THE BUDGETARY PROCESS

Authorities involved in the budgetary process

• Parliament

• Government (federal, state, local)

• Ministry of Public Finance

• Line ministries and agencies

• Court of Auditors

Role of Parliament/authorizing authority

Approves legal acts (laws) related to:

• the budget

• budget rectification

• budget execution

Role of government

Establish fiscal policy

Establish policy priorities

Prepare the pre-budget report

Draft the annual budgets, rectifications, execution accounts and submit them to the authorizing body

Ask for transfers

Implement the budget execution

Use the reserve fund

Role of the Ministry of Finance (MoF)

Coordinates activities under the responsibility of Government

Elaborates measures for the implementation of fiscal policy

Ensures all technical measures needed to fulfill the above mentioned activities:
 • asks reports from ministries and agencies

• updates de budgetary classification

• monitors the implementation of the budget and proposes measures for its improvement

• endorses financing agreements

• negotiates bilateral and multilateral agreements (double taxation avoidance

agreements, agreements on tax evasion etc)

Line ministries and agencies

Draft their budgets.

Detail approved appropriation if needed.

Break down the budget for subordinated institutions.

Are responsible for the budget implementation of the approved amounts in their budgets.

Court of Auditors

Exercise control on the formation, administration and use of the financial resources of the state and the
public sector. In this regard, it verifies the quality of information from the budgetary execution.

Stages in budgeting

• preparation

• approval

• implementation

• control

• audit

Preparation

The executive prepares a draft budget and submits it to the legislature. This is usually a two-step
process:

• a Ministry of Finance (or equivalent) prepares a draft budget that incorporates the
government’s expressed budget orientation;

• the draft budget prepared by bureaucrats is then approved by a Cabinet of ministers (or the
equivalent for countries with presidential political systems).
This budget is submitted to the legislature for possible amendment and approval.

The European Semester

• begins around November each year with the publication of two key economic reports: the
Annual Growth Survey and the Alert Mechanism Report.

• The Annual Growth Survey analyses the progress that the EU has made towards its long-
term, strategic priorities. It sets out general economic priorities for the EU and provides
Member States with policy guidance for the following year.

• The Alert Mechanism Report is an early warning report to detect and addresses
economic trends or imbalances that could prove harmful to individual Member States or
Europe’s Economic and Monetary Union and underpins the Macroeconomic Imbalances
Procedure.

• EU leaders consider the reports in March and agree on a common direction for fiscal and
structural policies as well as financial sector issues. Also in March, the Commission publishes a
single analytical economic assessment per Member State analysing their economic situation,
their reform agendas and whenever deemed relevant on the basis of the Alert Mechanism
Report, possible imbalances faced by the Member State.

• In April, Member States report to the Commission on the specific policies they are implementing
and intend to adopt in order to boost growth and jobs, prevent or correct macroeconomic
imbalances, and the concrete measures they plan to ensure compliance with the EU's fiscal
rules.

• The Commission then assesses the plans of the Member States and makes a series of country-
specific recommendations to each of them. These policy recommendations are discussed
between Member States' Ministers in June, endorsed by EU leaders in July, and incorporated by
governments into their national budgets and other reform plans.

Case study: Country-specific recommendations for Romania (2015)

• Take all the necessary measures to complete the financial assistance programme.

• Limit the deviation from the fiscal medium-term objective in 2015 to a maximum of 0.25% of
GDP as specified under the 2013-15 balance-of-payments programme and return to the
medium-term objective in 2016. Implement the comprehensive tax compliance strategy,
strengthen verification control systems in order to tackle undeclared work, and push ahead with
the equalisation of the pensionable age for men and women.

• Strengthen the provision of labour market measures, in particular for unregistered young people
and the long-term unemployed. Ensure that the national employment agency is adequately
staffed. Establish, in consultation with the social partners and in accordance with national
 practices, clear guidelines for setting the minimum wage transparently. Introduce the minimum
insertion income. Increase the provision and quality of early childhood education and care, in
particular for Roma. Adopt the national strategy to reduce early school leaving. Pursue the
national health strategy 2014-2020 to remedy issues of poor accessibility, low funding and
inefficient resources.

• Adopt the law on reforming corporate governance of state-owned enterprises.

Approval

At the approval stage, the budget is generally discussed in committees, which may propose
amendments. Once amendments are agreed in plenary session, the legislature approves the budget.

Legal authority is provided to the executive for raising revenues if this is not ongoing. Formal adoption
of the spending proposals means that legally binding upper limits are established for many expenditure
categories.

Approval may be made by:

• Legislative body (federal, national or local)

• Executive (usually for smaller budgets)

Rectification

• is made after the budget is approved, usually before the current fiscal year

• assumes repeating the steps in the drafting stage

Implementation

Implementation of the approved budget is performed by the executive – and/or government agencies.
In so doing, a central budget office (usually in the Ministry of Finance or the equivalent) monitors budget
implementation and prepares periodic budget execution reports using a well-defined accounting
system.

The executive may be provided with the power to change the approved budget in the case of
unforeseen emergencies, including major deviations in the macroeconomic framework underlying the
budget law. A supplementary budget may be needed to confirm any such action by the executive.

The executive may also be provided with other powers to modify the approved budget, including
powers to change its composition (e.g. by virement or by using a reserve fund approved in the annual
budget) or to control actual spending to a level below that approved, should economic circumstances
dictate.

Year-end adjustments
 • are required in order to increase the relevance of the data from the annuality point of view

• are operated in the last days of each fiscal year or in the first days of the next fiscal year (the
date of the records are at most December 31st)

• mainly consist of regulations between budgets

Control

The fourth stage is control of the budget implementation. This takes place both during and, especially,
after the close of the fiscal year.

Control is based on reports provided by the executive. Reports may contain both financial data (annual
accounts) and non-financial data (e.g. attainment of performance targets).

Audit

The final stage is when an independent external audit office audits the financial accounts.

It may also have a mandate to assess the results of the annual budget in terms of efficiency, economy
and effectiveness.

Types of external audit offices: