Budget Clause and Control Chamber

16.1.1 Overview of the Budget Clause

16.1.1.1 Definition

In most countries the executive branch of Government has the power to decide and implement policies and enforce the law.

An introductory video can be found on www.writingconstitutions.com and on https://doi.org/10. 1007/978-3-030-94602-9_1.

¹ Chang et al. (2014), p. 190.

²v. Mangoldt et al. (2005), p. 1334.

16.1.1.2 Purpose and Function

The budget is a fundamental power of the legislature.^[1053] In most countries the legislature scrutinizes and authorizes revenues and expenditures and ensures that the national budget is properly implemented.^[1054] At the same time it provides the legislature with the option to please voters by generous spending. Consequently, countries often impose restrictions on the budget power, for example by the imple­mentation of debt ceilings. By determining how the budget will be spent, the legislature sets its political targets. This often leads to tensions between the legisla­ture and the executive.^[1055]

16.1.1.3 Legal Nature/Character

Constitutional provisions usually deal with three principles: the powers of the legislature and executive with respect to public finances, the financial relations between subnational and national levels of Government and, especially in Common­wealth countries, a regulation concerning the payment of all public funds into certain accounts.

16.1.1.4 Historical Context

The power of the purse dates back to medieval times when knights and burgesses had to confirm the assent of communities to the raising of taxes in England. In the fourteenth century the assent of the English Parliament to royal bills was slowly introduced as Parliament had begun to condition the voting on the budget. Around that time commissioners were appointed by Parliament whose task was to audit the accounts of tax collectors. In the sixteenth century the power of Parliament increased in exchange for the support of political and religious battles. Since then parliaments around the world have gained power on budget spending.

During the 1990s most states amended their constitutions to expand the role of the legislature. This way they could expand their democratic leverage on behalf of citizens.^[1057]

Fig. 16.1 Procedural questions when drafting a budget clause

In developing countries (especially in Latin America, Africa and Central Europe) a great number of legislatures are currently moving towards budgetary activism.

In most industrialized countries, the influence of national legislatures has declined. Wehner explains this as follows: “The emergence of disciplined political parties has reigned in legislative independence. Devolution of spending, and to a lesser extent of revenues, has chipped away at the comprehensive control of public funds by national legislatures. In addition, the massive expansion of entitlement spent in the 20th century has substantially rigidified budgets and commensurately decreased the remaining margin for active legislative engagement in annual budgets. With the growth of public spending and the increasing complexity of public finances, the executive budget proposal became the standard against which legisla­tive action was measured.”^[1060]

On the other hand, some factors have led to an increased influence of the legislator. Fiscal balance is viewed as being more important recently. Due to globalization, losing the confidence of world credit markets is a daunting prospect. Therefore, budget policies are being reviewed more closely.^[1061] In some countries, strong two-party systems have diminished and splinter parties have come into place. These parties managed to challenge the policy of the executive leading to the introduction of a stronger role of the legislature.

16.1.1.5 Procedural Questions

The budget clause can be quite complex as different bodies often take part in the process on various occasions. Additionally, most constitutions have an alternative procedure when the budget is not passed in time for the beginning of the new fiscal term, see Fig. 16.1.

Fig.

16.1.1.6 Structural Approach and Guiding Questions

When drafting a budget clause various questions need to be answered, see Fig. 16.2.

16.1.2 Details of the Budget Clause

16.1.2.1 Who Has the Right to Propose the Budget?

The first procedural step is the proposition of the budget, see Table 16.1.

In most countries the executive proposes the budget; either the government, a minister or the president. Afterwards the proposal needs to be approved by the legislator. As the ministers often control specific areas and have plenty of staff at their disposal, it is beneficial to start.

The budget process can also begin with an agreement on a set of binding fiscal targets between members of the executive. In Denmark, cabinet members fix spending limits for each spending department at the beginning of the budget process. These limits are often derived from coalition agreements of the ruling parties. This approach places less weight on the executive and more on the legislature who monitors the implementation of fiscal targets.^[1062]

16.1.2.2 Who Needs to Approve of the Budget?

At the end of the budget process, Parliament usually has to approve the budget process. In some countries the President can veto this decision:

In various countries Parliament needs to approve the budget (as seen in Table 16.2).

Legislatures are not exclusively known for overspending.^[1063] A recent experience in the United States has shown that overspending can also be related to the initiative of the executive. Giving the legislature a greater role in budgeting can restrain irresponsible executives. A paper on the budgetary impact of the German Parliament has shown that deficit was lower when Parliament became involved.^[1064] Checks and balances ensure that the budget is drawn up according to the public interest. In countries where executive benevolence and integrity is not entrenched in governance culture and electoral accountability is weak, the absence of checks and balances by Parliament leads to poor budget outcomes. Only in those countries that have a detailed and strong budgeting practice, it might be possible for the executive to solely decide upon the budget.^[1065] However the risk of an abuse of power remains high.

Most of the work and in-depth debates takes place in committees. However, in some countries debate only takes place in the houses. In that case the legislature has weaker influence on the budget outcome. Strong committees need to have enough time for debate, sufficient resources (support staff and detailed material) and members with longer memberships.^[1066] The available time period varies greatly between countries. In the US, the time between budget submission and the beginning of the new fiscal term consists of 8 months, whereas in the UK the proposal is only submitted to Parliament 2 weeks in advance. On average 3 months prevail.^[1067] The most active legislatures have a great staff for their own budget research. In the US about 245 highly trained staff work in the Congressional Budget Office. In many African countries parliaments do not have specialized budget researches at their disposal (such as Namibia or Zambia).^[1068] Additionally, Parliament can only actively take part in the discussion when detailed, comprehensive and accurate information is given before the vote. In reality some parliamentarians have to rely on the budget speech to understand the budget proposal.^[1069] Therefore strong and efficient committees need to be set up and funded in order for the legislator to carry out its constitutional role in the budget process.

16.1.2.3 Can Another Institution Amend the Proposed Bill?

The actual role of the legislature and impact of legislative participation differs highly across countries. In some countries no restraint it put on the legislature to introduce changes to the proposal. In others, Parliament may only reduce existing items but it may not include new ones or increase existing ones.

The great variations in budget process (see Table 16.3) can partly be explained by the differences in Government systems. In the presidential system the legislature has a strong role. One example is the United States where the United States Congress functions as a budget making legislature. Even though the President proposes the budget, the Congress is free to come up with a different budget.^[1070] This can partly be explained with the separation of powers between the legislature and the President. An indirect election by US citizens takes place for the election of the President. However, there is an independent election by constituencies for the legislature that

Table 16.3 I I Amending the budget

are different from those of the president.^[1071] Therefore the executive and the legisla­ture tend to have little in common. Most strongly fought budget wars have occurred in those systems;^[1072] such as in den United States in 1996^[1073] and recently in Nigeria^[1074]

On the contrary, the executive generally dominates budget decisions in parlia­mentary systems.^[1075] Even though Parliament has the right to propose amendments, little changes are introduced by Parliament as the executive and the legislature are intertwined and a rejection of the proposal would have the same meaning as a vote of no confidence. This type of regulation is typical for Commonwealth countries.^[1076] Historically the Crown made demands for subsidies which the House of Commons had to decide on. This system was copied by many countries in the Commonwealth. Parliament can still shape budgets by shifting expenditures to certain projects but it leaves no space for Parliament to amend the process creatively.^[1077] However, in those countries legislatures often play a bigger role in the ex post budget process. They assess public spending in the Public Accounts Committee. This type of system may be beneficial in states where the Government has a bad record of budget implemen­tation. This might be more effective than trying to influence the budget at an earlier stage as it will not get implemented.^[1078]

In strong two-party systems there is a majority in the legislature that will support the proposition of the executive and has endorsed the executive. Thus, there is little reason to disagree with the executive. The executive is even stronger when they choose legislative candidates as they owe their allegiance more to party leaders than to local constituencies. Weaker two-party systems and multiple-party system gener­ally strengthen the role of legislatures in budgeting. The executive needs to bargain more to get the support of the majority. Bicameral legislatures, where one house has a different composition and view from the other, can also improve the position of the legislator. Legislatures with full time members as well as those serving for a longer period often have a greater interest in governing.^[1079] All of these factors can increase the influence on the budget process.

If the legislature has the power to amend or partly amend the proposed budget, this does not mean that it uses this right in practice. A survey by the OECD in 2002 has shown that out of 27 legislatures 22% approve the budget with no changes, 63% with minor changes and only 15% introduce significant changes.^[1080] In the biggest group fall Nordic countries and most of continental Europe. The group that does not exercise any meaningful changes, consists of Westminster type parliaments. Countries that do not amend the budget significantly might still be strong legislatures. There can be other reasons: In some countries, information is presented to Parliament early and more parliamentary debate takes place so that less amendments need to be proposed due to greater transparency. If the legislature’s views are taken into account at an early stage, there is less need to amend the budget. Additionally, spending is often similar and has already been discussed in previous terms.^[1081]

16.1.2.4 Absence of a Budget Before the New Fiscal Term. Can an Emergency Budget Be Enacted?

If Government and/or Parliament cannot agree on a budget in time for the beginning of the new fiscal term, some type of regulation needs to be in place to ensure that state business can continue.

Most countries have a system in place when there are delays in legislative approval beyond the deadlines. These regulations provide the authority for the Government to continue to operate. One option is to regulate spending based on the previous year ’s budget authority. On the other hand, there is no such system in the United States. Congress and the President must agree on a resolution to sustain operations pending enactment of full appropriations. Otherwise the Government will shut down. This will last as long as both bodies reach an agreement.^[1082] This system might be one way to ensure that both parties act quickly as the consequences of the full shutdown are immense. However, the past has shown that it can take a few months until both find a solution.^[1083] See Table 16.4.

Other regulations ensure that Government will not have to shut down. Having the executive enact a decree law ensures that funding is set up quickly and smoothly. These types of regulations strengthen the executive when Parliament refuses to pass the bill. Some regulations only maintain the status quo. In that case expenditures are only deemed necessary when they avoid a shutdown of institutions or other impor­tant projects (such as in Germany). According to the Austrian constitution, the Government is allowed to spend as much money as in the previous year. This only places a restriction on new projects. Therefore, there is little restriction on Govern­ment spending.^[1084] As Parliament is not involved, the incentive is nonetheless given to reach an agreement in short time.

Table 16.4 I I Budget deadlock

Table 16.4 (continued)

Table 16.5 | | Expenses exceeding the budget

Noteworthy and very unusual is art 37.4 of the Hungarian constitution according to which the Constitutional Court of Hungary is no longer permitted to review laws on the budget, taxes or other financial issues as long as the national debt exceeds half of the national GDP, which in fact removes judicial review completely in a situation where the country needs to have an unbiased arbiter.³⁵

16.1.2.5 What Can Be Done If the Expenses Exceed the Budget?

When funds allocated in the budget are insufficient, there has to be a way to secure extra funds: In these cases, there is often not enough time to start the budget cycle again (see above). The Government needs to act quickly if an unforeseeable and urgent need for funds occurs. The Government’s and administration’s ability to act needs to be ensured to protect the state from damage and danger. See Table 16.5.

The clause might restrict the Government’s or minister’s ability to agree to new funds to scenarios when there is an actual and important need for an increase in expenses. Otherwise parliament’s role in the budget allocation would be seriously

undermined.^[1085] In Austria such an exception can be made in advance (in the budget bill) allowing the Federal Minister of Finance to authorize extra expenditures when needed.

16.2