Public Sector Governance and Accountability Series: Budgeting and ...

242 Salvatore Schiavo-Campo
often raised that estimating future costs is difficult, especially for recurrent
costs of new public investment projects. Although true, this factor is irrelevant:
without such estimates, budgeting is reduced to a short-sighted and
parochial exercise. In addition to including a multiyear perspective, good budgeting
should meet some key conditions and avoid several common pitfalls,
as discussed next.
The Need for Early Decisions
By definition, preparing the budget entails hard choices. These decisions can
be made, at a cost, or avoided, at far greater cost. The ostrich that hides its head
in the sand pays a heavy price. The necessary tradeoffs must be made explicit
when formulating the budget. Doing so will permit a smooth implementation
of priority programs and prevent disruption of program management during
budget execution. Political interference, administrative weakness, and lack of
needed information often lead to postponing these hard choices until budget
execution. This postponement makes the choices harder, and the consequence
is a less efficient budget process. As repeatedly noted, an unrealistic budget
cannot be executed well.
When revenues are overestimated and expenditures underestimated,
sharp expenditure cuts must be made later when executing the budget. On
the revenue side, overestimation can come not only from technical factors,
such as a bad appraisal of the impact of a change in tax policy or of
increased tax expenditures (see chapter 2), but often also from the desire
of politicians or ministries to keep in the budget an excessive number of
programs while downplaying the difficulties of financing them. Similarly,
on the expenditure side, while underestimation can come from unrealistic
assessments of the cost of unfunded liabilities (for example, benefits
granted outside the budget) or of permanent obligations, underestimation
can also be a deliberate tactic to launch new programs, with the intention
of requesting increased appropriations later, during budget execution.
Unfortunately, governments are commonly reluctant to abandon an
expenditure program after it has been started, forgetting that one should
never throw good money after bad. When combined with bureaucratic and
political momentum as well as vested interests, this natural reluctance
leads to continuing an expenditure program even when a broad consensus
exists that it is ineffective and wasteful. No technical improvement can by
itself resolve institutional and political problems of this nature. It is that
much more important, therefore, to put in place robust gatekeeping