The Hungarian Budget Review

1
The Hungarian Budget Review

• Daniel Bergvall and Ian Hawkesworth
• Budgeting and Public Expenditures Division

2
Introduction

• Budget formulation
• Parliamentary process
• Budget execution

3
General government deficit forecasts
4
Budget preparation
5
Account Structure
6
Problematic institutionalfeatures

• Focus on the actual deficit
• Focus on the budget year
• No clear rules of budgetary discipline

7
Focus on actual deficit

• Determined by revenue (tax legislation) and
  expenditure (entitlements discretionary).
  Actual deficit is constantly moving
• Aiming at specific deficit requires continuing
  amendments in preparation and execution phases
• Hampers orderly decision making process
• Forces the government to take pro-cyclical
  decisions
• Suggestion Fiscal rule
• Expenditure rule
• Cyclically adjusted deficit rule (less
  transparent)
• Entitlements in or out

8
Focus on the budget year

• The budget formulation process is focused on the
  budget year lacks proper Multi-annual framework
  
• EU convergence program is a de facto framework
  (flexible) but not implemented at line item level
• Budget formulation needs to focus on the whole
  period in order to optimize results especially
  saving plans
• Ensure multi-year estimates are in line with the
  expenditure rule
• Alternatives hectic adjustments as cash limits,
  across the board cuts and accounting gimmicks

9
No clear rules of budgetary discipline

• More top-down budgeting in Hungary from totals,
  chapter to line item
• The budget circular should contain the final
  ceilings
• New spending must be contained within the
  multi-year ceilings
• New initiatives in any area during the year need
  to be costed and fit under the ceilings
• Clear rules of compensation requirement, but not
  a more inflexible system
• New rules need explicit endorsement and
  publication of Hungarian government

10
Parliamentary process

• Submitted by September 30th
• General Debate amendments (2000)
• Budget Committee
• Chapter aggregates decided
• Debate on appropriations below chapter level -
  amendments
• Budget Committee
• Final vote

11
Budget execution

• Organisation of budget execution
• Budget flexibility during budget execution
• Service delivery

12
Organisation of budget execution

• Treasury financial implementation of the budget
  separated from Ministry of Finance in 1996
• Debt management agency debt management
• STA in Hungarian central bank set up in 1996

13
Flexibility during budget execution

• Reallocation
• Central reserve fund
• Special reserves
• Safety reserve
• Saving of unspent appropriations

14
Service delivery

• Organisation of the government sector
• Central government - 50 of expenditure
• Social security institutions - 25 of
  expenditure
• Extra Budgetary Funds - 3 of expenditure
• Local governments - 22 of expenditure
• Reduced number of extra-budgetary funds
• Introduction of programme review under way
• Separation of policy making and policy
  implementation

15
Accounting and Auditing

• Auditing
• SAO independent institution reporting to the
  parliament
• Broad mandate all government expenditure can be
  audited, including local governments
• Audit plan prepared by SAO
• 3000 separate audits per year 60-70 audit
  reports published
• Prepares ex ante report on the Annual Budget Law
• Audit Committee and specialised committees
  discuss the audit reports
• Accounting
• Final accounts bill to parliament before end of
  August voted on in November

16
Summing up

• Fiscal slippage
• Clear target EMU accession
• Optimism bias
• Need for institutional strengthening to enhance
  budget discipline fiscal framework and top-down
  budgeting
• Relatively detailed input budget
• Well functioning SAO