The Hungarian Budget
Review
Daniel Bergvall and
Ian Hawkesworth
Budgeting and Public Expenditures Division
Introduction
• Budget formulation
• Parliamentary process
• Budget execution
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General government deficit forecasts
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Budget preparation
Due dates
Activity
January-April
Ministry of Finance develops macro-economic assumptions and estimates.
Finalised in the Economic Guideline document.
15 April
Economic Guidelines are submitted by the Ministry of Finance to the Government
for approval and sent out to line ministries.
Early June
The Budgeting Circular. Based on the Economic Guidelines and sent out to line
ministries. This contains purely technical assumptions for budgeting like GDP
growth, employment, inflation etc. as well as deadlines for submission.
Early June
Envelopes are distributed by the Prime Minister containing nominal spending
limits for the budget chapters
July-August
Development of budget draft by line ministries and discussions with the Ministry
of Finance about expenditures for existing activities, and suggestions for new
appropriations.
31 August
The draft budget bill, compiled by the Ministry of Finance is submitted to the
Government.
September
Finalization of the budget bill and discussions with external partners such as The
State Audit Office
30 September
Budget bill proposal submitted to parliament.
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Account Structure
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Problematic institutional
features
• Focus on the actual deficit
• Focus on the budget year
• No clear rules of budgetary discipline
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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
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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
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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
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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
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Budget execution
• Organisation of budget execution
• Budget flexibility during budget
execution
• Service delivery
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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
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Flexibility during budget execution
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•
•
•
•
Reallocation
Central reserve fund
Special reserves
Safety reserve
Saving of unspent appropriations
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Service delivery
• Organisation of the government sector
•
•
•
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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
General
government
according to
ESA-95
Legal government
sector (sectors
included in the
Annual Budget
Law)
Central government
(Hungarian definition)
Central budget
Extra budgetary funds
Social security funds
Local governments
Other units belonging to the general
government according to ESA-95A
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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
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Summing up
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•
•
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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
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