April 13, 2011Doug Hadden
It was the worst of times…
Doug Hadden, VP Products
Credible budgets. Developing nation governments are often criticized for passing budgets that are not credible. Failure to provide effective cost estimates. Lack of a multiple-year perspective. Not accounting for recurrent costs for current programs. Poor budget transparency.
Yet here we are, with budget theatre in two G7 countries: Canada and the United States. In Canada, the opposition parties announced, within minutes of budget release, that they could not support the budget. No debate. The government fell three days later on a confidence motion. Perhaps the budget was designed by the governing party to generate an election: an election budget.
What lessons for Developing Countries?
Developing country governments are evaluated against the Public Expenditure and Financial Accountability Framework. This framework is an effective benchmark and helps government modernization. How would Canada and the United States measure on the following high level PEFA measurements?
1. Credibility of the budget – The budget is realistic and is implemented as intended
2. Comprehensiveness and transparency – The budget and the fiscal risk oversight are comprehensive, and fiscal and budget information is accessible to the public.
Comprehensiveness and Transparency
United States: the actual US debt is far higher than reported because of the lack of showing the impact of recurrent expenditures for entitlement programs. As congress bickers, the funding for the data.gov transparency portal is slashed by 75%.
Worst of Times?
The lessons for developing nations from Canada and the United States seem to be:
- Transparency brings reason and facts to budget debates. It’s best to avoid being transparent. After all, the value of government programs messes up debate and causes compromise.
- Credibility of budgets is far less important than the politics of budgets. The notion of the budget as the legal embodiment of government policy is just a subtle concept.
- Debt is something for the next set of politicians to deal with. Recurrent expenses from capital programs and entitlements must be on the books for the private sector, but accrual accounting should really be avoided for governments.
It’s high time for politicians in Canada and the United States to give their collective heads a shake. The budget fiasco doesn’t make these countries look like banana republics. That’s because many so-called banana republics have more effective budget processes!