Discussion Paper prepared for the World Bank Institute
[Final version submitted for publication.]
Abstract Following a period of decline in influence, it appears that many legislatures are starting to reclaim a more active role in the budget process. Democratization and constitutional reform, in particular, provide opportunities for legislatures to redefine their contribution to public budgeting. Effective legislative participation provides essential checks and balances, enhances openness, facilitates public debate, and provides a platform for broadly based input that can help to deepen consensus about budget choices. While some legislatures exert significant influence and affect budget outcomes at various levels, others remain passive rubberstamps. A range of variables combine to determine such differences between countries, including constitutional structure, the design of budget amendment powers, party political dynamics and the technical capacity of legislatures to engage with budgets. The challenge is now to establish supportive institutional mechanisms that can help to reconcile legislative activism with fiscal prudence, and to tailor these mechanisms to different national circumstances.
Acronyms IPU Inter-Parliamentary Union
OECD Organisation for Economic Co-operation and Development
1. The changing landscape of legislative budgeting 7
2. Why legislatures should have a role in budgeting 8
2.1 Constitutional requirements and the ‘power of the purse’ 8
2.2 Checks and balances as ingredients of ‘good governance’ 8
2.3 Openness and transparency 9
2.4 Participation and consensus building 9
3. Assessing the impact of legislative participation 10
3.1 Extent of budget policy impact 10
3.2 Impact on budget outcomes 13
4. Explaining the differences 14
4.1 Presidential versus parliamentary systems 15
4.2 Design of parliamentary powers to amend the budget 15
4.3 Party political dynamics 16
4.4 Legislative budget research capacity 17
4.5 Access to relevant information 17
4.6 Legislative committees as the ‘engine room’ for financial scrutiny 19
4.7 Time for scrutiny and the timing of the budget process 20
4.8 Other factors and considerations 20
5. The search for supportive institutional mechanisms 21
Useful Websites 26
Back from the sidelines?
Redefining the contribution of legislatures to the budget cycle
The struggle over parliamentary participation in financial decisions defined key moments in the evolution and rise of modern democratic government (Harris 1975, Reid 1966). As the budget is the key economic policy tool of the government, and constitutes arguably its most comprehensive statement of priorities, one would expect that once gained, powers over financial decisions would be jealously guarded by the national legislature.1
Year after year, legislatures across the globe consider the annual state budget and authorize governments to raise revenues and carry out expenditures. Following budget execution, independent audit institutions produce reports that inform the legislature whether the budget it approved was properly implemented. But a formalized process of scrutiny does not automatically translate into a meaningful budgetary role for legislatures. It appears that parliamentarians across countries are asking very similar questions as to how they can engage more effectively with the budget process. While circumstances and challenges differ, many express a need to strengthen their role. Some legislatures have taken active steps to do so.
To answer to this quest, it is important that we improve our knowledge of the role of legislatures in budgeting. Historically, the study of the impact of legislatures on policy and budgets has been most fully developed in the United States (Oppenheimer 1983). But we still know little about these issues in non-congressional systems and in developing countries in particular. The purpose of this paper is to provide an initial overview of the emerging terrain of legislative involvement in budgeting.
At a time when there is renewed appreciation of the potential inherent in active legislative participation in the budget process, fiscal architects are challenged to ensure that increased activism can be made to contribute to, rather than detract from, sound budget outcomes. Ultimately, this paper argues, increased engagement of national legislatures with budgeting is desirable and can make a positive contribution to budget outcomes at various levels. But there are also risks involved in the expansion of legislative influence, which have to be recognized. The paper considers some possibly useful institutional devices for reconciling legislative activism and fiscal prudence.
1. The changing landscape of legislative budgeting
From a long term perspective the influence of national legislatures on budget policy making has declined in most industrialized countries (Coombes 1976, Schick 2002). The budgetary decline of parliament is perhaps most evident in Britain, where the House of Commons has long ceased to amend or otherwise influence expenditure and revenue measures proposed by the executive (Davey 2000).
Several developments explain this trend. The emergence of disciplined political parties has reigned in legislative independence. Devolution of spending, and to a lesser extent of revenues, has chipped away at the comprehensive control of public funds by national legislatures. In addition, the massive expansion of entitlement spend in the 20 century has substantially rigidified budgets and commensurately decreased the remaining margin for active legislative engagement in annual budgets. With the growth of public spending and the increasing complexity of public finances, the executive budget proposal became the standard against which legislative action was measured.
But there are now signs that some OECD country legislatures are attempting a budgetary comeback and start to regain a more active role. In France, for instance, the National Assembly recently initiated a wide ranging set of budget reforms. The resulting changes include a reclassification of the budget in order to support parliamentary oversight and an expansion of powers to amend expenditures (Chabert 2001).
In developing and transition countries, a substantial number of legislatures are moving towards budgetary activism. Perhaps the primary reason for this development is that democratization and constitutional change have opened up possibilities for legislature participation in many previously closed systems, notably in parts of Latin America, Africa and central Europe. A good example is the Brazilian Congress, which historically played no significant role in the budget process. Democratization in the 1980s led to constitutional changes that gave Congress powers to modify the budget and have resulted in substantial levels of activism (Blöndal 2003).
In addition, there has been a recent shift in international financial institutions and donor agencies towards participation in setting development goals and strategies. Developing countries are now asked to access international finance on the basis of comprehensive Poverty Reduction Strategy Papers (PRSPs) that are meant to be compiled through an in-country participative process. This shift is linked to renewed interest by the international donor community in the quality of the budget process and the governance of the budget for a variety of reasons, in particular the realization of the failure of conditionality in development lending and evidence on the effectiveness of aid (World Bank 1998). This provides an opportunity for legislatures in poor countries to reengage with development policy and budgets (Stapenhurst & Pelizzo 2002).th