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Guide to Budget Work, October 2001 - Part 5, International Budget Project Part V. Appendices
Appendix I: The Evolution of the Center on Budget and Policy Priorities and Lessons Learned
Robert Greenstein, Executive Director, Center on Budget and Policy Priorities
"Presentation at the First Conference of the International Budget Project," Washington, D.C., December 3, 1997.It is really a pleasure to talk to all of you today, and to see people from so many places around the world. I have been asked to talk a little about how our Center here in Washington developed and any implications that might have for the kind of work that some of you do. Today the Center on Budget and Policy Priorities has about 50 staff. About half of our work is on issues at the national government level and about half at the state or province level. We work on budget and tax issues at both the national level and the state level. We also work on such matters as trends in poverty, and whether it is getting more widespread or less so; trends in the gaps in income between rich and poor, whether they are getting bigger or smaller; and we work on a number of specific areas where the government gets involved in issues that affect low-income people: cash assistance, food assistance, health care, employment programs, and others.
But this wasn't always the case. We started in December 1981 with just three people. The origins of our organization were rooted in some developments in this country during 1981. At the beginning of that year, a new President, Ronald Reagan, took office. And he quickly proposed a bold program that included reductions of unprecedented depth in some programs focused on poor families, and some large tax cuts that disproportionately benefitted wealthy individuals.
Early on, his government very effectively put out material for the media and others that said that they were protecting the poor. The Reagan Administration used a phrase that it was maintaining what it called a "safety net" for what it called the "truly needy." It did have a set of social programs it was protecting from any cuts, but those were primarily programs for elderly people at all income levels, not for poor families.
But because the Reagan Administration was the main source of information for the several months in which the proposals were debated and then made into law, the presentation that poor families were being protected was largely accepted by the media and many policymakers. There was little alternative source of analysis and information on the impacts of these proposals other than some more academic analysis that wouldn't come out until one or two years later, after the decisions had been made.
The second important development that happened that year was that the government of President Reagan was able to pioneer new uses of the process through which these budget decisions were made. Most of the United States NGOs that were concerned about programs for the poor were used to the "old" budget procedures and had difficulty adapting to and understanding how the "new" procedures worked, and they were less effective as a result.
Growth in Center Work
This led to a general view that there was a gap in the NGO world. Our Center was started to help fill that gap. When we started, our initial focus was on the budget for the national government in broad terms. For example, each year when the national budget was released, we would look on the same day in which it was released, to see whether budget cuts were hitting programs for low-income people harder than other constituents. A typical piece we would put out at that point in our early years would say "15 percent of the national budget is in programs for the poor, but those programs would bear 30 percent of the cuts in the new budget proposal — twice their share."
That was the kind of work we initially did. We also placed particular emphasis on helping other NGOs understand the new budget procedures so they could be more effective in their work on these decisions. And we worked in more depth in these very early years in one area of programs for low-income people — food assistance programs — and that was because that was my background and we knew those well.
As the years went on, we gradually began to get into other areas. In 1984, our third year, we found that while taxes had been going down for high-income people, they had been going up for working poor families — people working but earning low wages. This hadn't been a conscious policy decision by policymakers but had been an unintended effect of some of the policies they had put in place, and it was not well known that this was occurring.
We found a table that a Congressional committee had put together which showed that for a family that was at the poverty line and was working, the share of income paid in taxes had more than doubled at the same time that the taxes for the people with the highest incomes had gone down. And we put out a little report on that, and to our surprise it was covered in several hundred newspapers. So we began to work on tax issues from the standpoint of lower-income people. We also began to analyze the effects of various budget policies, not just on low-income people, but on African-Americans, Hispanics, and women, and that also got particular attention.
By the mid-1980s, our national government had developed a large budget deficit, and there was movement to try to shrink that deficit. A law was put together in Congress that would set a maximum amount of deficit the government could run in any year and would require across-the-board cuts in nearly everything if the deficit was going to be exceeded. Here we found that programs targeted on low-income groups had already been cut more than anything else. This analysis led to efforts taken by a coalition of nearly a hundred NGOs that normally didn't work together to seek an exemption for low-income programs so they would not be cut if the deficit target was exceeded. And that exemption covering virtually all major low-income benefit programs became law.
By the late 1980s we began to look at some other areas, in part because some new people with different areas of expertise had joined our staff. One new staff member, Isaac Shapiro, put together a series of reports which covered every state in the country and looked at how each state compared to other states in its treatment and its help for lower-income families. We released all these reports — for each of the fifty states — on the same day. The reports received massive media coverage. But we released the reports by ourselves, and six months later it was as though we hadn't issued the reports, because we did not issue them in conjunction with NGOs in the individual states. And we learned that as an organization located in the capital city, if we wanted to work on issues affecting poor families in the states, the best way to do that was in conjunction with NGOs in those states and to help them have the capacity to do more of this themselves rather than our trying to do it directly out of the capital city.
Our ability to do that was enhanced when Iris Lav came in and began to build a program for us of work on state issues. Initially we focused on helping NGOs in various states work on budget and tax issues in their states. That work was of interest to a number of those NGOs. A number of them had been doing excellent work to highlight problems facing, for example, poor children in their states, and getting sympathetic response for their work only to have the policymakers then say, "But we have no money to do anything about it." This situation led increasingly to the conclusion by many of the NGOs in the states that they needed to begin doing analysis on the budget and tax issues and the tax structures in their states. We began to work with them.
Recent Developments in Center Work
Recently here in the United States a very major piece of legislation became law that also shifted from the national government to the states authority over a number of key issues in low-income programs that used to be national. We, in turn, began to work on a number of the specific low-income program areas with groups in the states as well. Today, as mentioned earlier, about half of the Center's work is at the state level and about half at the national level — a major change from where we were a decade ago. We help researchers and NGOs in some states learn of things going on in other states that would be of use. In some cases, we are working with a number of NGOs in different states on a joint project. For example, today NGOs in ten states are working with our assistance to put together reports on the conditions facing working poor families in their state. The fact that there are ten groups acting in concert to generate interest in a particular issue frequently makes it easier to attract attention to the issue in each individual state.
The most recent development for our Center is that the same law that transferred authority over a number of low-income issues from the national government to the states also made very major changes — and in our view very disturbing changes — in the role and responsibility of government in this country toward people who are immigrants in our country. There are a number of fine organizations in Washington that work on immigration, but up until now those organizations did not have to respond to such questions as whether immigrants could get the same assistance as citizens if they were poor — up until now legal immigrants could get the same assistance.
So, given our expertise on budget issues and on specific low-income programs, a number of those immigration groups sought the Center's assistance in working with them to do a great deal of analysis on issues affecting immigrants in these programs. We've been fortunate to have two staff members with expertise in that area, and so that is a new area for us.
As this history may suggest, this is a 16-year story. The expansions of our work have been slow and deliberate. There have been almost as many cases where we were asked, sometimes by another NGO, sometimes by a foundation offering money, to move into another area where we said "No," because we did not feel we had the expertise to jump into that area, and we have always felt that the foundation of all of our work is the quality and the credibility of our work.
Center Guidelines for Effectiveness
We try to do something at the Center that some people, who don't know about us, say "You can't do it." We try to do analysis and to put out information that is credible and trusted and gets attention from people who disagree with us and our policy recommendations, as well as from those who agree and look for guidance to see what we're recommending.
At the same time that we attempt to do that analysis to illuminate the debate, to help other NGOs and to help inform the public and policymakers about some of the issues particularly affecting low-income people that otherwise aren't being given enough attention, we clearly do have an agenda, a mission. We are trying to move public policy in this country in ways that will reduce poverty and will lessen rather than widen the gaps between the richest and the poorest. And some people have said "Well, you cannot be seen as doing credible, trusted analyses and have a point of view." We have been able to do it, but the reason is because we only work in areas we really know, and we make sure that in those areas our work is very solid and credible. We don't simply put forward pieces of information or analysis that would support where we would like to see the policy go. We try to cover all of the relevant pieces of information in our analyses.
So we have learned from this not to jump into areas we don't know, to make the foundation of all our work the credibility of our work and the accuracy of the work. We have found that the more we have built recognition and trust for the quality of our work, the more effective we are in making recommendations and advancing specific policy changes.
We also place a great deal of emphasis on how we present the work we do. From the beginning, we have seen our three primary audiences as being policymakers, the media, and the public (through the media and other NGOs). We also maintain close ties with many academics, and they are another one of our audiences, but not one of our primary audiences. This being the case, we have found that what we need to do is to present our material not as an academic would present it in an academic journal, but in simpler, more accessible form.
We find that to do this, we do most of the work of writing analyses in-house. On those occasions where we work with someone who may be in a university to produce a piece that we put out, we then work with that person to translate his or her work into a form that is accessible for people who are not academic researchers. We do this since most policymakers and their staffs aren't trained as academic researchers, nor are most of the people in other NGOs or most journalists. We work with people in universities to translate their material into a form that our audiences can understand and be engaged by.
We also have found it important to consider the timeliness of our reports. Some of them are aimed at a longer-term debate and timeliness is not that critical; others are aimed at debates and processes that are current-time sensitive. In deciding whether to do something we often consider, when does it need to be put out? And can we put out something in that time frame?
We have a few reports that we do each year on the same day that an event occurs. Each year our national government puts out new figures on poverty. They get media coverage that night and the next morning. We issue a short analysis of the new data the same day the data are released so our analysis can affect the media coverage.
For all of those reasons, we have an internal process where before deciding to do any particular piece of work, we think of who is the audience for this work. There always are more possible pieces of work we can do than we have time to do, so we try to think strategically and to establish priorities. When I mentioned that our audiences are primarily policymakers, the public and other NGOs, and the media, not every piece we do is aimed at all three audiences. Some are designed for all three, some are designed for one or two of them.
Distribution
Finally, we place a lot of attention on how we distribute our work when it's done: through the mail, through faxes, and increasingly these days through the Internet, which in the last couple of years we have found to expand greatly the audience that we can reach with our work. We're constantly looking for new mechanisms to reach broader audiences. We found that distribution is a place where you can never just sit still; you always have to be looking for new avenues.
One new approach this year has been that we have begun to convene about once a month telephone conference calls of editorial writers or newspapers across the country, and syndicated columnists who write in these newspapers. We will get anywhere from six to ten of them on the phone for an hour, we will send them a new analysis in advance, we will offer a ten- or twelve-minute presentation, and then they will ask us questions. Each conference call will focus on an issue on which we have worked and that is a matter of current debate. We have been finding that a substantial portion of those on the call then write Editorials on the issue discussed on the conference call.
Conclusion
When we began this work in 1981 I certainly didn't expect that our Center would develop as it has or be fortunate enough to have some of the effects on policies that it did. When we began earlier in this decade to work with NGOs at the state level, I think none of us, including people at the Ford Foundation, who helped fund it, probably expected that as many of the state NGOs would develop to the point that they have in just a few years and become significant factors in the debates in their states to the extent that they have.
Now it seems to us that these trends in the United States actually may be part of a worldwide trend. NGOs have begun to take on more importance throughout the world, something shown by the presence of all of you here today. Having said that, I think we at our Center had a much easier task than almost all of you have in your countries. We have more budget information readily available to us, we have more NGOs to work with that are established than many of you do. In many cases your challenges are greater than those we face.
But by the same token, if we were formed to fill a certain vacuum that was felt to be present here in 1981, the vacuums are probably greater in most of your countries. As a result, your work in your countries over time, is probably of greater importance than our work has been here in Washington, D.C. So it is our privilege at the Center to be able to work with you to help put together this conference and to look at the expectation that many of you in the years ahead could have important effects in promoting debates that could benefit tens of millions of people all across the world, many of whom are in fact poorer and in greater need than people who are poor here in the United States. So we look forward to what I hope will be a conference that you find valuable today and tomorrow. Also I have to express my admiration to all of you for the work that you're taking on, often in tough circumstances, in your countries. Thank you.
Appendix II: The Story of Budget Work at DISHA in India
"The budget is prepared by a very small group of people in the bureaucracy. Knowing the process breaks this monopoly. - M.D. Mistry, DISHA
Founded in 1985, the Development Initiative for Social and Human Action (DISHA) is a membership organization devoted to organizing forest laborers and building capacity in local organizations working on issues that affect people in the tribal areas. Since 1992, DISHA has also been working on state-level policy issues through budget analysis and policy advocacy.
This appendix consists of the following story of DISHA's budget work and was written by the director of DISHA, M. D. Mistry. (This description was originally composed for the Advocacy Learning Initiative, a project of the Advocacy Institute and Oxfam America. The essay was first published in the June 1999 issue of Change Exchange, an advocacy journal for and by Advocacy Institute alumni. Our thanks to the Advocacy Institute for permitting us to reprint this essay here.)
DISHA began to see the need for budget analysis when we lobbied the government to raise the collection rate for 1 million tribal Tendu leaf-plucker women, to regularize land rights for tribal forest land cultivators, and on other issues relating to the general welfare of communities living in the tribal areas of Gujarat state in western India. With each struggle, a realization grew: unless we had information on the money spent by the national and state governments, it would be difficult to fairly represent the issues of tribal development. Eventually, this realization forced us to learn how to analyze the state budget.
The word "budget" is enough to turn off most social activists. Our group was no exception. Reaction, debate, and studies on national and the state budgets are traditionally the domain of academics and researchers. This has always been alien territory for social activists. We discovered, however, that budget analysis can be a powerful tool for grassroots groups to use in negotiation or confrontation with the government.
Our Experience with Budget Analysis
Our first task was to get a copy of the budget document. This took some time because we did not know where to look. First, we inquired at the finance department of the state government. Even though it is a public document, they refused to give it to us. Next, we learned that the government book depot sells it. However, this sale takes place when the budget discussion is almost over. Eventually, we found the easiest way to get a copy of the proposed budget was from the elected representatives when it is tabled (presented) in the state assembly. This is what we did.
To my surprise, I found the state and district budget documents fascinating. These documents are not just numbers. They speak about the expressed intention of the government, its policies, and its allocation of financial resources, which create the rich and poor regions and groups within the state.
Budget numbers express an enormous volume of information. With eyes trained in budget analysis, one can discover the government's hidden priorities. They may be interested in decreasing poverty, or providing elementary education to children of the poor, drinking water facilities to the villages, or health services in remote areas.
This knowledge, however, takes some time to acquire. When we first saw the budget documents, we were puzzled and overwhelmed. First, we had to classify the data. This was a laborious task. To obtain the kind of information we were seeking, however, we had no alternative. Next, we had to understand the government's accounting system. Then, we had to build our own self-confidence, making certain we were correct in our analysis of the figures. It took some time to eliminate human error, and to create a foolproof system so that we would not repeat our initial mistakes. Finally, we were ready to publish our analysis, "Injustices to the Tribals."
Because ours was the first attempt by any public group to disseminate such an analysis, we thought a lot about what it should contain. We decided to outline the strategy of development, emphasizing how poor people are left out of the budget policies, and how these policies adversely affect the poor. We used the budget figures extensively, showing that we had discovered 172 mathematical errors in the 22 budget documents. We also highlighted issues affecting dalits (untouchables), tribals, women, and agricultural laborers.
We gave some thought to how we could make our notes stand out from the piles of the papers that elected members get from the government every day during the budget session. We decided to prepare notes that were short — six pages long at the most. We sent our notes to government ministers and bureaucrats, and to the press, academic institutions, and voluntary agencies, and waited for a response.
Reactions to Our Budget Analysis
"Injustices to the Tribals" created a great deal of interest. The newspaper carried box items of our findings that the government had made errors in totaling the figures. This created a very embarrassing situation for the finance minister. The under-secretary came rushing to our office to ask how we found the errors. The ruling party and the bureaucrats were caught unaware; they realized that somebody else was taking keen interest in the budget documents. The opposition parties took full advantage of our notes to press their own causes.
Before each day's discussion, we prepared more notes and handed them out to assembly members. Many of them became addicted to our notes. They were eager to receive them as early as possible to help them formulate their own arguments to create pressure on the government.
Every member in the state assembly found our notes useful in a number of ways:
- Our notes shaped the budget discussions in the assembly. Since we prepared them in the local language, keeping the educational background of the members in mind, they dominated the budget proceedings.
- Government officials became more alert to queries and questions raised in the assembly.
- Budget discussion became sharper and more factual, forcing the ministers to reply to the facts and making the government officials work.
- For the first time, the issues of the poor were discussed, questions were answered, and the debate became precise.
- Our organization's name became familiar in the "corridors of power." Our access to officials, ministers, elected representatives, and the press became easier. We received a warm welcome, and their attitude toward us became less arrogant, sometimes even sympathetic.
This has helped us a great deal in resolving people's problems. Our notes became so popular that a number of Members of the Legislative Assembly (MLAs) asked us to conduct budget-analysis training programs for them. Some began to contact us personally in our office. Many tried to look for new information, interpretation, and hidden truths in the budget books.
Our notes stirred discussion on tribal issues. They also created strong positive impressions about us among the various political parties and the people active in public life:
- We were not merely a struggle-oriented and slogan-shouting organization. We had the intellectual abilities to put our case across solidly in the government's own sacred terminology.
- The government bureaucracy had no alternative but to accept our conclusions, since they were based on the government's facts and figures.
- Academics and intellectuals accepted us in their circles.
The Value of Budget Analysis to Grassroots Groups
I have found budget analysis to be a very powerful tool. Of course, there are differences between academic analysis and the situation-based analysis of a grassroots group:
- Our analysis is more confrontational in nature, designed to create a demand for explanations from the ruling government during the budget discussion on the provisions relating to issues affecting the poor.
- Our analysis also looked at regional development. We specifically highlighted money allocated by various heads to benefit the poor, as well as any attempt to create imbalance through allocation of financial resources and other fiscal policies.
Budget analysis has taught us several important lessons:
- Money goes to those who hold power. If non-governmental organizations (NGOs) raise questions and demand the people's share, those who possess the money get worried.
- Our analysis shifted the balance of power. In general, NGOs and voluntary agencies have rarely addressed the whole field of "governance." Until recently, their role had been limited to receiving either "finance" or "information" from the government. By doing a budget analysis, the group acts as a partner in formulating the budget and pushes the state to collect information and provide it to the people.
- The budget is prepared by a very small group of people in the bureaucracy. In order to maintain their monopoly, they don't want others to know its intricacies. Knowing the process of making the budget documents breaks this monopoly. NGOs must know the process. The more one knows about the finance of the state, the more one becomes confident and powerful.
- Before the budget analysis, we looked to the elected representatives to raise our issues for us. Many times, they tried to evade us, making us feel ignored and unwanted by the people in power. Now, however, we were suddenly "most wanted," especially during the budget session. We felt that we were shaping the discussion on the budget in the assembly, if not the budget itself.
- Since we are a people's organization, criticism leveled against the government on the budget can affect our chances of getting the work done by the ruling party MLAs or bureaucrats. If we praise the government for good action, our credibility may be affected in the eyes of the public. For this reason, we always had to keep the members of our organization in mind while writing budget notes for the elected representatives.
- Using factual information to discuss the issues of tribal development sharpened our arguments. The budget analysis also widened our vision and gave us ways to pick up certain issues and focus on them.
Budget analysis does have its limitations. We can't find the answers to all the actions of the state by analyzing its budget analysis. Nonetheless, this process can certainly help us understand most of the issues that people are facing.
Appendix III: Glossary of Key Budget Terms
Many governments include information about basic budget concepts in the national budget, and in some countries this information is available online. Budget terminology can differ considerably between countries, and it is not possible to compile a common glossary for all systems. Nevertheless, we have compiled a small glossary of frequently used terms, and we have chosen to point to some on-line glossaries that we find particularly useful.
We recommend the following sample glossaries:
1. Manual on Fiscal Transparency, IMF (Some of our definitions drew directly from this glossary.) http://www.imf.org/external/np/fad/trans/manual/gloss.htm
2. Budget Dictionary, Budget Information Service of Idasa http://www.internationalbudget.org/resources/library/budgetdictionary.pdf
3. The Congressional Budget Process — An Explanation, The United States Senate, Committee on the Budget http://www.senate.gov/~budget/republican/reference/cliff_notes/cliffc1.htm
Glossary
Accounting Systems — Accounting systems record financial transactions. The two major accounting systems are cash accounting and accrual accounting. Cash accounting systems recognize transactions and events when cash is received or paid; they do not recognize non-cash events. Accrual accounting systems, on the other hand, record payments and receipts when parties enter into a commitment, not when cash changes hands. For instance, an accrual accounting system would record the purchase of naval helicopters when the government signs a contract to buy the helicopters, not when the helicopters are actually delivered and paid for (which would be the case in a cash accounting system). An accrual accounting system views the commitment, rather than the exchange of cash for goods or services, as the event that has economic significance. Most governments rely on cash accounting systems.
Appropriation — Appropriation refers to the legal authority granted to the executive by the legislature to spend public funds. Appropriation legislation varies in terms of its detail — some provide funds for an entire department, while others provide funds for specific programs. Appropriations typically provide spending authority for a single fiscal year. However, permanent appropriations or standing appropriations provide spending authority over a series of years. Supplemental appropriations are sometimes granted subsequent to the annual appropriation law if the amounts provided in that appropriation prove to be insufficient to meet the intended purpose.
Asset — Government assets are things that the government owns or controls that are of value. Assets can include physical assets (such as land, buildings, and machinery) and financial assets (such as cash, bonds, or equities). Unlike private sector businesses, few governments maintain balance sheets that take into account the value of their assets and liabilities; however, many governments keep asset registries that list physical assets. Financial assets are usually tracked as part of the debt management process.
Balanced Budget — A balanced budget occurs when the government's total revenues equal its total expenditures for a given fiscal year. When the budget is not it balance, then it is either in deficit or surplus. A deficit occurs when expenditures exceed revenues, while a surplus is when revenues exceed expenditures.
Baseline — A baseline is the benchmark against which proposed fiscal policy changes are measured. There is no universally accepted approach for measuring proposed budget changes. One approach is to use the actual spending and revenue levels from the preceding fiscal year as the benchmark. Another approach is to construct a current services baseline that attempts to capture the cost of continuing current policies, taking into account the impact of inflation, changes in the number of program beneficiaries, and other factors.
Budget — A budget is a comprehensive statement of government finances, including spending, revenues, deficit or surplus, and debt. The budget is usually the government's main economic policy document, indicating how the government plans to use public resources to meet policy goals. As a statement of fiscal policy, the budget shows the nature and extent of the government's impact on the economy. The budget is prepared by the executive and then generally is submitted to the legislature to be reviewed, amended, and adopted as law. The budget preparation process begins many months before the start of the fiscal year covered by the budget, so that it can be enacted into law before the fiscal year begins.
Contingency Reserves — Contingency reserves are funds set aside to meet unforeseen and unavoidable requirements (such as the costs arising from a natural disaster) that may occur during the budget year. Contingency funds can be a prudent approach to dealing with costs that are likely to arise during a fiscal year but the specifics of which are unknowable at the time the budget is being prepared. On the other hand, such funds can be subject to abuse if they are not accompanied by strict accountability mechanisms.
Debt — Government debt is the outstanding amount that the government owes to private lenders at any given point in time. Governments borrow when they run deficits, but reduce outstanding debt when they run surpluses. Thus debt essentially represents the total of all annual deficits, minus any annual surpluses, over the years. Governments can borrow by taking out a loan directly from a financial institution, such as a bank. Governments can also issue bonds that are purchased by domestic and foreign businesses and individuals. Purchasers of government bonds are essentially lending money to the government with an agreement that the amounts will be repaid on a certain date and that interest will be paid periodically. The interest payments, also known as debt service costs, are a line-item in government budgets. Particularly in developing countries, debt service costs can consume a large share of total spending, reflecting the significant debt accumulated by these countries as well as the high interest rates they must pay to borrow.
Earmark — When funds have been earmarked, it means that they have been dedicated to a specific program or purpose. In some cases, a particular stream of revenue is earmarked for a specific purpose. For instance, revenues resulting from taxes on fuel are frequently dedicated to transportation-related expenses, such as road construction or mass-transit subsidies.
Expenditure — This refers to government spending (or outlays). Expenditures are made to fulfill a government obligation, generally by issuing a check or disbursing cash. Expenditures may pay for obligations incurred in previous fiscal years or in the current year. Expenditures are sometimes distinguished between capital and current. Capital expenditures are investments in physical assets, such as a roads and buildings, that can be used for a number of years. Current expenditures reflect spending on wages, benefit payments, and other goods or services that are consumed immediately. Actual expenditure may differ from the amounts established by the budget. Significant and persistent differences between actual expenditure and budgeted amounts are a sign of weakness in a country's budget and expenditure management systems.
Extrabudgetary — The term generally refers to government transactions that are not included in the annual budget presentation. A wide variety of extrabudgetary arrangements are used, including funds set up under separate legislation that are financed by revenue earmarked specifically for that purpose. In other cases, state-sponsored businesses such as utilities or airlines have independence in certain respects, but the government may ultimately be responsible for bailing out these businesses when they run into financial trouble. Extrabudgetary activities may not be subject to the same level of scrutiny or accounting standards as programs in the annual budget (though they should be).
Fiscal Policy — Fiscal policy refers to government actions with respect to aggregate levels of revenue and spending, and the resulting surpluses or deficits. Fiscal policy is the primary means by which the government influences the economy. An "easy" fiscal policy is intended to stimulate short-term economic growth by increasing government spending or reducing revenues. A "tight" fiscal policy restrains short-term demand by reducing spending or increasing taxes, and is often intended to restrain inflation. The government sets and implements fiscal policy through the budget.
Fiscal Year — The fiscal year is the government's 12-month accounting period; it frequently does not coincide with the calendar year. The fiscal year is named after the calendar year in which it ends.
Function (as in functional classification) — International standards (such as the IMF's Government Finance Statistics) exist for classifying government expenditures and revenue according to the broad purposes for which transactions are undertaken. A functional classification organizes government expenditure according to its various activities and policy objectives — such as health, education, and transportation.
GDP (Gross Domestic Product) — This is the total value of final goods and services produced in a country during a calendar year. Economic growth is measured by the change in GDP from year to year.
Grants — Grants are funds that the national government disburses directly to lower levels of government, corporations, non-profit organizations, and individuals. Some grants are given for specific purposes, requiring the recipients to meet certain conditions or requirements. In other cases, the grants may be used for whatever purpose the recipient deems important. For instance, a national government may make general-purpose grants to state and local governments to support their operations or may provide grants targeted at specific programs, such as the construction of a road or the purchase of school textbooks.
Incremental Budgeting — Incremental budgeting typically refers to a budget formulation process that focuses only on one year and how the budget for each program differs from the levels adopted in the previous year. Incremental budgeting is often criticized as having a narrow focus, concentrating on funding changes to existing programs rather than having the flexibility to address the implementation of new policy priorities, or eliminating low-priority programs.
Inputs — This term refers to the goods or services that go into providing government services. For instance, typical inputs funded by a health budget would be the salaries of doctors and nurses, the construction of clinics and hospitals, and the purchase of medical supplies and drugs. All are used to provide government health care services.
Liability — A liability is a debt owed to someone else. For governments, their outstanding public debt is their primary liability, reflecting amounts borrowed from the public that must be repaid at some future date. A contingent liability is one that depends on the occurrence of a specific event. For instance, if government provides crop insurance to farmers, it faces a liability only in the event of a drought or other weather conditions that reduce crop yields.
Multi-year Budgeting — This term generally refers to budgets that take into account more than one year. In some cases, this means governments enact into law budgets that specify spending and revenue amounts for more than a single year. For instance, many U.S. states enact budgets that specify spending and revenue amounts for two years, and are known as biennial budgets. In other multi-year budgets, only spending and revenue amounts for one year are adopted, but the budget includes estimates for subsequent years that reflect the multi-year impact of its policies and plans; these estimates are not binding on future budgets. In some countries that enact a one-year budget, however, the forward estimates associated with the enacted budget do serve as the starting point for preparing the budget in the next year. This approach is typical in countries that employ a Medium-term Expenditure Framework (MTEF).
Outputs/Outcomes — The performance of government programs is assessed by examining whether they have delivered the desired outputs and outcomes. Outputs are defined as the goods or services provided by government agencies. Some examples include: teaching hours delivered, immunizations provided, or welfare benefits paid. Outcomes are a broader concept and include the impact of the program on social, economic, or other indicators, such as whether an increase in hours taught improved student test scores, whether more immunizations reduced sickness, or whether higher welfare benefits increased social equity. Outputs tend to be easier to measure than outcomes. Further, factors beyond the control of a government program can affect outcomes, making it difficult to assess the impact of the program. For instance, even at a time when welfare benefits are increased, the number of people in poverty could increase as a result of a slowdown in the economy.
Performance Budgeting — As a general concept, performance budgeting refers to a budget process that integrates information about the impact of government spending. In its simplest form, performance budgeting places more emphasis on the outputs and outcomes associated with government expenditure and takes this information into account when setting future funding levels. Performance budgeting is often associated with giving managers of government programs more flexibility to achieve specific policy goals within a set budget. Efficiency of expenditure therefore is an important goal. Developing countries (as well as many developed countries), however, often lack the data and other information necessary to fully assess performance objectives; gathering such information is a difficult task.
Revenues — Revenues or taxes are funds that the government, as a result of its sovereign powers, collects from the public. Typical revenues include individual and corporate income taxes, payroll taxes, value-added taxes, sales taxes, levies, and excise taxes. In contrast, user fees are paid voluntarily by the public in return for a government-provided service or good. Because the purchaser receives a direct benefit (the good or service) in return for paying the fee, the payment is not considered a tax. A tax that increases as a percentage of income as one's income increases is known as a progressive tax; while a regressive tax is one where a taxpayer pays a smaller percentage of income in tax as income increases.
Spending — See Expenditures
Tax Expenditures — These are concessions or exemptions from a "normal" tax structure that reduce government revenue collections. These tax breaks are typically granted in order to achieve some government policy objective, though they also can result from targeted political pressure. Because the policy objective could also have been achieved through a subsidy or other expenditures, the tax concession is essentially regarded as equivalent to a budget expenditure — hence the term tax expenditure. Estimating tax expenditures, however, can be somewhat more complex than estimating budget expenditures, in part because it requires a precise definition and estimation of revenues under the "normal" tax structure and subsequently the revenues lost as a result of the tax break.
Transparency — Fiscal and budget transparency refers to the public availability of comprehensive, accurate, timely, and useful information on a government's financial activities. Transparency is, in part, an end in itself: taxpayers have the right to know what the government does with their money. Efforts to increase transparency can also help improve accountability and reduce corruption. One international standard for transparency is contained in the IMF Code on Fiscal Transparency. The code is built around the following standards: roles and responsibilities in government should be clear; information on government activities should be provided to the public; budget preparation, execution, and reporting should be undertaken in an open manner; and fiscal information should be subjected to independent assurances of integrity. In addition, the International Budget Project maintains that transparency is more meaningful if it is accompanied by participation in the budget process by civil society and legislatures. The IBP, Idasa, and other NGOs have been developing standards that integrate the objectives of transparency and participation.
Unified Budget — The unified budget is the presentation of the budget in which revenues from all sources and spending for all activities are consolidated.
Appendix IV: Budget Training for Journalists: A Two Day Workshop in Zambia
This program was prepared for a budget workshop for journalists held in Lusaka, Zambia in February 2000. The workshop was hosted by the Swedish Embassy in Lusaka, and technical assistance was provided by the Economics Association of Zambia, the Institute for Democracy in South Africa, and the International Budget Project.
Objectives of the Workshop
Participants should leave the workshop with a greater understanding of:
- the importance of the budget for governance and all major policy areas;
- the importance of the budget process for public expenditure management; and
- the importance of active involvement by outside parties (civil society and the media) in the budget process.
Programme for Day 1
09.00 Welcoming remarks by H.E. Kristina Svensson, Ambassador for Sweden 09.10 Welcoming remarks and introduction to the workshop by Dr. Moses Banda, Economics Association of Zambia 09.20 Brief presentation of participants 09.30 The role of the budget in the Zambian economy 10.00 Tea 10.30 The budget process from A to Z
This session will highlight the main components of the budget cycle and how they relate to each other, from the preparatory phase to the presentation, enactment and execution phases.11.30 Preparing the budget - the revenue side.
This session will look at how the budget's economic framework is determined. How are the underlying assumptions about economic growth, inflation and revenue collection established? What are the principal sources of tax? What is the tax incidence for various population groups and sectors of the economy? What are the trends in revenue collection? What are the main impediments to increasing revenue collection?12.30 Lunch 13.30 Preparing the budget - the expenditure side
This session will look at how much and how government funds are spent. How much can the government afford to spend? What are the deficit and surplus trends over the last five years? What has the Zambian government done with its money over the last five years? What are the expenditure trends for key sectors? What are the trends as regards current costs vs. capital expenditure? Who (persons and institutions) are the key decision makers when it comes to making decisions on expenditure?14.30 Presenting, enacting, executing and monitoring the budget
This session will look at how the budget is presented; i.e., do the Yellow Book and the Budget Statement include all the necessary information to critically analyse the budget? What is the role of Parliament in relation to the Budget? What are the possibilities for Parliament to make changes to the budget once presented? The session will also look at budget execution and monitoring - what is the correlation between allocations and actual expenditure? What are the mechanisms that trigger any alterations?15.30 Tea 16.00 Issues to look at when analysing the budget
- How to analyse the impact of the budget on the macro- and micro- economic environment: What is the impact of the budget on GDP growth, taxation, disposable incomes, investments, and the employment rate?
- How to analyse the fiscal and monetary implications of the budget.
- How to analyse the impact on business.
- How to analyse the impact on social indicators.
Programme for Day 2 08.00 Why are budgets important? A discussion of the functions of public sector budgets.
- To determine affordable levels of spending and tax.
- To allocate resources to national priorities.
- To ensure that every Kwacha spent is spent optimally.
This session will emphasise the importance of public sector budgets for good governance, including the implementation of policies in accordance with national priorities. Although the role of budgets in macro-economic management will be noted, emphasis will be placed on the role of budgets in public expenditure and public policy management.
09.00 The budget system: key to effective budgets
In this session the link between public expenditure management, policy implementation, and better budgetary outcomes will be explored. The central role of budgets and the budget process in managing public expenditures will be unpacked in accordance with the different functions of public sector budgets. The institutional arrangements that support good budgetary outcomes will be identified.10.30 Tea 11.00 The role of parliament and civil society in the budgetary process
This session will look at the role of "outsiders" — i.e., those outside the executive — in public expenditure management. The session will look at the importance of input and participation by parliament and civil society in:
- Drafting the budget
- Approving the budget
- Monitoring the budget.
12.30 Lunch 13.30 What is needed for effective participation in the budget process
This session will draw on fiscal transparency principles for better budget management. The need for useful and timely information on the budget and access to the budget process will be emphasised. Participants will be presented with a list of fiscal information that should be available within the framework of optimal budget management.15.00 Tea 15.30 The role of the press in ensuring better budgetary outcomes 16.30 Evaluation of the workshop and discussion of possible follow-up activities
Appendix V: Case Study of an Analysis of the Executive's Budget: Budget Information Service, Idasa, South Africa
Introduction
In 1994, South Africa faced two enormous economic challenges: an extremely poor record of growth over the previous two decades, and a depth of socioeconomic inequality unparalleled in the world. Both were related, in no small part, to the economic and social distortions created by the apartheid regime. The difficulty facing South Africa in 1994, and facing many developing countries still, was how to meet the goals of economic growth and increased equity while strengthening the foundations of the country's new democracy.
The Institute for Democracy in South Africa (Idasa) is a South African public interest organization committed to consolidating the country's democratic institutions. In response to South Africa's first democratic elections in 1994, Idasa established the Budget Information Service (BIS) to analyze the allocation and use of public resources and to understand the impact of the budget on the poor. Since then the organization has played an increasingly important role in the analysis of the national and provincial budgets. BIS's role has evolved as its expertise has deepened and its reputation has solidified. Once dedicated almost entirely to training legislators to understand and analyze the budget, BIS has become an important source of independent, critical analysis of the budget.
BIS is dedicated to the analysis and dissemination of critical, timely, and accessible information about the budget and its impact on low-income people. Equally important, it aims to enhance and facilitate the participation of civil society and legislatures in the budget process. BIS's mission is premised on the idea that increased participation in the budget decision making processes increases consensus and commitment to difficult social trade-offs, and results in higher quality policy decisions. Moreover, greater transparency in the budget system increases government accountability. All are important components of democratic consolidation.
BIS has four different target groups: the executive branch of government, legislators, civil society, and the media. BIS's role with regard to the executive branch is that of a "critical ally." Its role is to support the process of transition that the government is attempting to carry out, while continuing to provide critical analysis of its policies and processes. Although maintaining this balance is often difficult, BIS believes such activities are central to a well-functioning democracy.
Legislators have been targeted largely because, after decades in which their political participation was confined to the liberation struggle, many have recognized the need for more training to confront the new challenges of participating in parliament. One of the first activities carried out by BIS was training seminars for the legislative committees in order to familiarize them with the budget and help prepare questions for the hearings and debates.
The third target group, civil society organizations, are similar to legislatures in that they often have very little experience engaging in parliamentary advocacy and influencing policy. BIS works with public policy organizations that are already engaged or have the potential to engage in public policy work, as well as community-based organization (CBO) networks that work directly with poor communities throughout the country. Cooperating with CBOs helps ground BIS's orientation towards improving programs for the poor and provides BIS with valuable information about provincial government activities.
Finally, the media is an obvious but often overlooked target group. Because journalists typically lack budget expertise, spending the time necessary to educate them on the important elements of the budget can vastly improve the quality of media coverage. Improved coverage, in turn, can translate into improved public understanding and debate. Moreover, working closely with the media to increase journalists' budget expertise can generate further interest in budget-related topics and provide BIS with opportunities to leverage media attention to all of BIS's budget work.
Budget Week
Although BIS conducts important budget analysis, training, and advocacy work throughout the year, the days surrounding the release of the national budget are particularly important. At no other time do budget policies and processes receive so much public attention, and there is therefore tremendous opportunity to advance the debate and heighten the public's understanding of the budget and what it means for them. Moreover, in South Africa legislators have very limited time and resources to analyze the budget themselves, and therefore tend to rely heavily on the timely, high-quality analysis provided by groups like BIS.
Preparation
In the weeks leading up to the budget's introduction, BIS identifies which staff members will be responsible for the different aspects of the budget, based on their areas of specialization. Teams are set up, each taking responsibility for reporting on a sector or set of departments' budgets (e.g., Social Expenditures - health, welfare, education, and housing; or Protection Sectors - police, defense, prisons, and justice). Staff also, when possible, prepare the basic articles and editorials they will be sending to the media, so that much of the writing is already complete and only the specifics from the budget need to be added. This is also a natural time for staff to share the information they have collected, and begin discussing likely trends that seem to be emerging.
In addition, preparing the media before the budget is released has been a critical element of BIS's strategy for maximizing coverage of the event. BIS briefs journalists on the budget process and the implications of various policy trends in order to increase awareness of budget issues within the media and provide journalists with the necessary background to effectively report on key issues and debates. In past years, BIS has also found that the media is interested in reporting background information in the days leading up to budget week. BIS has also written its own articles for various newspapers in the days before the budget is released in order to highlight important issues that will need to be addressed in the upcoming days.
In past years, BIS also has planned training sessions with members of parliament to assist them in analyzing the budget and designing questions to raise during the upcoming budget debate. Because South Africa recently transitioned from a budget that focused on only one year to a Medium Term Expenditure Framework that also includes projections for expenditures in future years, BIS produced a guide book on multi-year budgets and an update of the data in each medium-term budget to assist the national and provincial legislatures in adapting to the new system. A popular book on the same topic aimed at community based organizations was also produced and distributed before the budget was released, along with flyers that went out to radio stations and NGOs explaining the issue.
Day One: Budget Release
BIS starts budget day by sending an advisory e-mail or fax to a wide range of print journalists and radio stations that produce current affairs programs. The note states that BIS staff will be available for comment and interviews two hours after the budget is released. Also included in the advisory is a list of the titles and dates of release for each of the articles the organization intends to produce over the upcoming two weeks, along with contact information for each author. This strategy has worked well in the frenzy for critical information after the budget is released. Because South Africa has eleven official languages, BIS recently began to offer interviews in several different languages. This has generated requests from the largest community radio stations in the country, which had never before been able to provide analysis and review of the budget because they broadcast in a language other than English.
The budget is presented in the afternoon. Immediately after the Minister of Finance's presentation, BIS staff divide into their sector teams and review their specific portion of the budget for a little over an hour. Once this preliminary assessment is completed, the entire staff convene to discuss three key questions:
- What is the overarching political/economic theme of the budget?
- What sectors were given preference, particularly when evaluating each sector over a three-year period?
- Who wins and who loses as a result of the policies contained in the budget?
This internal discussion helps to develop a common set of talking points for the different staff that will be conducting print and radio interviews that afternoon.
Once the first round of media interviews is complete, BIS staff reconvene to write several pieces for the media based on the discussions from earlier in the day. Examples of articles generated for the 2000 budget include three simple publications in the form of Budget Briefs, "What is a Budget?", "Who Draws up the Budget?", and "What is in the Budget?", as well as a several-page press statement on the impact of the budget on the poor. The Budget Briefs proved to be widely popular because they provided a basic, easily understood primer for those who were new to the budget debate.
In years prior to 2000, BIS had limited its budget day media interaction to radio interviews. This is effective in South Africa since many more people have access to radio, particularly community radio, than access to the print media. Also, because radio interviews are relatively quick, BIS can complete seven to ten interviews that first night. This seemed like the best way to use BIS's limited resources to reach the greatest number of people. BIS also preferred this strategy because it wished to maintain its reputation as an analytical think tank producing high-quality, balanced views of the debates, and therefore chose to forgo immediate press statements in favor of longer, more in-depth analysis for the weekend newspapers.
However, as the project has gained a reputation as an independent and intelligent source of budget analysis, and as staff have developed more media contacts, new and more varied media outlets have sought BIS's input. During the release of the 2000 budget, for example, print journalists sought BIS's input at an unprecedented level and television journalists expressed interest in talking to BIS for the first time. Staff appeared in a live panel discussion on a current affairs television show, as well as in multiple television news interviews. This dramatically increased the number of quick-response pieces BIS was asked to complete.
Day Two
BIS typically produces several articles for different newspapers on various aspects of the budget. The articles cover both poverty issues, such as the budget's impact on women, children or the aged, or system issues such as public sector reform, intergovernmental relations, and the budget process. In order to manage this enormous workload, BIS has at times prepared by drafting parts of the articles beforehand and inserting the necessary budget analysis when it becomes available.
The second day is also a time to reflect on issues that are being overlooked or misrepresented in the media and begin to fill in the gaps, including following up with journalists who have presented BIS information incorrectly. BIS staff read the coverage of the budget in the papers and then meet to discuss what remains to be addressed and how BIS can best contribute. Of particular importance are articles that will help prepare civil society and the legislators for the parliamentary hearings on the national budget and for the presentation of the provincial budgets, which occurs the following week.
Day Three
The next step is to prepare for the parliamentary hearings that start a few days after the budget is released. BIS prepares a detailed statement on the budget and its likely impact on poverty, which it presents at the finance committee hearing. That statement is normally an expansion of the work BIS has already done and becomes the basis for the more in-depth pieces for the weekend newspapers, as well as for a short (10 to 15 minute) radio program for community radio stations that BIS produces.
As the work on the national budget begins to wind down, the same process begins for the provincial budgets. The nine provincial budgets are released a week after the national budget. As in the national parliament, once the budget has been presented, the bill is referred to the finance and sector committees for hearings. Once the provincial budgets are tabled BIS collects and analyzes them by social sector and produces inter-provincial comparative analyses of each of these sectors. This is generally done before the budgets are discussed in provincial legislatures so that provincial parliamentarians can use the analysis in their deliberations. The Budget Briefs also are used to get these analyses to local NGOs as quickly as possible. On occasion, BIS has made submissions directly to provincial budget committees, but the preferred strategy is to encourage and support submissions from NGOs within each province in order to help foster local capacity in budget analysis.
Dissemination Tools and Best Practices
Over the years, BIS has developed several dissemination tools which have proven very effective, all of which have been drawn on during budget week The first is a magazine called Budget Watch, which is published every six weeks and targets people in the executive branch and the legislature. It's a technical publication that concentrates on system issues such as budget documentation, effective legislative oversight, and a budget review process, and is particularly useful because it provides a respected vehicle through which to communicate civil society issues to the executive. Typically, an issue of Budget Watch appears a couple of weeks after the budget and provides an in-depth discussion of the budget and poverty.
More recently, BIS developed the Budget Briefs mentioned above, which are simpler, shorter analyses of many of the articles that are produced in Budget Watch, as well as more general issues being addressed by BIS. The Budget Briefs are disseminated to a broad range of NGOs and Community-based Organizations that BIS keeps on a main database. They are useful not only in keeping people informed of important issues in the budget debate, but also in increasing understanding of ongoing issues throughout the year.
Except for BIS's submission to parliament, all of its articles, which typically are no longer than three pages, are distributed by email to individuals and organizations inside and outside of government who have an interest in the issue. Because it is such a cost-effective method to publish materials, BIS has been utilizing the internet more and more each year. Most of the project's work is immediately posted on Idasa's website.
BIS also uses its weekly current affairs radio program, called Democracy Radio, to enhance understanding and participation among civil society by highlighting the budget's implications for different groups and providing "advocacy tips" and "advocacy stories of the week" on the national and provincial budget debates. The program is aired on community radio stations throughout the country. Because of the popularity of community radio, which often provides the only source of information in remote areas, BIS can expose a large number of people to budget policy issues for the first time. After the budget is finalized, the program is used to underscore the budget's implications for the poor and provide continuing opportunities to participate in the budget dialogue.
Issues to Consider
BIS's experience with executive budget analysis highlights the organization's evolution over the past six years. When BIS first started producing information and analysis during the release of the budget, it received almost no attention from the media or the public. Only after several years of continuing to provide a high-quality product and educational outreach, and working to establish important media contacts, did interest slowly develop. As attention to BIS's work increased, BIS has had to adapt some of its procedures to meet the evolving demand for information. In particular it has struggled to maintain a balance between the demand for immediate commentary on the budget debate and the desire to produce more in-depth, careful analysis.
BIS places a high premium on producing independent, credible work. For this reason, it has traditionally avoided quick-response media coverage in favor of more in-depth, analytical work published a few days after the budget's release. After the release of the 2000 executive budget, however, BIS was inundated with requests for information and statements. The positive side was that BIS's materials were used widely in the media and the group's profile was greatly enhanced.
However, by their nature quick responses require stronger statements, and BIS was identified with the criticism of the budget rather than its normal balanced view. While this may have won over parts of civil society that support a strong, independent line, it may have also jeopardized the project's neutrality and positive working relationship with government. Equally important, quick responses can ultimately constrain the more in-depth work BIS would normally engage in by establishing its position very early in the debate. Time for more reflection allows for a more balanced, nuanced review of the budget that can raise the level of debate.
The increasing interest in BIS's work regarding the executive budget has helped place the organization on the map and drawn attention to its other ongoing projects, most notably its work with the women and children's budgets. Education and outreach surrounding the executive budget also have, over time, helped establish trust in its work, which has carried over to other projects. In particular, establishing solid media contacts during the executive budget analysis has resulted in increased coverage of other budget-related issues throughout the year.
This should serve as a reminder that budget work is an ongoing effort. The executive budget is a critical component and its release provides an important opportunity to engage the public in a dialogue with government about the policy priorities of the country. The importance of budgetary issues does not end when the executive budget is finalized, however. BIS produces a much larger number of budget reports — on a wider range of topics — during the rest of the year than when the budget is released. Still, leveraging the natural interest in such a big national event into continued interest in the year-round budget issues is an effective strategy for maximizing an organization's impact.
Conclusion
The contribution of a program such as BIS to the initial budget analysis is a critical component of the larger debate. Providing solid, accessible analysis on the relevant issues vastly expands the number of people who are exposed to the important role the budget plays in determining the priorities and direction of the country. It also provides an important avenue for highlighting the additional budget work being carried out by the organization and sets up a dialogue on ongoing issues related to budgetary impact. While there are several different ways for an organization to approach this work, in the end its role will largely be defined by the status of democratic transition, the needs of its various constituencies, and the reputation it has cultivated through careful work and effective outreach.
Appendix VI: IBP Website Map
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