Environmental Engineering Reference
In-Depth Information
was planned in the budget and the actual
flow of expenditures and revenues allows
public of
cials to monitor government activities and, if necessary, to adopt cor-
rective measures. For citizens, budgets are also an important
tool
to evaluate
government priorities and performance.
Accurately forecasting expenditures and revenues is critical for good
financial
management. Because the time available for preparing the budget proposal is
limited, and changes involve complex and costly negotiations, sometimes only
marginal changes are introduced from one year to the next. With incremental
budgeting, public programmes are simply rolled forward for an additional year,
without questioning whether they are still necessary, leading to an upward bias in
expenditures and to the accumulation of de
cits. In the 1970s, zero budgeting was
introduced in the US. As the name suggests, each spending agency starts from a
zero budget and has to justify all its spending needs. The main advantage of this
procedure is that public of
cials must re-evaluate the validity of the policies
implemented in the past. The discontinuity of some programmes may free resources
for other activities that are currently more necessary. However, in practice, it is very
dif
cult to implement a zero-budget approach, as it is very demanding in terms of
time, information and negotiations. Furthermore, political pressures may distort
decisions, deviating from the budgeting process. Another attempt to match budgets
better with the needs of the population is participatory budgeting. It was
rst
introduced in 1989, in the Brazilian city of Porto Alegre, and given its success in
improving citizens
lives, particularly of the poor; it has been adopted in other
countries. With participatory budgeting, citizens are directly involved in the for-
mulation of budget proposals. They propose, discuss and vote spending ideas
knowing that the subnational government will implement the most popular ones.
Although a more open and inclusive budgeting process should, in principle,
improve subnational government performance and enhance democracy, it is
important to avoid its capture by pressure groups whose only interest is to extract
rents from the implementation of public projects (Shah
2007
).
The establishment of good budgeting practices is crucial for government per-
formance.
10
Transparency is very important for budgeting. It is essential to include
all expected expenditures and revenues in the budget in order to avoid off-budget
activities. The use of standard classi
'
cations for reporting expenditures and reve-
nues is also relevant for comparisons over time and across governments. Typically,
there is more concern about discriminating expenditures than revenues because
governments, especially at the subnational level, have more discretionary power
over them. During all the phases of budgeting, reporting, auditing and evaluation
should be present to increase
fiscal policy transparency and soundness. Audits can
be performed by internal or external agencies. The growing concern about gov-
ernments
fiscal sustainability has recently led several countries
11
'
to create
10
Several international organizations (namely the World Bank) provide, on their webpages,
extensive information on international good practices and reference models in public budgeting.
11
On the role of
fiscal councils in promoting sound
fiscal policy, see Hemming and Joyce (
2013
).
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