Governing the City State - Chief Minister and Treasury Directorate ...

Strengthening Budget Discipline and AlignmentThe annual Budget cycle, broadly speaking involves consideration of two types of proposals:• funding for (often demand driven) budget pressures; and• proposals for an expansion in the scope of existing services or for new services.Unless the ACT Government’s strategic planning and service frameworks are broughttogether and coordinated through the annual Budget process, achievement of key strategicgoals will be compromised. Budget and service strategies are inextricably combined andessential to each other. If the Budget process is a weak link in the machinery of government,then all government strategies and priorities are put at long-term risk.Currently, the focus of the debate in the Budget Committee of Cabinet is on accommodatingthe spending proposals within the fiscal envelope. In effect this drives an incrementalapproach to budgeting, to which the majority of existing expenditure is invisible.A consistent view emerged through consultations that the annual Budget process involvesunnecessary work for Ministers and the ACTPS, is therefore inefficient and could besupported better by officials. The view was also expressed that the constraints of theAppropriation Framework and current custom of a single appropriation bill each year fostersperverse incentives that again manifest themselves in inefficiency and unnecessarilyadversarial approaches.An annual Budget cycle without a standing capacity to vary appropriations through the yearcreates perverse incentives to underestimate the cost of a proposal or inflate ambit claims inthe Budget process, and makes holding the line on spending within budget rules almostimpossible. It also encourages – rightly – the current Department of Treasury to be reluctantto advise the Treasurer to agree to requests to access the Treasurer’s Advance through theyear. In this context, the definition of “urgent and unforeseen” tends to be stretched byagencies and overprotected by Treasury.Budget discipline is also undermined by an entrenched belief that the fiscal situation willalways be better in the final result than forecast. While fluctuations in the final resultcompared to Budget in every jurisdiction are inevitable, the accuracy of estimates for matterswithin the ACT Government’s control is strong. Spending proposals would be managedbetter by a rule that if expenditure exceeds what is estimated, offsetting savings must befound from within the same Directorate.In addressing these issues, one option would be to delay the ACT Government budget untilafter the Commonwealth Government delivers its Budget. Given the significance ofCommonwealth Government grants to ACT Government revenues, and the Australian PublicService to the ACT economy, there is scope for material changes to the ACT Budget positionas a result of every Commonwealth Budget. This proposed approach would permit the use ofpublished Goods and Services Tax revenue estimates in the ACT Budget decision makingprocess – at present the Treasury uses an estimate – and allow the Australian Government’simpact on the broader economy to be taken into account.Strategy, Resource Allocation and the Vacant Middle Ground: 235