Friday Nov 15, 2024
Friday Nov 15, 2024
Wednesday, 21 January 2015 00:00 - - {{hitsCtrl.values.hits}}
The World Bank states: “The word budget is a Middle English word for the king’s bag which contained the money necessary for public expenditure. Budgets evolved in two directions. At first, Parliaments fought to take control of the budget and make governments accountable for the use of resources. In democratic societies, for instance, approval of the budget (the ‘power of the purse’) is the main form of parliamentary control of the executive. The budget authorises the executive to spend and collect revenues. In later years, the scope of government activities expanded considerably and the role of the government budget became more complex.
“Today, government expenditure is aimed at a variety of objectives, including economic development and social goals or redistribution objectives. Hence, governments need sound fiscal policies, i.e. policies concerning government revenues, expenditure and borrowing to achieve macroeconomic stability and other government objectives. The budget is the most potent instrument of the Government in carrying out its policies. In countries with representative governance systems, the budget is the financial mirror of society’s choices. Public money should be spent only under the law.
“The scope of the budget depends on the field of activities of the Government but must also be in a form to allow Government policies to be appropriately scrutinised by the legislature and the public. Assessing the soundness and the realism of tax forecasts should be the preliminary step in analysing a budget. Since fiscal stabilisation, distribution or allocation objectives can be achieved
either through tax policy or through public expenditure policy, common issues need to be reviewed together, especially those concerning policy goals that can be achieved through direct spending, tax expenditures or both.
“Accordingly, it is necessary during the budget formulation process to coordinate the preparation of the expenditure and revenue portions of the budget and consolidate them into a single document at the time of presentation to Parliament.”
Some of the important objectives of government budgets are reallocation of resources, reducing inequalities in income and wealth, economic stability, management of public enterprises, economic growth and reducing regional disparities.
The role of civil society
Civil society must benchmark above expectations and standards with a review of the process leading to the announcement of the Budget, substantiate budget numbers and validate the deliverable outcomes. It must examine whether political, official, business, academic, journalism and civil society leaders who sang hosannas following the Budget announcement have assured the validity of assumptions and numbers, outcomes and especially, acceptable reallocation of resources, reduced inequalities in i
ncome and wealth, sustainable economic stability and have laid a foundation for effective management of public enterprises, achieving sustainable economic growth and reducing regional disparities.
They must also assess whether the revenue and expenditure forecasts are realistic, achievable in the likely external environment and examine whether there are any serious risks in the sustainable future. They must examine whether the Budget is a collective effort of all relevant stakeholders.
Did these estimates conform to the required framework of accruals accounting, incorporate provisions for contingent losses, provisions for expected negative free cash flows of public investments and independent corporations, consolidation of losses of state enterprises and provisions for impaired assets and liabilities under guarantees of State and State-owned corporations?
An effective review of the Budget approval process, benchmarking with New Zealand’s legislative process, especially during the working committee review, requires a collective initiative of the officials and external experts, professionals and civil society participating actively in such a process.
An impartial and independent review will reflect that the 2015 Budget violated most expected norms.
Credibility, transparency, accuracy and right to information
With several issues of significance having been raised by independent professionals, including some yet in government service, the level of credibility, transparency and validity of published key economic data remain highly questionable.
Two respected economists cum columnists have regularly in their columns pointed out many examples that challenge the credibility and accuracy of published data. The issues of data inconsistencies and methodological soundness were highlighted in several presentations made by recognised professionals during the annual sessions of the Sri Lanka Economic Association.
Central Bank officials however continue to follow the ostrich culture, where they, with a ‘buried head’ outlook, claim that these issues are not unique to Sri Lanka and have been addressed.
The laughable fiasco of senior Central Bank personnel justifying that the country has done well despite its fall in the World Bank’s Ease Of Doing Business index by slipping from last year’s 85th place to 99th position this year, lends credence to the public opinion that misrepresentation and deception in search of ‘window dressing’ are not only fine arts mastered under the the- ruling regime but probably an embedded core value of their governance framework. The new regime must address this serious issue by arranging early a professional due diligence audit conducted by a competent panel.
It was clearly evident that, at the last minute, the Budget proposals had been changed by either two or a few individuals in order to accommodate Budget handouts targeting an election victory.
In the absence of right to information laws and independent public institutions headed by persons of independence and integrity, the budgeting and budgetary control processes will remain within questionable realms.
Priority and equality of allocation of national resources
The Overseas Development Institute’s publication ‘Equity in Development - Why is it important and how to achieve it’ states: “Promoting equity is valuable in itself, is likely to contribute significantly to positive processes of social change, has the potential to improve development programming and may add value by marshalling involvement, enthusiasm and political support for development efforts. The key question is whether there is the political will?
A policy agenda for equity would involve focusing on the following:
