Historical development
Budget Reform 1969:
• Revision of Budget Provisions (Art. 109 an 115 GG) in the constitution
• Law on Budget Principles• Länder Budget Code• Federal Budget Code (BHO)
Budget Reform 1969
• Requirements for macroeconomic equilibrium (Art. 109 GG)
• Borrowing may not exceed expenditure for investment (Art.155 GG)
• Introduction of MTEF for Federation and Länder
• Setting up of Financial Planning Council
Budget Reform 1969
• Standardised Budget System– classification by object– classification by function
• Federation and Länder can compare their budgets
• MTEF: useful tool to avoid excessive demands
Budget classificationby object
• 4 Personnel expenditure
– 42 Payments and incidental services
• 422 Payments and incidental services for civil servants and judges
• 425 Payments for employees
Budget classificationby function
• 3 Health, environment, sport and recreation
– 31 Institutions and Measures of Health Care
• 311 Health Authorities
• 312 Hospitals and Sanatoriums
Need for medium termfinancial planning
• Anticipate developments in public finance
• Identify financial impact of reform projects etc.
• Assess the scope for fiscal policy in future years
• Identify undesirable trends and counteract
Object of financial planning
• Financial Planning = Process
• Financial Plan = Product
• Detailed planning: all revenue and expenditure titles
• Comprehensive planning: developments, risks, reserves
Object of financial planning
• Macroeconomic orientation
– Medium-term projection of aggregate economic development
– e.g. Labour market expenditure– Tax revenue (Working Party on Tax
Revenue)
Planning period
Rolling Plan:
• Current fiscal year 2004
• Draft budget next year 2005
• Three planning years 2006-2008
Participants
• Federal Ministry of Finance– Overall control of the budget– Update/re-evaluation of budget
titles– Setting-up of financial plan– Negotiations of estimates with
other departments
• Working Party on Tax Estimates– Estimation of future tax revenue– Twice a year; may estimates for
financial plan– Including all economic experts in
Germany
Participants
Participants
• Financial Planning Council– FMF, finance ministers of the
Länder, associations at local level, representative of the Bundesbank
– Agreements on future spending policy / spending ceilings
Procedure of medium-term financial planning
• Update / re-evaluation of all individual budget titles
• Aggregation and analysis of financial plan measures?
• Negotiation of draft budget and financial plan with departments
• Alignment with macroeconomic data / tax revenue estimates
MTEF-coordinationFederation and Länder
• European Monetary Union:– Annual deficit < 3% GDP– Total indebtedness < 60% GDP
• Federation and Länder are autonomous in their fiscal adminstration
MTEF-coordinationFederation and Länder
• National Stability Pact (51 HGrG)
– Discussion of budgetary developments
– Recommendations for fiscal discipline
• Agreements on future spending policy / expenditure ceilings
Budget preparationprocedure
December 2003:
• Circular to the departments for the preparation of the budget (2005) and the financial plan (2004-2008)
Budget preparationprocedure
January / February 2004:• Preparation of the estimates of
the budget and the financial plan
• Re-evaluation and planning of the budget titles
• Fixing of macroeconomic benchmark data
Budget preparationprocedure
March / April 2004
• Departmental bids sent to FMF;
• Start of negotiations FMF/departments at technical level for the draft budget (2005) and the financial plan (2004-2008)
Budget preparationprocedure
May 2004:
• Medium-term projection of economic development and medium-term tax revenue estimate;
• Financial Planning Council
Budget preparationprocedure
June / July 2004:
• Start of budget negotiations at ministerial level
• Cabinet resolution on draft budget and financial plan