Public Finance and Society

Quote of the day;

“… public finances are one of the best starting points for an investigation of society. The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare — and this and more is written in its fiscal history.” He cites Goldscheid. 1917. Staatsozialismus order Staatskapitalismus. “the budget is the skeleton of the state stripped of all misleading ideologies.”

Better Know Your Baselines

Why baselines are important;

Baselines are essentially the status quo, the starting point for whatever fiscal discussion you're having, and help show the change certain policies might have on the federal budget. However, as TaxVox, the Tax Policy Center's blog, pointed out in a great post last year, not everyone uses the same baseline, and some baselines are better than others

We Promise to Obey IMF and adopt a Fiscal Responsibility Law

Ireland's Letter of Intent;

We are preparing institutional reform of the budget system taking into account anticipated reforms of economic governance at the EU level. A reformed Budget Formation Process will be put in place. Furthermore, we will introduce a Fiscal Responsibility Law which will include provision for a medium-term expenditure framework with binding multiannual
ceilings on expenditure in each area by end-July 2011 (structural benchmark). A Budget Advisory Council, to provide an independent assessment of the Government’s budgetary position and forecasts will also be introduced by end-June 2011 (structural benchmark). These important reforms will enhance fiscal credibility and anchor long-term debt sustainability.

CATO Balances the Budget

Downsizing the Government

Quote of the Day- On the Quality of Budget Speeches

The budget speech was additionally turned into a management tool by Yashwant Sinha. Every sentence of the budget speech is put into a spreadsheet, responsibility for implementation is assigned, and quarterly reports are produced about progress of implementation. Through this, the budget speech has become the workplan of government for the year. What gets announced in the budget speech tends to get done. Few things get done in the year other than what is announced in the budget speech.

- Ajah Shah, Which type of budget speech is this?

Sri Lanka Budget 2011

Skimming through Sri Lanka budget speech;

-I undertook a Pre Budget Review of all 25 districts and provincial level work. I wish to share some evidence of progress. Sri Lanka’s poverty which was 15.2 percent in 2006 has declined to 7.6 percent in 2010. Most important development is that poverty in rural areas has declined from 15.7 percent to 7.6 percent while in the estate areas, it has declined from 32 percent to 9.2 percent. We will direct our strategies to reduce poverty below 5 percent within the next 5 years...

-All island unemployment which was 7.2 percent in 2005 has dropped to 5.8
percent by 2009. In addition, earnings of our farmers and the labour force have increased. In 2005, farmers could not secure even Rs.10 for a kilo of paddy they produced. We managed to maintain it in the range of Rs. 24 – 28 per kilo.

-Our country is ranked first in the world in the health and survival indicators, sixth in the political empowerment indicators and among the top 20 in the world in gender equality indicators as well as a location attractive for outsourcing. Our performance in education and health is above average.

-The export potential of value added, branded exports has been estimated in excess of US$ 5 billion over the medium term.

-Tourism should be a billion dollar business. Although
tourist arrivals have picked up and expected to be around 600,000 this year, earnings from tourism shows only a moderate increase. This is largely because the industry as a whole is underpriced. Therefore, I propose to impose a levy of US$ 20 per bed on all five star hotels which charge a room rate that is less than US$ 125 per night from January 2011 in order to compel all hotels to charge better rates.

-We must get ready to facilitate 2.5 million high spending tourists by 2016. Tourists must see our richness and diversity. Over the next few years the capacity of this industry need to be tripled from the current level of around 15,000 rooms.

-Sri Lanka is fast emerging as a niche global destination attracting outsourcing of IT and BPO services. It has become the fifth largest exporter. At present, the country is ranked seventh among the 50 best emerging global cities that attract outsourcing...The Government has launched various programs to increase ICT literacy to 75 percent by 2016.Our aim is to make this industry a US$ 2 billion export activity by 2016.

-our key goal in this decade of development is to improve our productivity by 5-6 percent per annum.

-SriLankan Airline and Mihin Lanka will be expanded with new aircrafts to increase the fleet to 30 by 2012. I propose to exempt SriLankan and Mihin Lanka from all taxes for a period of 10 years to strengthen the two enterprise

-nearly 3 million Sri Lankans are engaged in overseas employment.
The remittance income to the country is expected to be nearly US$ 4 billion this year. However, there is no proper social security system for these people when they reach old age. Therefore, I propose to set up an Overseas Employees’ Pension Fund (OEPF).

-My attempt in this Budget is to sustain our achievements and manage future risks in our economy. We have achieved an economic growth rate of near 8 percent. Inflation has stabilized at around 6 percent. Poverty has come down to 7.6 percent and unemployment to 5 percent. These are all achievements within 5 years. This argues well in favour of our development strategy. The Central Bank has built up US$7 billion reserves. Our banking system has a further US$ 1.5 billion. So the economy has sufficient external assets. All these are achievements that all of us must be proud of. A low rate of inflation of around 5-6 percent, economic growth rate of around 7-8 percent and a society free from poverty are our medium term targets.

-raising income beyond US$ 4,000 per capita is not the only objective in our strategy. People need equitable opportunities to enjoy such high income.

For Discussion: How do you rate this budget speech?

Related:
Budget Speech 2011

2011 budget to introduce fiscal reforms

"The 7.5 percent budget deficit target should be achieved comfortably
as the expenditure would be the same like last year and the revenue is
picking up," Jayasundera said. He said economic growth would be close
to 7 percent, as earlier forecast.

"The reserves are more than the IMF target. I am optimistic of the IMF
releasing both the third and fourth tranche together," he said.

Jayasundara said he expects tourism revenue to grow to $1 billion
annually from its present $400 million, and foreign direct investment
to boom to $1.5-2 billion annually from around $600 million now.

He said foreign investment inflows should put upward pressure on the
rupee currency. "I see a higher probability for appreciation than
depreciation," he said.

The six areas where the budget speech has to deliver

Core public goods are international relations, defence, police and judiciary. These are the foundations of civilised existence. They are pure public goods in that everyone benefits when these are done properly. When law and order conditions are good, a new born child benefits from these without imposing any new cost upon the country.

You Too Can Fix the Budget

Budget Puzzle: You Fix the Budget

O.K., You Fix the Budget

The Deficit Commission and Enactment Strategies

For Discussion- Should Public Commissions include concrete implementation strategies in their reports as David Brooks alleges below;

The report from the chairmen lists some of the best ways to raise revenue and cut spending. But it comes with no enactment strategy. In this climate, asking politicians to end the mortgage deduction and tax employer health care plans and raise capital gains taxes and cut benefits for affluent seniors is like asking them to jump on a buzzing sack full of live grenades. They won’t do it.

Related:
Deficit commission leaders are not addressing the root causes of the long-term deficit

The PowerPoint

So, About That Deficit Commission ...

Tax revenues capped at 21% of GDP

The deficit commission report
Mankiw is happy, Krugman and DeLong are upset.

Panel Seeks Social Security Cuts and Higher Taxes

The deficit commission’s plan

Evaluating Government Employment and Compensation- A Primer

Just released brief from IMF.

Evaluating Government Employment and Compensation
Author/Editor: Clements, Benedict J. , Gupta, Sanjeev . Karpowicz, I. , Tareq, Shamsuddin

Related:
Wage Policy and Fiscal Sustainability in Benin

Kiribati: 2009 Article IV Consultation - Staff Report

Kenya: Selected Issues and Statistical Appendix

How to Praise a Finance Minister

"The observed resilience of the Mauritian economy is a testimony to the positive impact of the reforms carried out since 2006, which favoured economic diversification and adaptation at the same time that it created fiscal space for expansionary macroeconomic policies and other innovative, timely, temporary and targeted responses to cushion the crisis impact".

-World Bank, Mr Fabiano Bastos, quoted in the Budget Speech

Fiscal Space

Interesting staff policy note from the Fund on Fiscal Space.

Why is Peter Orszag leaving?

Mr. Orszag, you may recall, was the administration’s main proponent of “bending the curve” on health care expenditures. Frustrated that House Democrats wouldn’t accept some painful cost-cutting measures in the new health care law, Mr. Orszag pushed for and won a controversial provision to create something called the Independent Payment Advisory Board. This is an outside commission of 15 appointees who will, beginning in 2014, identify cuts to Medicare if the plan exceeds a preset rate for growth. Congress then has to either approve the cuts or propose an alternative.

The significance of this new advisory board goes well beyond the immediate question of how to rein in Medicare costs. Mr. Orszag, who declined to be interviewed, has said that the board represented, for Congress, the “single-biggest yielding of power to an independent entity since the creation of the Federal Reserve.” In other words, the Medicare Board isn’t only a means of cutting government spending; it is a means, too, of wresting the constitutional responsibility for budgeting away from powerful committee chairmen.

The Medicare Board may be the most striking example of this strategy, but it is hardly the only one. Mr. Orszag also helped broker the creation of an 18-member debt commission that will offer specific alternatives for re-ordering the federal budget. The administration has also proposed a bill — known in the punchy language of Washington as “expedited rescission authority” — that would effectively give the president the power to strike out spending items after the budget has been approved.

-Budget Chief tried to tilt power to Executive Branch

PFM in MENA- what's the value for money of 407 billion dollars

A new report from the World Bank "Public Financial Management Reform in the Middle East and North Africa: An Overview of Regional Experience" surveys the experience of the region on the topic of public financial management reform.

According to the most recent World Bank data, governments throughout the MENA region spent approximately $407 billion dollars in 2007 in delivering their policy, regulatory and service functions.

Related:
Executive Summary
Country Cases

In Pictures- UK Emergency Budget

via Big Picture

 via The Economist

The first crucial decision he had to make was his goal for the public finances: his “fiscal mandate”. He set an exacting objective of balancing the cyclically adjusted current budget (which excludes net investment) within five years. In his next big decision, he plumped for overachieving: the specific plans he set out over the next four years mean that the goal should be met in 2014-15, a year early.

Check list for ensuring value for money of public spending?

British Treasurer George Osborne issued details of the 'process and principles' that will underpin the Spending Review;

-Thinking innovatively about the role of government in society;
-Taking the difficult decisions to reduce the deficit collectively as a Government; and
-Consulting widely using all available talents to deliver a stronger society as well as a smaller state.

It also lists a check list of criteria for evaluation public spending-

• Is the activity essential to meet Government priorities?
• Does the Government need to fund this activity?
• Does the activity provide substantial economic value?
• Can the activity be targeted to those most in need?
• How can the activity be provided at lower cost?
• How can the activity be provided more effectively?
• Can the activity be provided by a non-state provider or by citizens, wholly or in
• partnership?
• Can non-state providers be paid to carry out the activity according to the results
• they achieve?
• Can local bodies as opposed to central government provide the activity?

Related:
How the UK Will Wield the Razor;

The first is that there is too much emphasis on efficiency gains as the source of savings, whereas the focus should have been primarily on program cuts. Thus the number one objective of the new “strategic approach to spending” outlined in the government’s document is a “step change in the drive for efficiency and value for money in the public sector” – with specific mention of operational efficiencies, contract renegotiations, benchmarking and the maximization of collective buying power. Substantial quick reductions in public expenditure can, however, only come about by eliminating or scaling back whole programs...

One notes in this context that the nine criteria which ministries will be asked to apply in reviewing their expenditure are not as single-mindedly focused on the identification of program cuts as was the case with the six tests applied in the Canadian program review process, but instead wander into the areas of improving the targeting and effectiveness of programs. To be fair, the government document does mention welfare spending as a key focus of the spending review, and this is very important. But overall, there needs to be a much greater focus on program review.

Assorted

OMB's FY 2012 Budget Guidance

Reducing Unnecessary Spending

The Defense of Computers, the Internet and Our Brains

A High-Five for the Invisible Hand

Lübeck as the First Charter City

Australian Budget 2010-11, assorted

Budget Overview

What I wrote on Budget Day: Aid;

The story behind the $1 billion is that Australia has promised to increase development aid to 0.5 per cent of its Gross National Income (as I explain here (link to critique of Henry Review from last week), National Income and not the more commonly used Domestic Product is the right basis for most calculations. Unfortunately for the government (at least in this instance), a recent agreement by statistical agencies has changed the way GNI is calculated. Australia’s statisticians were the first to implement this change, and the result was to increase our GNI by 4 per cent, or about $50 billion.

Budget 2010 – It’s no Sex & The City 2

Federal budget 2010-11 – a sad document

Overall score: 4/10 – too much emphasis on the surplus and not enough emphasis on jobs and living standards.

Generating a Social Surplus;

Too often when evaluating the budget, we tend to focus on the accounts. To be sure, making sure the government has enough revenue to pay the bills is central to the process. But at its core, it is about economic policy-making. So on that level, we need to think broadly about economic benefits and costs.

Filling a $9 billion hole- an MTEF for New York?

One way to save New York's finances;

Years of decisions dictated by political expediency have led to a chronic budget imbalance that threatens our short-term solvency and long-term economic health.

Fortunately, Lt. Gov. Richard Ravitch has put forward a plan to provide sorely needed oversight and discipline. He proposes to create a financial review board that would certify the budget only if it’s balanced. The board would employ a smart, multiyear strategy that would weigh significant cuts in spending against limited borrowing. And it would require Albany to adopt generally accepted accounting principles, the standard bookkeeping rules used in business.

According to the report, 'The State needs a multi-year financial planning process directly linked to the annual budget process.'

Another suggestion;

Finally, our short-term cash crunch would be eased if the state refinanced the interest rates on its tobacco-settlement bonds. Given current low long-term interest rates, this is preferable to Lt. Gov. Richard Ravitch’s plan, under which the state would borrow $2 billion a year over three years for operations, leading us down a perilous road of annual borrowing.

Related: Citizen's Budget Commission

PFM tools for the IT Age

I'm looking for examples of innovative use of government expenditure data.

Examples:
Where Does the Money Go?

Related;
Show Us a Better Way
Putting the Frontline First: Smarter Government

Effective Habits of Budget Advisors

The role of the budget advisor is a complex and challenging one. Developing countries have become much more discerning and demanding in their requirements for technical assistance. More and more they rely on their neighbours and peers to fulfil this role. At the same time, competition among providers of assistance has increased. Against this background, an effective advisor needs to have not only outstanding technical skills and broad international experience but also patience, persistence, resilience, balanced judgment, and diplomatic skills.

- Reforming Fiscal Institutions: The Elusive Art of the Budget Advisor