|
Reforming
Israel's Budget Process: Assessing the Establishment of a Knesset Budget Office and other Options by the Adva Institute and the International Budget Partnership In Israel, the decision making process concerning the national budget is characterized by a closed process that does not provide much information to the public and by the exceptional concentration of decision-making within one part of the executive branch. The absence of information and the concentration of decision-making power sharply limits the degree to which the legislature and the public can assess and influence the budget. This situation is troubling because the budget is the principle government instrument for influencing general economic prospects and for distributing national resources. Decisions on the budget should be open and be subject to checks and balances, so that they can reflect the concerns of all sectors of the nation. The aim of this paper is to examine the possibilities for reforming the Israeli budget process, so that it becomes more transparent, contains more checks and balances, and allows for a truly democratic debate through more meaningful involvement of both the legislature and civil society. A wide range of reforms is considered, with a special emphasis on the potential creation of a source of budget information and analysis that is independent of the executive branch of government, a "Knesset Budget Office." The paper consists of four sections. The first chapter reviews the current budget decision-making process in Israel and identifies its weaknesses. The next two chapters review the budget decision-making processes of several other countries to see what lessons they might offer. Chapter 2 is an in-depth examination of the United States Congressional Budget Office, an institution that has received considerable acclaim as a mechanism that promotes an open, accurate, and vibrant budget debate. Chapter 3 reviews the budget decision-making processes of some selected parliamentary countries -- in contrast to the United States system, which is presidential -- that are praised for having transparent approaches. The paper concludes with a chapter on the options for reform in Israel. A range of reforms are examined, including the creation of a Knesset Budget Office that would reflect the model of the Congressional Budget Office, though the model would need refinements to be suitable for a parliamentary system and for Israel. The options for reform are not mutually exclusive. If the Israeli budget process is to permit the consideration of a wide range of views and alternative sources of information, a variety of reforms are necessary. The Budget Decision Making Process in Israel Through 1996 the Israeli system of government was purely parliamentary in form. By and large, the parliament (the Knesset) has been a weak partner in government, with the executive branch being the dominant partner. In 1996, one feature of presidential systems of government was adopted that provided for the direct election of the Prime Minister and for separate votes for parliamentary representatives. This had the unintended consequence of strengthening small parties, as many voters cast their votes for one of the two major parties for Prime Minister but then voted for a smaller party for the Knesset. As a result, the influence of the Prime Minister over the Knesset has weakened, and the desire of smaller parties (which are now a bit larger) to play a role in policy debates has to some degree increased. Nevertheless, the most notable feature of the decision making process on the Israeli national budget is that influence is exceptionally concentrated within one office of the executive branch, the Budgets Division of the Ministry of Finance. The Budgets Division is the sole formulator of the major macroeconomic parameters as well as of the overall expenditure levels; it formulates not only the overall state budget but also the budget of each individual ministry and major state agency. At the same time, it is the sole repository of information concerning the various aspects of fiscal policy. For the most part, the Division has been exempted from public scrutiny and criticism, but this has been changing somewhat due to the increased role of smaller parties as well as the increased importance and number of non-governmental organizations. This has led to the expression of two major criticisms of the Division: that the scope of its influence is inappropriate for non-elected officials; and that its ideology consistently favors cuts in social programs while at the same time favoring tax cuts and subsidies to the corporate sector. The Division has achieved a high degree of independence within the executive branch, whether in its relations with the Office of the Prime Minister or with the Cabinet as a whole. The budget process itself is implemented in a manner that favors the Division and diminishes the potential role of the Cabinet; it does not provide the Cabinet with an adequate amount of budget information and severely limits the amount of time they have to express their own views. At the same time, the Budgets Division has achieved a high degree of independence vis-a-vis the Israeli parliament. In addition, the budget process and the design of the Knesset make it difficult for the Israeli parliament to play a role in decision-making. The limiting factors include:
Several other shortcomings to the budget process not only impede legislative efficacy, they also restrict the involvement of civil society.
A few other institutions could potentially provide members of the Knesset and the public at large with information relevant for understanding and analyzing the budget. Some of the information now provided by these sources is useful, but these sources fall short in crucial respects. The audits of the State Comptroller, for instance, are conducted at the end of the fiscal year and thus are largely irrelevant to the debates on the budget bill. Another relevant institution is the Bank of Israel, in charge of Israel's monetary policy. The Bank's reports provide important information pertaining to the major macroeconomic parameters, which serve as an alternative to the forecasts of the Ministry of Finance. The bank's publications, however, are highly technical and relatively inaccessible to the majority of the members of Knesset or to the general public. The United States Federal Government's Congressional Budget Office The United States's Congressional Budget Office (CBO) was created as part of the Congressional Budget and Impoundment Act of 1974, a law that comprehensively restructured the national government's budget process. This restructuring attempted to rectify what was seen as excessive influence of the executive branch over budgetary matters. As part of the reform, Congress undertook to set up an effective legislative budget process: one that would allow Congress to develop an overall budget plan and one that would reduce its dependence on the executive branch in the budget area. Prior to the 1974 reform of the budget system, Congress had the power to set funding levels for specific programs and activities, but had no well instituted procedures by which to come up with an overall budget plan of its own. As a result, Congress largely relied on the President's budget plan. Under the Congressional Budget Act, however, Congress develops its own general budget plan, called a "budget resolution," which includes overall spending and revenue levels, as well as spending levels for several broad categories of programs. The budget resolution serves as a broad framework that guides the rest of the congressional budget process. CBO is Congress's main source of budgetary information throughout the budget process. Most of CBO's responsibilities specified in the Congressional Budget Act are centered on this role. These responsibilities include providing information upon request to congressional committees, producing cost estimates of bills reported by the committees, preparing an annual report on the budget, developing projections of spending and revenues, and keeping track of how well congressional actions conform to the budget resolution. Further, the number of roles in which CBO serves Congress has increased since its creation. From early on, CBO established itself as a source of policy analysis rather than just a producer of budget numbers. Congress also expanded CBO's role; for example, as policymakers became concerned about rapidly growing deficits, Congress established budget enforcement mechanisms to prevent increases in the deficit. CBO issues reports to track compliance with these mechanisms. Some of these mechanisms -- namely, those affecting Congress's internal procedures that govern budget decisions -- are triggered if CBO estimates show a breach of fiscal discipline. Consequently, CBO assumed a role that was not merely informational, but also began to directly affect the legislative budget process. While its work is done for Congress, CBO presents the results of most of its work in publications that are available from CBO upon request, or over the Internet from their website (www.cbo.gov). Among CBO's products are the following:
Despite being an entity of Congress and potentially subject to pressure by whichever party is in control, CBO has managed to be, and is reputed to be, a source of objective and nonpartisan information. One large factor in establishing and sustaining CBO's objectivity as an independent agency is its refusal to make policy recommendations. Its policy analyses investigate issues that have consequences for the budget and economy, but do not endorse any particular policy options open to Congress. CBO's own literature says that its "nonpartisan stance has been instrumental in preserving the agency's reputation for professionalism and has enhanced the credibility of its products."(1) CBO has further supported its reputation for independence by proving itself willing to produce analyses and cost estimates that anger people from both of the major parties in the United States, and by standing by those reports that estimates in the face of the consequent criticism or threats. In addition, CBO's objectivity has been sustained somewhat by the fact that it serves all members of Congress, from both parties, and therefore the influence of some members over CBO is to a greater or lesser extent counterbalanced by the influence of the others.(2) In our assessment, CBO has been successful in establishing itself as a trustworthy source of information not only for Congress but also for policy analysts inside and outside the government, as well as the press. CBO quickly succeeded in becoming a viable alternative source of budget data to the President's budget office. Beyond just being an independent source of information, CBO also expanded the amount of information with which Congress works. In conjunction with the other budget process reforms of 1974, it increased Congress's ability to play a large role in establishing overall budget policy. CBO's role as an objective source of information extends beyond Congress; its information is used by think tanks, interest groups, and the media. Finally, CBO's roles have grown beyond provider of budget information to also incorporate being a source of policy analysis and producing analyses critical to budget enforcement. Its accumulation of roles indicates that it serves a useful niche. There is no guarantee that CBO will always be able to be an independent, objective source of information. The majority party in Congress has often tried to influence CBO's estimates, sometimes by threatening CBO's funding. In addition, the ultimate authority in appointing CBO's director rests with the leadership of the House and Senate; thus, it is within their power to appoint a director who is more likely to institute methodologies favorable to their own agenda. In the past, directors generally have been committed to maintaining CBO's objectivity, and have recognized its objectivity as one of the institution's major strengths. A new director was appointed in January 1999 and new senior staff have been put in place as well; it is still too early to know if they will follow the independent approach that has been practiced in the past. Parliamentary Lessons Three parliamentary systems that are well-known for their recent budget reforms -- Australia, New Zealand, and Sweden -- were examined to see what lessons they might offer for reforms in Israel. The Swedish approach, the approach most familiar to the co-authors of the paper, is examined in the greatest detail. None of the parliamentary systems examined had institutions directly analogous to a CBO. This reflects the fundamental fact that in a parliamentary system the same party (or parties in a coalition) always controls the executive and legislative branches; as a result, an independent check on executive branch budget information is seen as less important. Still, in both presidential and parliamentary systems, a good budget process does share certain important characteristics, including a range of checks and balances that make decisions more transparent and understandable and, relatedly, that provide impartial information. A CBO is one institution that helps achieves these objectives. The three parliamentary countries examined all have an assortment of checks and balances built into their budget processes, and recent reforms were designed to strengthen such checks and balances, in substantial part by providing for greater transparency. Checks and balances in Sweden are carried out by a number of different institutions and organizations. Most of these players have an indirect influence on the budget and their roles share some resemblance to the roles of the CBO. Perhaps the most distinctive feature of the Swedish governmental system is its dedication to openness and to allowing the public access to all information. This gives many non-governmental institutions more leverage to affect budget policy. Individuals in universities, the financial sector, think tanks and advocacy institutes all play significant roles in examining, assessing, and influencing budget decisions. Sweden also has specific government institutions and arrangements that have a strong and direct role when it comes to checks and balances. For example, the 16 Standing Committees of its parliament (the Riksdag) have a staff of 100 and the seven parties represented in the Riksdag also have their own research staff, another 150 staff members. This staff puts them in a better position to challenge the views and assessments of the executive branch. In addition, the Research Service in Parliament has been established to serve members of parliament. The task of the Service is to provide members and party groups with research or information they might need. The information provided is supposed to be accurate, unbiased, timely, and easy to understand. The Swedish executive branch does have more influence than the legislative branch in the budget formulation process, and to some degree this influence has grown even stronger under recent budget reforms. Under the new budget process, the executive branch has exclusive power in an extremely important budget decision: it alone determines the overall spending ceiling. This places considerable restrictions on parliament's role in the budget process, previously its amendment powers were much stronger and more effective. This power shift spurred discontent in parliament and led it to create a new department within the Research Service that will concentrate on budget work, as opposed to the general information service. The department will carry out analyses and projections on main revenue and expenditure aggregates, as an independent alternative to projections by the executive branch of government. As a new department which has produced only a few products, it is too early to assess its effectiveness, but its roles have something in common with that of the CBO. Within the Swedish government, several other institutions play a role in the budget process, contributing to alternative sources of information, program evaluation, and objective analysis. These include the National Audit Bureau, the National Institute of Economic Research (which is responsible for economic forecasts), the Central Statistical Office, and the Ministry of Finance's Expert group for the Public Economy whose mission is to provide autonomous advice. Although the role of the audit office typically is confined to examining the effects of a budget after it is passed, this role is a vital one. The New Zealand Audit Office provides an especially excellent example of a well-designed check on government expenditures. It is statutorily independent, allowing it to perform its duties in an unbiased manner; it has the range of powers necessary for it to obtain the information it requires; and it has the discretion to examine the issues that it deems most important. When the Swedish budget process was reformed, parliament also adopted a comprehensive budget law regulating most aspects of government economic activity. The law regulates procedures for financial statements and economic reporting and the requirements it established have improved information on the budget provided by government. Australia and New Zealand have also recently adopted legislation that are pertinent to discussions of checks and balances. The relevant New Zealand legislation is the Fiscal Responsibility Act of 1997. Australia has a more recent example in the Charter of Budget Honesty Act. Both pieces of legislation as well as the Swedish Budget Law were introduced to improve fiscal policy outcomes by requiring sound fiscal management. Hence, all three examples have a bias toward macroeconomic reporting on the one hand, and auditing on the other. A fully transparent process requires more than good reporting on these two areas, but the budget reforms of New Zealand, Australia and Sweden are good examples of how legislation can improve transparency considerably. The parliamentary institutions and arrangements discussed all represent checks and balances in the budget system. Many aspects of the work carried out by CBO are covered by these institutions, and their collective output is an important contribution in their respective systems. But none of the institutions have the same scope, importance and influence as the CBO; none provide the legislature and the public the budget information required in the formulation stage to act most effectively as independent checks. A final point is that legislation is a powerful tool to improve the budget system and consequently checks and balances. Rules and regulations can facilitate transparency and openness in the government budget process, and there are good examples of how recent legislation has made the executive branch of government more accountable to society. Reform of the Israeli Budget Process This paper identifies four ways in which the budget decision-making process in Israel could be improved. These options are complementary. Progress must be made in several areas in order to improve Israel's budget process. The idea of a Knesset Budget Office is examined in depth, but the following steps would also be of use:
While helpful, none of the above options would eliminate the benefits of also creating a Knesset Budget Office. Improving the executive branch's budget books does not eliminate the need for alternative sources of information. The Comptroller assesses the effects of budget policies as enacted, it does not have a direct role in providing independent, alternative information as the budget is formulated and voted upon. The role of NGOs is important, but they are still unlikely to have the breadth of resources that a government-financed institution can have, nor would NGO information be designed specifically for the legislature, as a KBO's information would. Note that in the United States, there are a variety of respected independent researchers and NGOs, but these researchers themselves are among the first to argue for the merits of a Congressional Budget Office. A "minimum" or a "maximum" version of a KBO might be considered. A minimum version would include such functions as the provision of information related to fiscal policy, elucidation of the current budget bill, and comparative data. This minimum version could be expanded by the provision of cost estimates of amendments submitted by Members of Knesset during the budget debate, and, more generally, of bills submitted by them. A maximum version would consist of the full scale of functions performed by the CBO, including alternative macro-economic projections and detailed analyses of particular budget and policy options. (Note that the function of a KBO is largely dependent not only on its status and resources, the budget process has to be reformed in some areas to allow a role for independent, timely and accurate work. One such reform is a new timetable for the process.) A proposal to establish a KBO would have to consider two operational problems: one, the question of staffing; two, the concrete location within the Knesset. The KBO will have to rely on the work of professional economists or public policy researchers. One of the possible limitations facing a KBO would be the fact that Israel lacks a sufficiently large and theoretically varied community of economists. Furthermore, the Israeli public scene lacks a sufficiently large network of non-university and non-government organizations, such as the Brookings Institution, which train and employ economists in public interest economics work. It may also be difficult to find researchers with an independent mindset. Writing about a proposal to establish a National Security Council, a former IDF officer recently noted that "in a small country such as Israel, there is difficulty in forming a group of civilian researchers who have not been raised within the defense establishment or who have not been influenced by it, and who are therefore capable of arriving at independent judgments." Much the same could be said about the formation of a group of non-attached economists who would be employed by a KBO. Another difficult question concerns the location and organizational status of a KBO. At present there is no independent Knesset professional institution. In the United States Congress, the founders of the CBO could at least refer to the precedent of the General Accounting Office and the Congressional Research Service. The KBO, if and when established, would itself constitute a precedent. If establishing a KBO as an independent institution proves unviable, one option would be to locate it under the Finance Committee. That, however, would run counter to the purpose of enabling the Knesset to play a more significant role in the budget process, both because the KBO should be at the disposal of all Members of the Knesset, and not just the Finance Committee or its chair, and because the Finance Committee is staffed by MKs on a partisan basis: this would undermine the need for the KBO to be nonpartisan. Another option would be to establish the KBO under the auspices of the Office of the Knesset Speaker, while giving it statutory operational independence. A final general consideration in assessing the potential of establishing a KBO to reform the Israeli budget process is the likelihood of adoption. There are serious political obstacles to overcome, including the fact that reforms to the budget process currently are not a serious consideration within the Knesset. Several powerful forces, moreover, are likely to oppose the idea if it begins to gain momentum. These include, most notably, those institutions that are most likely to lose influence if another source of budget information is provided and consequently strengthens the hand of the Knesset in Budget debates. The likely opponents include the Ministry of Finance and especially its Budgets Division, as well as the Prime Minister's Office. Even within the Knesset there are likely to be opponents, including, possibly, the Finance Committee, if a KBO is not located under its jurisdiction. At the same time, the idea for the creation of a KBO should strike a positive chord with at least some Members of the Knesset, who would rightly see its creation as a mechanism to make the Knesset a more influential factor in social and economic decision-making. The NGO community should strongly support such an institution. Note that 50 NGOs recently attended Adva's Alternative Budget Hearings at the Knesset, underscoring the growing awareness among civil society about the significance of budget decisions and the need to be involved in budget deliberations. Last, certain elements of the media already have taken up the cause of introducing more rationality into the budget process and are likely to be supportive of improving the availability of independent, objective budget information. No single budget reform will correct the deficiencies with the current process. In combination, however, progress in some or all of the above areas would strengthen the budget process considerably, permitting the Knesset and Israeli civil society to make more informed judgements and making it easier for them to formulate alternatives and amendments to the budget. 1. Congressional Budget Office, "CBO's Major Responsibilities" (http://www.cbo.gov/respon.shtml). 2. Joel Havemann, Congress and the Budget, Bloomington: Indiana University Press (1978), 103. |
||
|
|
|||
