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

260 Salvatore Schiavo-Campo
total revenues and expenses and projections for the next three years. This
statement is published at least three months before the budget is presented
to the parliament and is reviewed by a parliamentary committee but not
formally voted.
The problem with fiscal responsibility rules is they are usually a government’s
contract with itself. In a presidential system of government, the
system has extreme difficulty enforcing on itself a fiscal discipline rule when
the chief executive feels the need to violate it, as he or she can always claim
reasons of state and unusual needs. In a parliamentary system, where the
government is a creature of the legislature, for the legislature to enforce a
fiscal rule is equivalent to declaring no confidence in its own government.
The issue is thus the oldest issue in contract law: a contract, however freely
entered into, has no legal or practical meaning unless it is enforceable, and
no enforcement mechanism exists in a government’s contract with itself to
respect certain rules of fiscal behavior.
This reality still allows three situations in which binding fiscal rules may
be useful. First, in countries with a vibrant civil society and an active political
exchange, breaking a major and public commitment may entail a political
price. Second, in countries with fragile coalition governments, fragmented
decision making, and legislative committees acting as a focus for periodic
bargaining, setting up legally binding targets may be effective to limit political
bargaining. Third, and probably most relevant, fiscal responsibility rules may
apply to states in a federal country, for in this case the contract enforcement
authority does exist: the national government. In any case, binding fiscal
rules must not be confused with the need to provide aggregate expenditure
ceilings to all line ministries and agencies at the start of the budget preparation
process, emphasized in the next section.
Stages of Budget Preparation
In the budget formulation process, close cooperation between the ministry
of finance and the top leadership (president’s office or prime minister’s
office) is required. The role of the leadership is to oversee that the budget is
prepared along the policies defined, to arbitrate or smooth over conflicts
between the ministry of finance and the line ministries, and to ensure that
the relevant stakeholders are appropriately involved in the budget process.
An interministerial committee is needed to tackle crosscutting issues and
review especially sensitive issues. That being said, a sharp distinction exists
between the three stages of budget preparation: the top-down, bottom-up,
and negotiation stages.