The Role of Parliaments in Restoring Public Finances

Annex B. OECD Best Practices for Parliaments in Budgeting

First published in the OECD Journal on Budgeting, Volume 2023 Issue 1, the OECD Best Practices for Parliaments in Budgeting build on earlier OECD standards and inter-parliamentary efforts to strengthen legislatures’ role in the budget process (OECD, 2023[1]). Drawing on two decades of work on fiscal frameworks, comparative country reviews, and lessons from the OECD’s networks of budget officials, they provided renewed, holistic guidance for parliamentary engagement across the budget cycle. The seventeen best practices are split between eight key areas as follows.

Fiscal responsibility

1. The legislature should have the opportunity to review and approve the national fiscal framework or major changes to the framework, in particular the fiscal rules and the medium-term-budgetary framework.

• The fiscal framework is defined here as the set of rules, procedures and institutions that underpin the budget process.

• The medium-term-budgetary framework should cover at least the next three fiscal years.

• The establishment of a new fiscal framework, or major changes to the existing framework, should be preceded by a period of informed public engagement with relevant stakeholders.

• In the context of a supranational fiscal framework, the legislature should also have the opportunity to review budgetary and fiscal documents produced in relation to the supranational framework and these should be integrated into the annual parliamentary budget process.

2. The legislature should examine long-term fiscal sustainability analysis in order to debate risks faced by society in an open and informed manner and report on them to the public.

• Long-term fiscal sustainability analysis may be provided in a report by the government or by an independent fiscal institution. The OECD Principles of Budgetary Governance call on governments to “Identify, assess and manage prudently longer-term sustainability and other fiscal risks” including by publishing, “[a] report on long-term sustainability of the public finances, regularly enough to make an effective contribution to public and political discussion”.

3. The legislature should debate budgetary priorities and trade-offs in a structured manner to inform preparation of the executive’s budget proposal.

• This may take the form of a pre-budget debate, which includes discussion of policy goals and resources available to meet them.

• A realistic debate on budgetary choices takes into account fiscal risks and overall fiscal constraints, including in the medium and longer term. A pre-budget debate provides an opportunity for the legislature to facilitate dialogue and receive input on the budget priorities of social partners, civil society organisations and individual citizens.

4. To demonstrate a commitment to fiscal responsibility, the legislature should review and approve the budget’s totals, providing a strict frame for the subsequent debate on allocative choices and potential amendments in the annual budget proposal.

• This may include both the aggregates as well as specific ceilings for major expenditure areas.

• These should be aligned with the medium-term budgetary framework and its strategy and targets.

• Enforcing the totals requires adequate information and overseers in both the executive and legislature to maintain discipline in the face of spending pressures. In the legislature, the budget committee is best placed to play this role.

Budget approval

5. The legislature should have the opportunity, time and resources to effectively review, debate, and approve the executive’s budget proposal.

• The executive should submit its budget proposal to the legislature at least three months prior to the start of the fiscal year.

• Following the budget speech and debate in the plenary, the budget should be referred to the committees for in-depth scrutiny.

• Critical oversight tools include written and oral questions or interpellations, committee hearings and commissions of inquiry. The legislature and its committees should have the power to compel persons to testify and to access any information necessary. There should be mechanisms in place to allow for evidence from public officials, social partners, civil society organisations, and individual citizens as appropriate.

6. The budget documentation submitted to the legislature should be comprehensive, encompassing all government revenue and expenditure, to facilitate realistic debate.

• The legislature should decide how the budget and related information should be presented by the government and the required level of detail and transparency to ensure effective scrutiny.

• Where relevant and practicable, performance information should be presented for expenditure programmes.

• Budgetary data provided to the legislature should be open and accessible, and published in machine readable and preferably open-source formats to facilitate any analysis.

7. The legislature should be empowered to make amendments to the executive’s budget proposal.

• Amendments should be made within the totals previously approved by the legislature (see Best Practice 4).

• Proposed amendments should be clear and comprehensive, and allow for timely assessment of their fiscal impact and whether they are in alignment with agreed budgetary constraints.

8. The annual budget law should be approved prior to the start of the new fiscal year.

• The legislature should approve revenue and expenditure plans at a level of detail that is sufficient to ensure effective control and oversight.

• If the executive’s budget proposal is not approved by the legislature prior to the start of the new fiscal year, an interim budget should be adopted for a specified period.

• Rules regarding a provisional and impartial interim budget should be clearly established in legislation.

Committee organisation

9. The legislature should maintain a Budget committee with overall responsibility for budget scrutiny.

• The Budget committee should promote co-ordination and consistency in legislative budget action and facilitate fiscal discipline, ensuring that the budget’s totals and aggregate sectoral allocations approved by the legislature are respected.

• The Budget committee should co-ordinate recommendations from sectoral committees on their areas of specialisation as input to its report on the budget to be put before the plenary.

• Chairing of the Budget or Audit or Public Accounts Committee by an opposition member enhances oversight and reinforces the commitment to operate these committees in a nonpartisan and consensual manner.

• The Budget committee should be adequately staffed and have the opportunity and resources to consult or employ outside experts and to consult other oversight entities (see Best Practices 13, 14 and 15).

10. Sectoral committees should review relevant portions of the budget in their portfolios and recommend legislative action within an overall fiscal framework maintained by the Budget committee.

• Sectoral committees have a particular role to play in reviewing performance budgeting information or spending reviews relevant to their portfolios.

Budget implementation

11. Any significant in-year changes to approved expenditure and their justifications, whether reallocation of funds, or an increase or a reduction in spending, should be put before the legislature and its relevant committees in the form of a supplementary budget for review and prior approval.

• Thresholds for executive flexibility in spending and the main reasons for adopting supplementary budgets should be clearly specified in legislation.

12. Parliament should have the power to examine any interim financial reports that it deems necessary throughout the year.

• There should be a formal process to review the monthly and mid-year reports.

Audit

13. Parliament should effectively review the Audit reports prepared by the Supreme Audit Institution.

• The Supreme Audit Institution is a core contributor to parliamentary oversight. The Budget committee, its audit subcommittee, or a separate Audit or Public Accounts committee should be responsible for consultation with the Supreme Audit Institution and overall scrutiny of its reports, including the year-end report.

• Recommendations made by the legislature and its committees on audit reports should be monitored and, where appropriate, integrated into the legislative debate on the subsequent budget.

Analytical support

14. The legislature should have specialist analytical support in the form of an in-house research or scrutiny unit or an independent parliamentary budget office to provide technical, expert and non-partisan analysis of fiscal policy and the budget.

• The resources allocated to such offices should be commensurate with their mandate and they should have full access to all relevant information in a timely manner, including methodology and assumptions underlying the budget and other fiscal proposals.

15. The capacity of the legislature to engage in the budget process and broader fiscal policy debates is enhanced by the establishment of an independent fiscal institution.

• Whether in the form of an independent parliamentary budget office, fiscal council, or alternative model, independent fiscal institutions provide nonpartisan analysis of the government’s fiscal strategy and budgetary policies. Typical functions of such bodies include a role in producing or assessing economic or fiscal forecasts, monitoring compliance with fiscal rules, policy costings, long-term fiscal sustainability analysis, and supporting the legislature and its committees with budget analysis.

• Where an independent fiscal institution has been established, mechanisms should be put in place to encourage appropriate accountability to the legislature.

• The OECD Recommendation of the Council on Principles for Independent Fiscal Institutions provides a full set of best practices for independent fiscal institutions (OECD, 2014[2]).

Citizen participation

16. The legislature and its committees should inform civil society and citizens on the budgetary debate and provide opportunities for them to contribute in a meaningful way.

• The legislature, as a representative body and forum for deliberation, has a particular responsibility to strengthen democratic participation and representation.

• The legislature and its committees should seek to engage a wide range of stakeholders with diverse perspectives, including excluded and vulnerable groups, using traditional oversight tools such as public hearings, modern digital technologies, or by facilitating innovative representative deliberative processes such as citizens' panels, juries or assemblies. These latter tend to be more resource intensive and most effective when addressing complex policy issues.

• In general, plenary and committee meetings should be open to the public or broadcast through audio, television or online channels.

Budget of the legislature

17. The legislature alone should have the power to determine the budget of the legislature.

• The legislature should have the capacity and resources to carry out its budgetary tasks.

• The budget of the legislature should be prepared independently of the executive and approved by the legislature in line with other constitutional entities.

• The legislature has a special responsibility to demonstrate a commitment to fiscal discipline and to act as transparently as possible in the preparation and execution of its budget. The legislature should maintain clear procedures to be followed, including the use of mechanisms such as a special committee or consultation tools. It should also put in place clear and transparent reporting and audit requirements for its budget.

References

[1] OECD (2023), “OECD Best Practices for Parliaments in Budgeting”, OECD Journal on Budgeting, https://doi.org/10.1787/33109e15-en.

[2] OECD (2014), “Recommendation of the Council on Principles for Independent Fiscal Institutions”, OECD Legal Instruments, OECD/LEGAL/0401, OECD, Paris, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0401.