It predicts a phased approach to the budget, based on a detailed plan of action, with technical support being sought in the Commission and the IMF. A multiannual framework plan is established, with tight control mechanisms for expenditure; this plan was presented by the first time to the Parliament in April 2012, together with the Plan for Stability and Growth (PEC).

Another change was the abolishment of the horizontality in the application of the budget: each Ministry started being responsible for its own share of the budget, which reinforces the control. To enhance control, a new and independent entity was created (see questions VII.4 and II.3): the Portuguese Public Finance Council (CFP), which acts as an advising body to the viability of the budgetary measures and public expenditure.[4] The Council’s mission is to conduct an independent assessment of the consistency, compliance with the defined objectives and sustainability of public finances, while fostering its transparency.

Institutional change 
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

No main changes are found in the competences of the institutions. However, the role of the judiciary was enhanced, with the Court of Auditors’ work gaining prominence; on the other hand, a new entity was created: the CFP.

The Court of Auditors is a sovereign body, which competences are defined in article 214 of the Portuguese Constitution. Its independency from the Public Administration ensures a free exercise of its judicial and financial control; it has the duty to examine ‘the legality of public expenditure and rules on the accounts which the law has ordered to be submitted to the Court’.

The Court of Auditors might be asked by the Parliament to provide for ‘intercalary reports’ on the budget control results throughout the year, as well as clarifications which might help the evaluation of the budget.

The Government is also entitled to ask this Court to provide it with audits and opinions; in total, around 7500 entities are subject to control by this Court.

The Portuguese Public Finance Council (CFP), created by the Budget Framework Law in 2011, has the mission to assess, in an independent way, ‘the proposed objectives in relation to the macroeconomic and budgetary sceneries, [and] long-term public finance sustainability’. Its main objectives are the transparency and quality of policy decision making. It is to act as an advisor to the Government by enacting reports on the draft Budget law (for more information on CFP see question VII.4).

The parliament’s Budgetary Technical Support Unit (UTAO) prepares technical analyses of government bills on the state budget and amendments thereto, assesses general state accounts, monitors budgetary execution, and analyses revisions to the stability and growth programme. It functions under the Budget committee’s direct guidance. Having been created in 2006 it has seen its powers amplified in 2014 to monitor and control projects involving public investment. This will include public-private partnerships (PPPs) and concessions, paving the way for an approach that is geared to rolling out projects that are technically and financially sustainable.[5]

 

Change of time-line     
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

Legislatively, the main change can be found in the law establishing the framework for budget application. Before 2011, its article 39° established the deadline for presenting the proposal to the Parliament on the 15th of October, except when there is no Government at that date. After the amendment, these deadlines were changed – although the proposal has to be submitted still by the 15th October, the contemplated exceptions changed the date for the 30th of September, according to the new article 12º-E.

The biggest impact of Euro-crisis law in the budgetary was nevertheless a practical one. Pressured by upcoming troika evaluations the government approved – what proved to be – unrealistic budget proposals. Eight rectifications have been approved in the last 3 years, two rectifications per year, breaking a 1977 record (a time of great economical and political instability in Portugal – following the 1974 revolution). The circumstances that lead to this situation have been subject of much discussion. On one hand, the expected time-line of the budgetary cycle was deemed irrelevant – alterations had to be discussed and approved and months were spent on this process -; on the other hand, the budget itself was emptied of its main function, it became, to a certain extent, a formality.[6]

 

Miscellaneous
II.5
What other information is relevant with regard to Portugal and changes to the budgetary process?

No other relevant information.

[1] http://www.en.parlamento.pt/StateBudgetPublicAccounts/index.html

[2] Article 112.º n.º 3 of the Constitution defines laws of enhanced value as those (…) “besides organic laws, the laws that are approved by two thirds majority, as well as those that the Constitution defined as a normative prerequisite for the approval of other laws or that by the latter must be respected”.

[3] See: http://ec.europa.eu/economy_finance/publications/occasional_paper/2012/pdf/ocp91_en.pdf

[4] http://www.cfp.pt/

[5] The quotations indicate a free translation of articles 214 of the Constitution and 12º-I of Law nº 52/2011, 13 October 2011, respectively.

[6] On the record rectifications of the budget http://www.publico.pt/economia/noticia/governo-de-passos-bate-recorde-nas-alteracoes-de-orcamento-1667701.

Romania

Budgetary process   
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Romania.

The Romanian state budget is adopted on an annual basis by the Parliament acting by simple majority on the proposal of the Government.

According to Article 138 of the Romanian Constitution, the national budget includes the state budget, the state social security budget and the budgets of the administrative-territorial units. Yearly, by August 15, the Government sends the Parliament the fiscal strategy for the next three years together with a legislative proposal on spending ceilings obligatory for the reference budgetary year and the next two years for approval (Even if the Parliament should adopt the law on budgetary ceilings before the budget laws, in practice all the laws are adopted on the same date). The state budget together with the state social security budget proposal drafted by the Government is forwarded to the Parliament by November 15. The Parliament approves the state budget laws by simple majority. In case the budget law is not approved by mid-December, the Government must demand the examination of the budget law in the emergency procedure. If the Parliament fails to reach an agreement on the budget laws three days before the start of the next budgetary year (by December 28) the old budget is applied until the adoption of the new budget. As well, the Constitution of Romania provides at Article 138 (5) that no budgetary expense may be approved without a pre-established financing source (section IX.4 below).

Law 500/2002 on public finances, as amended in 2013 (the ‘Public Finances Law’) further regulates the state budget and the state social security budget.[1] The budget of the administrative territorial units is drafted and approved on an annual basis on the local level, according to the principle of local fiscal autonomy, as regulated by Law 273/2006 on local public finances (the ‘Local Public Finances Law’).[2] Since 2010, the state and local budget proposals must take into consideration and adapt accordingly the national fiscal strategy pursuant to Law 69/2010 on fiscal-budgetary responsibility (the ‘Fiscal Responsibility Law’, see section II.2 below).[3]

The three legal frameworks are closely inter-connected. On the one hand, the Public Finances Law (law 500/2002) and the Local Public Finances Law (Law 273/2006) establish the general rules of state and local budgets formation, administration, elaboration, execution, actors involved and their responsibilities (Article 1 thereof). On the other hand, the Fiscal Responsibility Law (Law 69/2010) complements as of 2010 both the Public Finances law and the Local Public Finances Law, establishing the medium and long-term fiscal discipline principles and laying down the multiannual fiscal framework and spending ceilings within which the latter two operate (Article 1, Fiscal Responsibility Law).

The budgeting system of Romania resembles the Italian and French ones.[4] The Government, through the Ministry of Public Finance is the institution responsible for the realisation and coordination of national fiscal budgetary policy. The actors in charge of budgetary execution are organised in a three-layered system and are classified in primary, secondary and tertiary ordinateurs (credit holders). The primary ordinateurs are the actors designated by law to dispose of and/or approve the public funds expenditure. On the central level the primary ordinateurs are usually the heads of Ministries and other central public or autonomous authorities, whereas on the local level the primary ordinateurs are the Mayors and Presidents of local councils. The secondary ordinateurs are the heads of public institutions with legal personality in the subordination of the primary ordinateurs, while tertiary ordinateurs are the heads of public institutions with legal personality in subordination of primary or secondary ordinateurs. The primary and secondary ordinateurs are entitled to assign and use the budgetary resources, whereas the tertiary ones may only use the funds allocated.[5]

The budget process combines a top-down and bottom-up budgeting approach.

First the Government, through the Ministry of Public Finance, centralises the overall goals of the national budgetary frame, based on fiscal policy and macroeconomic and social estimates on the reference budgetary year and next three years (t- the reference year and t+3) provided by the National Prognosis Commission. The National Prognosis Commission is a specialised body under the subordination of the Ministry of Public Finances since 1993, in charge of the economic and social strategy planning as well as harmonisation of the national developments with EU provisions and recommendations (please refer further to section VII.4 below).[6] Based on the above benchmarks, the Ministry of Public Finance drafts the annual state budget laws, fixing the spending ceilings for the reference budgetary year (t) and the estimates for the next two years (t+3) and submits it to the Government (Article 20 (1) Fiscal Responsibility Law).

In the second stage, the Ministry of Public Finance sends a framework letter to the primary ordinateurs informing them on the macroeconomic estimates and ceilings within which their respective budgets are to be drafted. The primary ordinateurs send the budget proposals to the Ministry of Public Finances, which analyses their consistency with the set macroeconomic estimates, ceilings and fiscal-budgetary strategy. In a final stage, the consolidated state budget is sent to the Government and subsequently to the Parliament for approval. The local budgets are approved at the local level.

The state budget laws may be amended later on a maximum of two times during the budgetary year but exclusively during the last six months (Article 15(2) Fiscal Responsibility Law).

As of 2013, the law on public finances expressly states that the Medium Term Budgetary Framework (the ‘MTBF’) is the basis for the annual budget (Law 500/2002, Section 1-1). The MTBF follows closely the macroeconomic and budgetary estimates of the European Commission. Any change in the MTBT shall be highlighted in the annex to the annual budget proposal and dully justified (Article 30-2 (3) Public Finance Law).

Given the frequent Government changes noted in the past, the 2013 amendment stipulates that in case of Government change the MTBF may be updated according to the new governance priorities, however the changes shall be detailed and clearly stipulated (Article 30-5 (3) Public Finance Law). As well, in response to long electoral periods registered in the past, in case parliamentary elections are scheduled in the last three months of the annual budgetary period (October-November) the budget must be adopted before (Article 35-1 Public Finance Law).

The annual budgetary calendar corresponds to the following cycle:

 

The calendar of budget formulation[7]

1 June

National Prognosis Commission provides preliminary macroeconomic forecasts for the reference budgetary year together with estimates for the next three years (Art. 31 Public Finance Law).

31 June

Ministry of Public Finances submits proposed spending frames and ceilings for the next budgetary year together with the estimates for the next two years to the Government for main political discussions and approval (Art. 32 Public Finance Law).

31 July

The Ministry of Public Finances submits the Fiscal Budgetary strategy for the next three years to the Government (Art. 18 Fiscal Responsibility Law)

1 August

Ministry of Public Finance sends primary ordinateurs a framework letter on macroeconomic context, the methodology for drafting the budget and the expenditure ceilings approved (Art. 33 (1) Public Finance Law).

 

The ceilings may be modified based on autumn macroeconomic forecast of National Prognosis Commission before November 1st (Art. 33 (2) of Public Finance Law).

15 August

The Government sends the Parliament the Fiscal Budgetary strategy for the next three years together with a legislative proposal on ceilings obligatory for the reference budgetary year and the next two years for approval (Art. 18 and 20, Fiscal Responsibility Law)

1 September

Primary ordinateurs submit budget proposals to the Ministry of Public Finance within the limits of ceilings for the planned budgetary year and the estimates for the next three years (Art. 34 (1) Public Finance Law).

 

If the primary ordinateurs do not adjust the budget proposals to the macroeconomic estimates, methodology and fiscal-budgetary strategy, the Ministry of Public Finance may reject the budget proposal (Art. 34 (4) Public Finance Law).

15 September

Primary ordinateurs resend the adapted budgets to the Ministry of Public Finance (Art. 34 (5) Public Finance Law).

30 September

Ministry of Public Finance Prepares and submits to Government the final draft budget for first reading (Art. 35 Public Finance Law).

 

The budget proposal is accompanied by the Report on macroeconomic situation for the planned budgetary year and its projection for the next three years, including the Government strategy on public investment.

1 November

Revision of the final draft budget in the view of autumn macroeconomic and social estimates of National Prognosis Commission. (Art. 35 Public Finance Law).

15 November

Submission of draft budget to Parliament (Art. 35 Public Finance Law).

By 28 December

Final approval of budget by Parliament (Art. 36 Public Finance Law).

Source: Public Finance law 500/2002 as amended in 2013


General change         
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

Since the entry into force of the Public Finance Law in 2002, twenty out of twenty two amendments were introduced during the crisis period (from 2009 to 2014). Moreover, the Fiscal Responsibility Law introduced in 2010 added to the changes of the budgetary process, introducing a strategic long-term approach to fiscal policy.

 

Fiscal responsibility

The first substantial change of the Romanian budgeting system since the beginning of the financial crisis is the introduction of the Fiscal Responsibility Law (Law 69/2010).[8] The law was adopted in late 2010 and responded to the main challenges identified by the ‘troika’: lack of independent monitoring, absence of a strong multiannual fiscal strategy, poor fiscal targets enforcement and weak fiscal rules. [9]

Therefore, the Fiscal Responsibility Law first puts in place an independent Fiscal Council to ensure the monitoring function. For further reference on the Fiscal Council see section VII.5 below.

Secondly, a multiannual fiscal strategy stage is introduced. As highlighted in the budgetary calendar above (section II.1), the Government by August 15 submits the fiscal budgetary strategy for the next three years on an annual basis to the attention of the Parliament (Article 18 Fiscal Responsibility Law). Furthermore, the Government approves annually a legal proposal on budgetary ceilings for the reference budgetary year and the next two years to be adopted by the Parliament (Article 20 Fiscal Responsibility Law).

Third, in drafting the annual budget laws the Government must take due account of the fiscal budgetary strategy. At the same time, the primary ordinateurs must line up their budget proposals with the budgetary strategy and macroeconomic estimates communicated by the Ministry of Public Finance subject to the sanction of rejection of the budget proposal in case of failure to do so.

Fourth, strict fiscal discipline rules were introduced, backed by responsibilities and sanctions (Fiscal Responsibility Law 69/2010 Section XI, therein).

Multiannual budget planning, budget calendar, budgetary amendments

A stronger emphasis on the multiannual budgetary planning has been included as of 2010, in the form of a multi-annual fiscal strategy (Article 5, Fiscal Responsibility Law). Later in 2013 an express medium term budgetary framework has been introduced, to line up the national and EU budgetary frameworks (Section 1-1 Public Finances Law). The budgetary calendar substantially changed to allow a proper incorporation of European Semester recommendations (Section 2 Public Finances Law). A complete transition towards the European Account System (EAS) in budget planning and reporting, notably for the public deficit calculation was adopted (Art 7-1 Law Public Finances Law).[10]

In terms of budgetary stability, the new legal framework limits the amendments of the budget laws to two budget rectification yearly, both allowed only in the second part of the budgetary year. Further rectifications may be included only in situations of extraordinary macroeconomic imbalances.

Please refer for further details to section VII.8 below.

Institutional change         
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

Parliament

As of 2010 the Parliament is mandated to adopt on a yearly basis the law on fiscal-budgetary ceilings for the next budgetary year on the proposal of the Government (Article 18(2)(2-1) Fiscal Responsibility law). As such the spending caps are binding as provided by law and must be observed by the Government and the primary ordinateurs. In practice, since the introduction of the mechanism, the law on fiscal-budgetary ceilings and the budget laws have been adopted at the same time shortly before the start of the next budgetary year, contradicting the rationale behind the established mechanism.

Government

The Government has undertaken most of the economic reform responsibilities, which enlarged implicitly its sphere of competences.

As such, the Government, through the Ministry of Public Finances elaborates since 2010 yearly the fiscal-budgetary strategy and the report on macroeconomic and social estimates for the next three years. As well the Government establishes annually the ceilings for budgetary spending for the reference budgetary year and the next three years (Article 18(1)-(2-1) Fiscal Responsibility law). It is also for the Ministry of Public Finances to draft and observe the implementation of the National Convergence Programme (see section VII.2 below).

Investment Monitoring Unit and National Reporting System

An Investment Monitoring Unit was set up within the Ministry of Public Finances as of 2013 within the direct subordination of the Delegated Minister for the Budget, enforced by Emergency Ordinance 88/2013, Chapter II. The Unit has as main tasks to prioritise and evaluate and provide expert advice on public investment policies as well as to monitor the sound implementation of the national investment projects.[11]

As well a general national system of verification, monitoring, reporting and control of the financial statements, legal commitments and budgets of public entities has been put in place by Emergency Ordinance 88/2013, Chapter I (National Reporting System). The Ministry of Public Finances centralises and coordinates the implementation and operation of the national system. The system supports the availability and accuracy of data, as the primary ordinateurs are obliged under the contraventional sanctions to report systematically the data on budgetary-fiscal activity.

Fiscal Council[12]

The Fiscal Council was established in mid-2010 and further strengthened in 2013 (Law on fiscal Responsibility). Please refer to section VII.5 below.

Change of time-line
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

See also section VII.8 below.

The implementation of Euro-crisis law changed substantially the prior budgetary cycle time-line. The budget calendar has been adapted to allow a better coordination between the budgeting process on the one hand and the National Reform programme, the National Convergence programme and the European Semester on the other hand.

Since the 2013 reform, the budgetary cycle starts two months later. On 31 June (priorly May 1st) the Ministry of Public Finances submits the spending ceilings and MTBF to the Government to allow the implementation of country-specific recommendations of the European Commission (Section 2 – ‘Budgetary calendar’, Law on Public Finances).

Annually until August 1st (instead of 1st of June) the Ministry of Public Finance sends primary ordinateurs a framework letter on the macroeconomic context, the methodology for drafting the budget and the expenditure ceilings approved. The shift allows for the implementation of the June-July Country Specific recommendations of the European Semester. Finally, the Budget laws proposals are sent to the Parliament by November 15 instead of 15 October to allow a proper consideration and implementation of October-November Council Resolutions.

Miscellaneous
II.5
What other information is relevant with regard to Romania and changes to the budgetary process?

See also section VII.8 below.

[1] Law no. 500/2002 on Public Finance as amended by law 270/2013, available (Romanian) at: http://www.mfinante.ro/legisbuget.html?pagina=domenii

[2] Law no. 273/2006 on Local Public Finance, available (Romanian) at: http://www.mfinante.ro/legisbuget.html?pagina=domenii

[3] Law no. 69/2010 on Budgetary-Fiscal Responsibility as amended by law 377/2013, available in English at: http://www.fiscalcouncil.ro/legea.htm

 

[4] OECD Journal on Budgeting Volume 4, No 4, Budgeting in Romania, 2005, available at: http://www.oecd.org/countries/romania/39997341.pdf

[5] Law no. 500/2002 on Public Finance as amended by law 270/2013, available (Romanian) at: http://www.mfinante.ro/legisbuget.html?pagina=domenii.

[6] See further the official page of the National Prognosis Commission: http://www.cnp.ro/en/organizare

[7] Source: Law no. 500/2002 on Public Finance as amended by law 270/2013, Articles 31-37, available (Romanian) at: http://www.mfinante.ro/legisbuget.html?pagina=domenii

[8] Available in English at: http://www.fiscalcouncil.ro/legea.htm

[9] European Commission, Fiscal Frameworks across member states, Occasional Papers 91, February 2012, pp. 60-61, available at: http://ec.europa.eu/economy_finance/publications/occasional_paper/2012/pdf/ocp91_en.pdf. 

[10] Law 500/2002 on Public Finances, as amended in 2013

[11] Public Investment Unit act of organization, available in Romanian at: http://discutii.mfinante.ro/static/10/Mfp/rof2013/4_1_674_2013.pdf

[12] See also the official page of the Fiscal Council, available at: http://www.fiscalcouncil.ro/index.html

Slovakia

Budgetary process   
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Slovakia.

The process starts with the Committee for Macroeconomic Forecasts and the Committee for Tax Forecasts, which prepare a macroeconomic and tax reports. By February 15, the Ministry has necessary information for preparing a budgetary framework – a macroeconomic forecast, an overall volume of tax and non-tax revenues and fees (a tax forecast), and determination of a share of deficit/surplus on GDP. Based on that the Ministry of Finance prepares a budgetary framework for upcoming three years alongside the Stability Programme and National Reform Programme usually by the end of March. The budgetary framework includes a medium-term expenditures framework. However, the expenditure ceilings are binding only for the first budgetary year of such three-year budgetary framework and not for the two subsequent years, something that is criticized by the Council for Budget Responsibility.

The Ministry submits the budgetary framework to the Government by April 15. The budgetary framework includes the information on the share of deficit or surplus on GDP. The Government approves the budgetary framework and the Ministry prepares an outline of expenditures and revenues ceilings for individual chapters of the state budget and for budgets of other subjects of the general government’s budget by the end of April. By the end of May, the Ministry prepares an analysis of expenditures and revenues ceilings.

Meanwhile, the Government submits the Stability programme and NRP to the Parliament for approval and sends them to the European Commission by the end of April. Until June 30, the Ministry consults the budgetary works with the subjects of the general government’s budget. On July 1, the Ministry incorporates updated macroeconomic forecast and expected tax and non-tax revenues and fees into its preparation of a draft budget (the Committee for Macroeconomic Forecasts and the Committee for Tax Forecasts shall submit their respective forecasts by June 30). At this time, the Ministry receives Commission’s recommendations approved by the Council and incorporates them into the preparation of a draft budget (this is not regulated by national budgetary rules).

The draft budget must be submitted to the Government by August 15. The deadline of August 15 may be extended if a new Government has been appointed meanwhile, by 60 days since the presentation of a Government program in the Parliament (if this happens before April 15). The Government cannot include such changes that would increase the share of deficit on GDP. The Ministry includes changes and finalizes the draft budget. The Government decides on the draft budget usually by Sept. 30 and submits it to the Parliament by Oct. 15, if not decided otherwise. The Supreme Audit Office submits its report on the draft budget to the Parliament. By the end of December, the budget shall be adopted in the form of a statute by the Parliament and published in the official Collection of Laws.

The cycle is concluded with a State Closing Account, that is prepared by the Ministry of Finance, approved by the Government, and submitted to the Parliament for approval by April 30 of the year following the budgetary year which the report is concerned with. The Government approves the State Closing Account and submits it to the Parliament and the Supreme Audit Office by May 20. The Parliament decides on the use of budgetary surplus if this is the case. The Ministry publishes the State Closing Account on its website within ten days after being approved by the Parliament. By Oct. 3, the Ministry of Finance prepares and submits an Annual Consolidated Report for a previous budgetary year to the Government and the Government submits the report to the Parliament by Nov. 20 for information. The Ministry publishes the Annual Consolidated Report on its website within ten days after being discussed by the Parliament.

Two additional dates are important, although they are not part of the budgetary process. By April 30, the Council for Budget Responsibility publishes its report on long-term sustainability and by Aug. 31, the Council for Budget Responsibility submits its report evaluating the observance of the rules on fiscal responsibility and fiscal transparency in the preceding budgetary year to the Parliament for discussion.

General change           
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

The changes were exhaustively covered in the previous sections of this report. Here, I summarize the main changes:

          New deadlines and reports:

o   Specific deadlines were introduced (April 15 for budgetary framework and August 15 for draft budget)

o   Annual Consolidated Report was introduced (prepared annually on Oct. 3 for a previous budgetary year)

          Budget structure:

o    The upper ceiling on public expenditures has been incorporated in the budgetary rules. It represents an instrument to actively manage the general government balance with a view to ensuring its long-term sustainability. Unlike the debt rule, the mechanisms of which are triggered only if a significant deviation from fiscal position occurs, the expenditure ceilings constitute operational instruments linked to the consolidation targets and the plan for improving the indicator of long-term sustainability of public finances.

o   The institute of public expenditure ceiling is relevant especially within the correction mechanism that is triggered in the event of a significant observed deviation from the MTO; as it is explained in the answer to question VII.7, this correction mechanism may require some immediate changes into an ongoing budgetary process

o   Draft budget includes updated information on the expectations on a current budget and realization of budgets for two previous years

o   Various changes were introduced into accounting to comply with revised ESA

o   New indicators and definitions were introduced – e.g. national net welfare, structural primary deficit, implicit and conditional liabilities, indicator of long-term sustainability

          Obligations of public authorities and other subjects involved in the budgetary process

o   Information and data necessary for budget preparation shall be submitted to the Ministry without compensation

o   New system of collecting data and information is introduced for territorial self-governments – electronic submission through a specialized system

          Introduction of debt brakes affects an ongoing budgetary process when upper two ceilings are surpassed (see more in the answer to question IX.4)

Institutional change        
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

The most significant change is the introduction of an independent Council for Budget Responsibility and strengthening of the independence of two forecasts committees – Committee for Macroeconomic Forecasts and the Committee for Tax Forecasts, which form together an Institute for Financial Policy, an analytical unit within the structure of the Ministry of Finance. The Council for Budget Responsibility also set up an advisory committee for methodology. The Parliament gained a new competence to elect members of the Council for Budget Responsibility suggested by the Government, the President of Slovakia, and the Governor of the central bank (one each). All public entities shall prepare their annual budgets for a period of at least three years and publish information on their budgets within 60 days after a budgetary year is concluded. For the consequences of the introduction of debt brakes for the competences of the Government, Parliament, and territorial self-governments in the extent they affect the budgetary process, see the answer to question IX.4; and for new obligations and role of the Ministry of Finance, the Government, the Parliament, and the Council for Budget Responsibility within the correction mechanism in the event of a significant observed deviation from the MTO see the answer to question VII.7. New competences are also introduced with the new instrument of Annual Consolidated Report prepared by the Ministry of Finance, approved by the Government, and given for information to the Parliament. Finally, the entrenchment of fiscal rules in a constitutional law means that courts, and especially the Constitutional Court, may within existing procedures (abstract review; less probably concrete review) examine a compliance of statutes (for instance a budget act) with the Fiscal Responsibility Constitutional Act.

Change of time-line 
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

For details see the answers to question VII.8. The timeline was more or less the same before the Eurocrisis law. The change consists in setting legally binding deadlines and a new obligation for the Ministry to prepare an Annual Consolidated Report, for which a deadline was set as well:

April 15 – The Ministry of Finance submits a budgetary framework for three upcoming years to the Government

August 15 – The Ministry of Finance submits a draft budget to the Government

Oct. 3 – The Ministry of Finance submits an Annual Consolidated Report for a previous budgetary year to the Government and the Government submits the report to the Parliament by Nov. 20 for information.

Miscellaneous
II.5
What other information is relevant with regard to Slovakia and changes to the budgetary process?

The Law No. 564/2004 Col., on budgetary assignment of income taxes to territorial self-governments was adjusted as a part of a deal between the general government and territorial self-governments on inclusion of territorial self-governments into the Fiscal Responsibility Constitutional Act and their participation in a fiscal consolidation. One of the results was that the exercise of original competences continues to be funded based on a share on the income tax, instead of a tax mix. As part of the effort of fiscal consolidation, the share was decreased from 93,8% to 87,3%. The second part of the consolidation effort was an introduction of debt brakes for territorial self-governments. The Fiscal Responsibility Constitutional Act subjected territorial self-governments to similar fiscal rules applied to the general government. One of the new elements is that municipalities and self-governing regions will be sanctioned if their debt exceeds 60% of their actual current revenues in the previous fiscal year.

The Fiscal Responsibility Constitutional Act in the part concerning the territorial self-governments is implemented through a rather complex amendment to the Law No. 583/2004 Coll., on budgetary rules for territorial self-governments, in force as of January 1, 2014. The amendment creates conditions for the introduction of new electronic system for collecting data and information for the purposes of budgetary process – a budgetary information system for territorial self-governments RIS.SAM administered by the Ministry of Finance. Various changes are introduced regarding the accounting of the self-governments in order to arrive at real debt and deficits information. The amendment introduces a correction mechanism (debt brakes), which is activated when a debt exceeds 50% of actual revenues for the previous year. Changes with a potential impact on deficit may be adopted only until June 30 of a budgetary year. The amendment also restricts economic management under provisional budget and introduced deadline for adoption of budget. Finally, the amendment introduces changes and details to consolidation regime and receivership. 

Slovenia

Budgetary process       
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Slovenia.

The basic provisions for the budgetary process are determined in the Constitution of the Republic of Slovenia, more precisely in Article 148 and Article 149. Article 148 determines that “All revenues and expenditures of the state and local communities for the financing of public spending must be included in their budgets. If a budget has not been adopted by the first day it is due to come into force, the beneficiaries financed by the budget are temporarily financed in accordance with the previous budget.” Article 149 provides that “State borrowings and guarantees by the state for loans are only permitted on the basis of law.”

The Public Finance Act is the law that prescribes more precisely the rules on the budgetary process. The Public Finance Act determines the composition, preparation and execution of the state budget and the budgets of the local communities, asset management, borrowing, guarantees, debt management, accounting and budgetary control. The act determines that the Government is accountable to the National Assembly for the execution of the budget, whereas majors are accountable to their local councils. Both need to report to the National Assembly.

The Public Finance act provides that the government submit to the National Assembly, a proposed budget for two consecutive years (Article 13 and 13a). However, the government can suggest changes to the budget for the second year until October 1, if such changes are required because of the changes in the economic development, or fiscal policy. As explained in the OECD report, “It is . . . not the case that Slovenia makes a biannual budget every two years. Rather it makes two annual budgets every year”.[1]

The Decree on the documents of development planning bases and procedures for the preparation of the central and local government budgets determines that,[2] in adopting the budget, the government should consider the macroeconomic forecasts of the Institute of Macroeconomic Analysis and Development (UMAR) and other independent institutions. The use of the forecasts provided by UMAR has been criticized, given that UMAR is one of the users of the Slovenian budget. However, the forecasts provided by UMAR have been generally considered reliable.

The budget that is approved by the National Assembly is then publicly announced. As explained, it is possible to adopted changes in the budget for the coming year. The Government shall propose such changes if the assumptions of macroeconomic development, economic policy, and fiscal policy have changed, or in the event that the assessment of the execution of the current budget significantly deviates from the approved budget. The changes have to be finally adopted by the National Assembly. It is also possible to adopt changes to the budget of the current year (i.e. rebalans proračuna). The Government should propose such amendments if new obligations have arisen, the revised economic trends show an increase in spending or reduced revenues, or there is a need to implement measures to balance the budget.[3]

In July of each year, the minister responsible for finance and/or the mayors shall report to the Government and/or the local councils on the implementation of the budget in the first half of the year. The Government shall report to the National Assembly. At the end of the budgetary year, the users must prepare a report of their spending and submit it to the Ministry of Finance. The government must then report to the National Assembly.

The Fiscal council is a consultative body for the independent evaluation of fiscal policy. Its members are appointed by the Government on a proposal of the Minister of Finance. The Fiscal Council performs inter alia the following tasks: (i) ex-post evaluation of the sustainability and stability of fiscal policy; (ii) assessment of the medium-term fiscal targets of the fiscal framework; (iii) assessment of the effectiveness of public spending (iv) provision of an estimate of the trends of individual categories of revenue and expenditure of public finances in terms of impact on the sustainability of public finances; (v) assessment of government compliance of fiscal policy with long-term sustainability of public finances of aging. The fiscal council is financed by the government.

The Court of Audit of the Republic of Slovenia[4] is the highest body for supervising state accounts, the state budget and all public spending in Slovenia. The Constitution of Slovenia provides that the Court of Audit is independent in the performance of its duties and bound by the Constitution and law (Article X).

In addition to the Budget Implementation Act, there are several lower acts that determine the budgetary process. The fiscal rule was for instance determined in a decree, which could be amended by the Government to adapt the rule to the current economic and political situation. The fiscal rule was not accompanied by any automatic corrective mechanisms, which would prevent deviation from the rule and predetermined sanctions if the fiscal rule would not be respected. There was no body responsible for monitoring compliance with the fiscal rule and thus no determination of supervisory and potential executive powers of such authority.[5] The fiscal rule was revised through a constitutional amendment adopted in 2013 (see on this under VII.5 below).

General change   
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

Several changes were implemented since the beginning of the crisis.

(i)                In 2013, the Government has introduced a fiscal rule in its Constitution, amending Article 148. (see also question IX.4)

(ii)    There were also amendments to the Public Finance Act. In 2010, the Act Amending the Public Finance Act was adopted,[6] which did however not address the issues related to the harmonization of the national provisions with the EU provision. Further, in 2011, the government adopted the Additional 2012 Intervention Measures Act.”[7]

(iii)  In 2009, the Government established the Fiscal Council intended to act as a consultative body for the independent evaluation of fiscal policy. According to the Court of Audit, however, several factors impair the independence of the Fiscal Council. The Court of Audit maintained that the Government “did not enable independent financial operations of the Fiscal Council, failed to provide adequate expert support to the Fiscal Council in carrying out its tasks, while the Fiscal Council evaluates the work of the authority that appointed it and within which it operates.” Further, the Court of Audit stated that Government failed to ensure adequate consideration and reflection of the Fiscal Council evaluations in the planning of the fiscal policy and preparation of the budget.[8] (see also question VII.5)

(iv)             After the year 2011, the government adopted several acts that affect the rules of the budgetary process. It adopted the Rules on the completion of the implementation of the central and local government budgets for 2012,[9] Rules on the common bases for work procedures of financial services of direct spending units of the budget of the Republic of Slovenia,[10] and the Rules on the transmission of information about debt level and changes in debt level of legal entities of the public sector and communities.[11]

Institutional change 
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

No major changes were adopted so far. Perhaps, there will be changes in the role of the Fiscal Council (see also question VII.5).

Change of time-line     
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

The budgetary memorandum 2011-2012 explicitly states the intention to harmonize the budgetary cycle in Slovenia with the European semester.[12] I am however not aware of any change in the budgetary cycle.

Miscellaneous
II.5
What other information is relevant with regard to Slovenia and changes to the budgetary process?

No other relevant information.

[1] Dirk-Jan Kraan and Joachim Wehner, budgeting in Slovenia, 4 OECD Journal on Budgeting, ¶ 60 (2005), available at http://www.oecd.org/slovenia/39997582.pdf.

[2] Uredba o dokumentih razvojnega načrtovanja in postopkih za pripravo predloga državnega proračuna in proračunov samoupravnih lokalnih skupnosti, Ur.l. RS, št. 44/2007.

[3] http://www.mf.gov.si/si/delovna_podrocja/proracun/splosno_o_proracunu/dokumenti/

[4] Računsko sodišče Republike Slovenije

[5] Court of Audit, Summary of the audit report Efficiency of the Preparation of Budgets of the Republic of Slovenia for the years 2011 and 2012, August 2013. See attachment: IVf Court of Audit Summary of the audit report, at 87.

[6] Zakon o spremembah in dopolnitvah Zakona o javnih financah, Ur.l. RS, št. 107/2010

[7] Zakon o dodatnih interventnih ukrepih za leto 2012, Ur.l. RS, št. 110/2011.

[8] Court of Audit, Summary of the audit report Efficiency of the Preparation of Budgets of the Republic of Slovenia for the years 2011 and 2012, augst 2013. See attachment: IVf Court of Audit Summary of the audit report, at 87

[9] Pravilnik o zaključku izvrševanja državnega in občinskih proračunov za leto 2012 Ur.l. RS, št. 71/2012.

[10] Pravilnik o skupnih osnovah za postopke dela finančnih služb neposrednih uporabnikov proračuna Republike Slovenije, Ur.l. RS, št. 84/2012.

[11] Pravilnik o pošiljanju podatkov o stanju in spremembah zadolžitve pravnih oseb javnega sektorja in občin, Ur.l. RS, št. 3/2013.

[12] http://www.mf.gov.si/fileadmin/mf.gov.si/pageuploads/tekgib/Proracunski_memorandum/pro_memor.pdf

Spain

Budgetary process       
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Spain.

 Article 32 of the Ley 47/2003, de 26 de Noviembre, General Presupuestaria[1] defines the Presupuestos Generales del Estado (State’s general budget) as the numeric and systematic expression of the rights and duties to be settled during the year by the organs and entities that constitute the State’s public sector. In this sense, it is important to stress that Article 2 of the sameInstrument lists the entities, which are considered to be part of the State’s public sector to the effects of the State’s general budget. Besides, given the decentralised character of the Spanish State, the general budget coexists with the budgets of the Autonomous Communities, as well as those of the local governments.

As for the legal framework, the four essential instruments regarding the budgetary process are: the Spanish Constitution; the Ley 47/2003, de 26 de Noviembre, General Presupuestaria; the legislation on budgetary stability, mainly the Ley Orgánica 2/2012, de 27 de abril, de Estabilidad Presupuestaria y Sostenibilidad Financiera;[2] and the yearly Orden of the Ministry of Economy and Competitiveness regarding the rules for the elaboration of the general budget of the State, currently the Orden HAP/981/2013, de 31 de mayo, por la que se dictan las normas para la elaboración de los Presupuestos Generales del Estado para 2014.[3]As for the budgetary cycle, it consists of four main phases:

(1) Elaboration. It starts with the decision on the limit of the non-financial spending for the following year. In this phase, multiple negotiations take place between members of the Ministry of Finance and Public Administration and the rest of ministries and organs of the State. 

(2) Debate and adoption by the Parliament. Before the 1st of October, the Government must send the budget and its accompanying documents to the Parliament. If there is no agreement on a new budget in the Parliament, the one of the year before is extended to the following year. 

(3) Execution. Once the Parliament has adopted the budget, it becomes a Ley (Ley de Presupuestos Generales del Estado), which enters into force on the 1st of January.

(4) Parliamentary, Judicial and Administrative Control. This phase coexists in time with the third one, on the execution of the budget.

General change   
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

The budgetary process has gone through an enormous amount of legal changes since the beginning of the Eurozone crisis. In fact, many articles of the Ley 47/2003, de 26 de Noviembre, General Presupuestaria, which constitutes the cornerstone of the Spanish budgetary system, have been modified since 2008.[4] The novelties affect a variety of issues, for instance: the rules on the budgetary programming and on the elaboration of the budget (Articles 26 and 36, respectively); the administrative control system by the Intervención General de la Administración del Estado (Articles 144, 151, 159); and the financial operations with the EU (Article 83). Besides, a new law on budgetary stability, the Ley Orgánica 2/2012, de 27 de abril, de Estabilidad Presupuestaria y Sostenibilidad Financiera,[5] has been adopted as a result of the Constitutional reform of Article 135, which introduced the balanced budget rule in the Spanish Constitution.[6] Moreover, this new Ley Orgánica has already been modified by Ley Orgánica 4/2012, de 28 de septiembre, por la que se modifica la Ley Orgánica 2/2012, de 27 de abril, de Estabilidad Presupuestaria y Sostenibilidad Financiera.[7]Furthermore, the Ley Orgánica 6/2013, de 14 de noviembre, de creación de la Autoridad Independiente de Responsabilidad Fiscal,[8] has created an independent body for fiscal responsibility (a fiscal council), which shall guarantee that the balanced budget rule is respected throughout the whole budgetary process.

Institutional change 
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

See answer to questions VII.5 and VII.12.

Change of time-line     
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

See answer to question VII.8.

Miscellaneous
II.5
What other information is relevant with regard to Spain and changes to the budgetary process?

See the answers to the questions on to the six-pack, in particular questions VII.7 and VII.15.

[1] See the Ley 47/2003, de 26 de Noviembre, General Presupuestaria (General Budget Law) in:

http://www.boe.es/buscar/pdf/2003/BOE-A-2003-21614-consolidado.pdf

[2]See the Ley Orgánica 2/2012, de 27 de abril, de Estabilidad Presupuestaria y Sostenibilidad Financiera (Budget Stability and Financial Sustainability Law) in: https://www.boe.es/diario_boe/txt.php?id=BOE-A-2012-5730

[3] See the Orden HAP/981/2013, de 31 de mayo, por la que se dictan las normas para la elaboración de los Presupuestos Generales del Estado para 2014 (rules for the development of the State’s General Budget for 2014) in:

http://www.boe.es/boe/dias/2013/06/04/pdfs/BOE-A-2013-5870.pdf

[4] See the link to Ley 47/2003, de 26 de Noviembre, General Presupuestaria, as ubsequently modified, in: https://www.boe.es/buscar/act.php?id=BOE-A-2003-21614

[5]See the link to this Ley Orgánica in note 31.

[6] See more on this constitutional reform in the answer to Questions IX.4-IX.5.

[7] See the Ley Orgánica 4/2012, de 28 de septiembre, por la que se modifica la Ley Orgánica 2/2012, de 27 de abril, de Estabilidad Presupuestaria y Sostenibilidad Financiera (Law modifying the Budget Stability and Financial Sustainability Law) in:

http://www.boe.es/boe/dias/2012/09/29/pdfs/BOE-A-2012-12192.pdf

[8]See this Ley Orgánica in: https://www.boe.es/boe/dias/2013/11/15/pdfs/BOE-A-2013-11935.pdf

Regarding the creation of this fiscal body, see the answer to Question VII.4.

Sweden

Budgetary process   
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Sweden

The Legal Framework

The Swedish budget procedure is regulated by the Instrument of Government (‘Regeringsformen’, a Constitutional instrument), the Riksdag Act (‘Riksdagsordningen’, also a Constitutional instrument), and the Budget Act (ordinary legislation). Constitutional practice, developed over the last 15 years, complements this picture.[1] The rules on the budget procedure in the Instrument of Government are of a framework character. They regulate the division of competence between the Parliament and the Government. These rules are specified in the Riksdag Act. The Riksdag Act also provides the basic rules for the budget procedure, but they are also somewhat of a framework character, and they mainly concern the working procedures in the Riksdag. The details of the budget procedure are provided in the Budget Act. It also stipulates the overall objectives of fiscal policy.

Legislative preparatory works have a significant role in Sweden; they are considered having the status of legal source. For example, Courts are frequently referring to the legislative preparatory works when in doubt how to interpret a legal rule. These preparatory works consist, inter alia, of proposals (sometimes referred to here as ‘opinions’) from Parliamentary Committees. Such legislative preparatory works are seen as giving a clear indication of the legislator’s intentions and also how the legislation should be implemented; they explain the basis for adopted legal acts. Thus, in addition to the legal instruments mentioned above, the Swedish budgetary framework also consists of constitutional practice by the Riksdag and the Government, in the form of legislative preparatory works. The practice is also based on political accords within the Parliament and between the Parliament and the Government. It can also be found in documents that are part of the budget process: the ‘Spring Fiscal Policy Bill’, the ‘Budget Bill’, and the ‘Central Government Annual Report’. The budget process is also governed by internal written guidelines within the Parliament and the Government.

As the Budget Process Committee points out in its interim report on the Swedish implementation of Council Directive 2011/85/EU, the established practice has a strong bearing as ‘deviations from the established procedure are judged likely to generate public criticism, from such sources as independent monitors of the application of the budgetary framework by the Riksdag and the Government’.[2] Thus, any deviations from established practice have to be motivated, and the political opposition and the financial organs would examine it. The economists Boije, Kainelainen and Norlin portray the Swedish fiscal policy framework in the following way[3] :

“To date, the Swedish fiscal policy framework has been regulated by law to only a small extent. Rules enshrined in legislation are likely to be more difficult to reverse or abandon than are rules not supported by law. Acting on government proposals, Parliament has therefore made the use of expenditure ceilings and a medium term net lending target compulsory, by law, from January 1, 2010 and August 1 2010, respectively. The level of the targets should not, however, be subject to legislation. The law concerning expenditure ceilings and the surplus target can be overruled by a simple majority, but changing this law may involve loss of reputation and is therefore likely to be politically costly. Regarding the status of the Fiscal Policy Council, the opposition parties were against its introduction in 2007. However, the opposition’s recent joint budget statement states nothing about the future of the Fiscal Policy Council.”

Instruments

There are two different bills that adopted in the Swedish budgetary process. The Government presents the ‘Spring Fiscal Policy Bill’ in April and the ‘Budget Bill’ in September. These bills are different in content. In the Spring Fiscal Policy Bill, the Government proposes directions and guidelines for the fiscal policy and the budget policy in the longer term; it gives its view on the economy in general; discusses economic-political challenges; and presents estimated effects of implemented measures and reform capacity. The Spring Fiscal Policy Bill also includes give an account of its distribution policy, and an assessment of the sustainability of public finances.

In the Budget Bill, the Government presents concrete proposals for the next fiscal year. It contains detailed budgetary proposals on the allocation of government expenditures and revenue to different areas. The Budget Bill proposes how to distribute the central government’s resources to 27 different expenditure areas, and the distribution to about 500 appropriations within these areas. The Government also proposes a net lending target for the general government sector (surplus target), and a ceiling for central government expenditures for the next three years (expenditure ceiling target). The expenditure ceiling is presented to show the available frameworks for expenditures and revenues in order to meet the surplus target.

The Cycle

The ‘central government budget process’ begins more than a year before the fiscal year.[4] In December, the Ministry of Finance presents economic forecasts to the Government. In January, the other ministries examine the implications of these forecasts for their respective expenditure areas. They submit ‘consequence estimates’ for the next three years to the Ministry of Finance, which analyses them and examines whether the budget objectives for the next few years will be achieved, and if it has to propose expenditure cuts or tax increases.

In February, Government Agencies submit annual reports with financial data and information about their activities, including accounts of how the Agencies have met their objectives. The Agencies are also required to present their budget for the next three years. The Government uses this material as a basis to decide how to calculate expenditure. In March, the Government discusses the general orientation of the government budget. It has to decide the preliminary spending framework for 27 expenditure areas (so-called framework preparation). The Swedish National Audit Office, an Agency under the Parliament, presents audit reports on the Government Agencies’ annual reports.

In April, the Government presents the Spring Fiscal Policy Bill (see above, under ‘Instruments’) to the Riksdag. The Government also presents a separate bill, on a proposed supplementary budget, which proposes certain changes in appropriations for the current year. It also submits an annual report for the central government sector (‘Central Government Annual Report’), in which it presents actual levels of income and expenditure in the previous fiscal year. The Swedish National Audit Office examines it. In June, the Riksdag takes a formal decision on the Spring Fiscal Policy Bill. The Riksdag also decides on the Central Government Annual Report and the Swedish National Audit Office’s audit report. In May, the Fiscal Policy Council submits its report on the Swedish fiscal policy to the Government. In its report, it evaluates the extent to which the fiscal objectives have been achieved.

In May, the Government starts drafting the Budget Bill. The ministries propose how to allocate funds to individual appropriations within the framework for the different expenditure areas (which the Government decided on in March). The Ministry of Finance examines the ministries’ proposals. When drafting the Budget Bill, the expenditure framework, previously agreed on, binds the Government. Also in May, the Government submits written communications to the Riksdag where it describes the achieved results in the different activity areas in the last few years. In June, the Government holds deliberations.

The work on the budget resumes in August (Swedes traditionally take their summer break in July), and the Ministry of Finance negotiates the details on the Budget Bill with the other ministries. In September, the government submits a proposal to the Riksdag on the Budget Bill. After that, the Government may not introduce any changes. When presenting the Budget Bill, the Government also presents a supplementary budget with changes in appropriations for the current year. Individual Members of Parliament from the opposition may submit alternative proposals or amendments on the Budget Bill (‘motions’). These proposals have to be submitted at the latest 15 days after the Government has presented the draft Bill. Each party generally presents an alternative budget.

The Riksdag then starts examining the draft Budget Bill. The Parliamentary Committee on Finance first examines the expenditure ceilings for the coming years and the allocation of expenditure to different areas. It then examines the estimate of central government revenue and expenditure. Other parliamentary committees than the Committee on Finance may also comment on the draft Budget Bill. The Committee on Finance formulates a proposal (‘betänkande’), which is debated in the Riksdag in November. Thereafter, the Parliamentary Committees submit proposals on how to allocate expenditure in the areas for which they are responsible. The Riksdag takes a decision on the Budget Bill in December. Before the end of the calendar year, the Government has to implement the Budget by issuing ‘appropriation directions’ to the Government Agencies. In these instruments, the Government specifies the Agencies’ objectives and the size of available funding.

General change           
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

No changes have been introduced since the beginning of the crisis.

Institutional change        
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

No changes introduced.

Change of time-line 
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

No changes introduced.

Miscellaneous
II.5
What other information is relevant with regard to Sweden and changes to the budgetary process?

No other relevant information.

[1] Information to this section mainly comes from the Budget Process Committee’s interim report on the Swedish implementation of Council Directive 2011/85/EU, pp. 41 to 42 (on the legal framework for the Swedish budget procedure). See also the English Summary of the Report, p 10.

[2] See the English Summary of the Budget Process Committee’s interim report on the Swedish implementation of Council Directive 2011/85/EU, p 10.

[3] Robert Boije, Albin Kainelainen and Jonas Norlin, ‘The Swedish fiscal policy framework’, Nordic Economic Policy Review, Number 1/ 2010, p 209.

[4] For an overview of the budget process in English, see http://www.regeringen.se/content/1/c6/10/22/20/645d8a9c.pdf

United Kingdom

Budgetary process   
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in the United Kingdom.

Institutional Actors[1]

  • The Chancellor of the Exchequer
    • The Chancellor’s responsibilities cover fiscal policy, monetary policy and ministerial arrangements. This means he frames the budget, sets limits of departmental spending and sets the inflation target which the Bank must set interest rates to meet.[2]
  • The Prime Minister
    • Often the Prime Minister is also First Lord of the Treasury and plays an important role in economic and budgetary policy.
  • The Treasury
    • The Treasury oversaw regulatory developments and produced various statutory instruments under the Financial Services and Markets Act 2000. It held the FSA to account through, for example, commissioning the National Audit Office’s review of aspects of the FSA’s work, and commissioned its own periodic reviews of aspects of regulatory policy. 
  • Bank of England
    • Following the Bank of England Act 1998, its main role was to manage monetary policy. It had a statutory objective to ensure stability of the financial system. It mainly fulfilled this role by producing periodic reports on macro‐economic developments and on the activities of financial institutions that might have implications for financial stability.
  • Financial Services Authority
    • The FSA is an ‘integrated regulator’: it regulates all financial institutions carrying on a wide range of investment business, including banking, dealing, and managing financial instruments, and giving financial advice, and it regulates both the manner in which they conduct their business and their financial soundness.

Budgetary cycle

The British budget is set annually as some taxes such as income tax are annual and need to be renewed.

The main stages in the British budgetary process are:[3]

  1. In the autumn, six months before the financial year begins, the Chancellor of the Exchequer makes an autumn statement on the state of the economy to MPs. This is an opportunity for the government to have a mini-budget where the government makes certain proposals on budgetary policy and discusses the economic situation.
  2. A Supply and Appropriations (Anticipation and Adjustments) Bill is passed. This authorises the Vote on Account for the next financial year which allows the House of Commons to vote to allocate to the government an amount of money up to a certain limit for the early months of the financial year until the Supply and Appropriation (Main Estimates) Bill is passed, setting a new limit. It also votes in adjustments if the government has already overspent. This bill is not debated.
  3. The Chancellor makes a Budget Statement to the House of Commons on a Wednesday in March, ahead of the beginning of the fiscal year on 1st April. This sets out plans for how to spend the money that will be authorised by the Commons in the coming financial year.  This contains all the revenue legislation for the year. This will be debated for four days in the House of Commons and for one day in the House of Lords.
  4. After the Budget Statement, proposals for tax changes and tax continuations contained in a Provisional Collection of Taxes motion must be approved. They may come into effect immediately.
  5. Within 10 sitting days a series of Ways and Means Resolutions must be passed for each provision imposing a new tax, renewing an annual tax, increasing or widening the burden of an existing tax, or for other provisions that need to be in operation before the Finance Bill is enacted.
  6. The Finance Bill is introduced. This gives a permanent legal basis to the Resolutions and the Provisional Collection of Taxes Act 1968 provides the necessary interim authority for taxes to be collected before it is passed. It must have a second reading within 30 days. Then, the non-controversial measures will go to a public bill committee and the rest to the Committee of the Whole House.
  7. The Finance Bill goes to the Report stage and third reading on the same day.
  8. Around the time the Finance Bill comes out of Committee there is a day to debate the estimates of each department on what it thinks it will spend in the coming year. Supply resolutions voting the main estimates are voted through at the end of the day.
  9. Finance Bill usually goes to the House of Lords in July, it is given a second reading debate and then is passed without a vote and without further debate on the same day­
  10. The Supply and Appropriations (Main Estimates) Bill is introduced and passed without debate or going through committee which authorises the government to spend the amount as decided in the main estimates.

General change         
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

The Labour Government in 2010 began to put in place a plan to reduce the deficit in the UK.[4]

The Labour government proposed, what later became the Fiscal Responsibility Act[5] in 2010. The aim behind this according to Alistair Darling (then Chancellor of the Exchequer) was to introduce rules and objectives to govern fiscal policy. He claimed frequent changes in monetary policy targets had led to an overall lack of coherence. In the Second Reading in the House of Commons Mark Harper MP (Conservative) commented that the EU had called on the UK to reduce its budget deficit below 3% or to half the level proposed by the Government. In response, Mr Darling stated that “The Commission can make recommendations, but as we are not in the euro, we are not obliged to follow them. We have no plans to change our current policy on that issue. The measures that I have announced in the pre-Budget report and before are sensible and, at this stage and when there is still so much uncertainty as countries emerge from the global recession, it is sensible to reduce the deficit in a way that does not damage our economy.”[6]

The Fiscal Responsibility Act placed obligations on the Treasury to ensure that public sector borrowing as a percentage of GDP reduces annually and is less than half the level in 2010 by 2014. It also placed an obligation on the Treasury to report on progress to Parliament when an Economic and Fiscal Strategy Report, or a Pre-Budget Report are laid before Parliament. The Act also gave Parliament the power to vote on the government’s medium term fiscal plans including proposed borrowing and debt totals. Thus new stages were added to the budgetary cycle.

This has now been replaced by a Budget Responsibility and National Audit Act 2011[7] . This Act introduces a number of new measures. Firstly, the Act sets up the Office of Budget Responsibility. This is an independent financial watchdog and fulfils many of the requirements regarding forecasting contained in Directive 2011/85/EU. Secondly, the Treasury is to create a Charter of Budget Responsibility. This has been done and includes debt management objectives and the fiscal mandate. Finally, the Act also introduces a new stage to the budgetary process: an annual Financial Statement and Budget Report.

There are a number of overlaps between the Budget Responsibility Act 2011 and the Six Pack legislation, but the changes are not directly attributed to the EU measures and in some instances pre-date them.

Institutional change         
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

The three main institutions that from 1997 were responsible for the management and regulation of the UK’s financial system were the Bank of England, HM Treasury and the Financial Services Authority (FSA). The Tripartite arrangement, as it became known, was in operation during the 2008 financial crisis and subject to much criticism.[8]

With the crisis came the decision to alter the institutional arrangements. The FSA faced criticism for being too weak. In particular it faced criticism for failing to prevent the collapse of Northern Rock and in not foreseeing the extent of the financial crisis. With the advent of the coalition government in May 2010, wide-ranging and radical reforms were proposed.

In this regard, the decision was made to give the regulatory role of the FSA to the Bank of England. The Financial Services Act 2012 will create an independent Financial Policy Committee (FPC) at the Bank of England. The FPC will have responsibility for preventing credit and asset bubbles and ensuring overall financial stability. The FSA will cease to exist and will be replaced by the following: a Prudential Regulation Authority (PRA) part of the Bank of England, focussing on prudential issues; and a Financial Conduct Authority responsible for business and market conduct.

The appointment of leaders of financial institutions has also come under question. A private members’ bill was introduced to Parliament which would require the approval of any Bank of England governor being subject to the House of Commons Treasury Select Committee.[9] This follows the change introduced by the Budget Responsibility and National Audit Act 2011 which requires the Chancellor of the Exchequer when appointing the chair to the Office of Budget responsibility to seek the consent of the Treasury Committee of the House of Commons.

The Budget Responsibility and National Audit Act 2011 led to the creation of the Office of Budget Responsibility. This has four main roles:

  • Producing five-year forecasts for the economy and public finances twice a year. The forecasts accompany the Chancellor’s Budget Statement (usually in March) and his Autumn Statement (usually in late November) and they incorporate the impact of any tax and spending measures announced by the Chancellor.
  • Judging the Government’s performance against its fiscal targets.
  • Scrutinising the Treasury’s costing of tax and welfare spending measures.  
  • Assessing the long-term sustainability of the public finances:

Change of time-line
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

Section 5 of the European Communities (Amendment) Act 1993 requires that the Government, “shall report to Parliament for its approval an assessment of the medium term economic and budgetary position in relation to public investment expenditure and to the social, economic and environmental goals” as set out in the convergence report. The UK’s Convergence Programme itself does not require Parliament’s approval, but it must be based upon an assessment of the economic and budgetary position which has been reported to Parliament by the Government for its approval. [10] Thus, a debate needs to occur before the submission of the convergence programme.

At times, the UK Convergence Programme is sent to the EU before its approval by Parliament. For example, in 2011 it was deposited with the EU on 28 April 2011 but only approved by Parliament on a deferred Division on 4 May 2011. Mr Hoban noted that the agreed deadline is 30 April for submission of both Convergence Programmes and National Reform Programmes. In such instances, the Commission is advised that the document must be regarded as a draft until parliamentary scrutiny procedures are completed. This has been established practice in recent years where parliamentary debates on the Government’s economic and budgetary assessment have not taken place at the time of submitting the Convergence Programme to the EU.

Miscellaneous
II.5
What other information is relevant with regard to the United Kingdom and changes to the budgetary process?

Not applicable

[1] Some of this is take from J. Black, ‘The Credit Crisis and the Constitution’, in D. Oliver, T. Prosser, and R. Rawlings (eds.), The Regulatory State. Oxford: Oxford University Press, 2010, p. 92-128.

[2] https://www.gov.uk/government/ministers/chancellor-of-the-exchequer; http://www.parliament.uk/documents/commons-information-office/Chancellor.pdf

[3] http://www.parliament.uk/Templates/BriefingPapers/Pages/BPPdfDownload.aspx?bp-id=SN00813

[4] This closely follows McEldowney, J.F. ‘The Constitution and the Financial Crisis in the UK: Historical and Contemporary Lessons’ in Contiades (ed) Constitutions in the Global Financial Crisis (Ashgate, 2013)

[5] Fiscal Responsibility Act 2010 http://www.opsi.gov.uk/acts/acts2010/ukpga_20100003_en_1 

[6] HC Hansard, 5 Jan 2010, Col 65-66 http://www.publications.parliament.uk/pa/cm200910/cmhansrd/cm100105/debtext/100105-0011.htm

[7] http://www.legislation.gov.uk/ukpga/2011/4/pdfs/ukpga_20110004_en.pdf

[8] This closely follows McEldowney, J.F. ‘The Constitution and the Financial Crisis in the UK: Historical and Contemporary Lessons’ in Contiades (ed) Constitutions in the Global Financial Crisis (Ashgate, 2013)

[9] See Bank of England (Appointment of Governor) Bill (as introduced) http://www.publications.parliament.uk/pa/bills/cbill/2012-2013/0008/2013008.pdf and accompanying Research Paper http://www.parliament.uk/briefing-papers/RP12-35 .

[10] HC Hansard, 23 May 2011 : Column 356W http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm110523/text/110523w0001.htm