Issue Paper #1

Objectives, Principles and Scope












The Budget Process Review Panel

An independent panel appointed to recommend improvements

to the budgeting and financial management
of the Province of British Columbia



Table of Contents

Purpose....... 2

Why Have a Budget Process?..... 2

What Is the Accountability Regime? 4

Proposed Objective... 5

Proposed Principles. 5

Scope of the Panel?s Work............. 6




The purpose of this Issue Paper is to set the context for the work of the Budget Process Review Panel by establishing an initial sense of what the objectives and principles of the budget process should be and what the Panel perceives as its role and objectives in making recommendations.? This paper will ultimately form the basis for the first Chapter of the Panel?s report but is being provided now to reflect the Panel?s discussion of these issues and to provide a touchstone against which the further work of the Panel can be compared on an ongoing basis.

Why Have a Budget Process?

There are a number of ways to address this question.? One answer is that we need a budget process because it is an integral part of the democratic process and all democracies have some kind of budget process.? Another is to answer that the Financial Administration Act requires that Estimates be tabled and voted on by the Legislature annually and the process is simply the effort that is required to fulfil that statutory requirement.? However, neither of these answers gives us much insight.

Yet another approach is to suggest that any economic enterprise, whether it is a business, a not-for-profit enterprise, a family or a government, needs to engage in some sort of planning and reporting in order to manage its affairs, to plan what it intends to do and to determine whether it was successful.? The budget process is one way that government aggregates some of its planning information and undertakes part of its planning function.? This approach is a little more helpful because it reminds us that the budget process is part of a larger process that includes not only planning but also monitoring and reporting.? It also reminds us that the financial side of these processes, while important, are not ends of their own but the means for actually doing things (i.e. in the case of government, producing public goods).

Even this, however, is only part of the answer.? The Auditor General has suggested a somewhat more comprehensive answer.? He notes that government is fundamentally different from business and other economic enterprises because it has the power to tax.? That is, government can generate revenue that has no direct link to the purposes for which it is used.? That is not to say that government has an unlimited ability to tax, which is not the case for a number of reasons, including competitiveness issues with other jurisdictions and taxpayer resistance to excessive taxation.? The point is that in the private sector revenue is usually derived from selling a service or product.? While some public sector revenue is also in the nature of a fee for service, a large proportion of government revenue is independent of the goods and services it is used to fund.

The people have given the power to raise revenue through taxes to their elected representatives, in the case of British Columbia, the Provincial Legislative Assembly.? With that goes also the authority and responsibility for the uses to which those revenues are put, both in terms of how they spent and what purposes they are spent for.

Generally, taxes are levied through legislation that is ongoing in application, unless changed or repealed by the Legislative Assembly or unless the legislation itself has a sunset clause.? Some government expenditures are also ongoing, being established through legislation.? Others uses of the funds though, and traditionally most government expenditures, are authorized annually by the Legislative Assembly when it votes on the appropriations set out in the Estimates.

Whatever the nature of the authority to spend public money, through its approval the Legislative Assembly is delegating to an executive body the ability to provide services, undertake programs and otherwise spend public money in accordance with its approval.? Traditionally, the government of the day, through Cabinet and the Ministries and agencies that comprise the direct public service is the executive body responsible for most provincial public expenditure.? However, the Legislative Assembly has the ability to create other executive bodies with various levels and structures of authority to spend public funds.? That power has been used to create a wide variety of such agencies, which range from boards and commissions to Crown corporations to other governments such as local governments and school district Boards of Trustees.

Although the functions of legislative approval and executive responsibility are conceptually separate, in the Westminster parliamentary system executive government is formed by the party(s) with the most support in the Legislative Assembly.? Cabinet is usually comprised of Members of the Legislative Assembly.? That does not mean that the Legislative Assembly is ineffective in its role of supervising government.? The Opposition, officers of the Legislature such as the Auditor General and the free press all play powerful roles in requiring the government to explain what it intends to do and what it has done.? That is, public debate of fiscal matters in the Legislative Assembly holds the government to account for its use of public money, in terms of both how the money is used and for what purposes it is used.

Others prefer to turn this argument around.? That is, government was created as a means of providing a range of goods and services that are needed for our modern society and economy to exist.? These include legal infrastructure and justice, various kinds of regulation to address failures in the marketplace, social programs in the areas of health, education and social assistance intended to efficiently and equitably provide services and to redistribute wealth as well as other goods and services.? These happen to be funded by tax and other public revenue but the focus is on the goods and services provided.? From this perspective, the budget process and other similar mechanisms should be about the goods and services government is providing.

Whichever way one looks at the argument, it essentially provides you with the same answer to the question ?Why have a budget process??? ? To provide a key element in the accountability regime whereby government is held accountable, ultimately to the people, for the goods and services it provides with tax and other public revenue.

What Is the Accountability Regime?

The foregoing discussion attempts to summarize the arguments for considering the budget process within the broader context of government accountability.? The situation that motivated the Auditor General?s report on the Estimates process was primarily related to the accuracy and honesty of budget documents.? Nevertheless, the first three chapters of the report consider the overall estimates and budget processes within the much broader context of government accountability because that is how the Auditor General sees the processes.? The Panel agrees that is the appropriate context.? Consistent with the Panel?s Terms of Reference, the Panel?s work will encompass the broad question of government accountability, including both financial accountability and accountability for what it achieves.

What then is the accountability regime?

According to the first joint report of the Auditor General and the Deputy Minister?s Council,

Accountability ? the obligation to account for responsibilities conferred ? is a concept fundamental to our democratic system.? It clearly establishes the right of the citizens to know what government intends to achieve on behalf of its citizens and how well it has met its intentions.[1]

The basis of government accountability is disclosure of information.? Government has the responsibility for deciding what it is going to do and how it is going to do it, subject to legislative approval and Constitutional and statutory limitations.? Virtually everything that the government does has fiscal implications.? To be accountable for the exercise of its revenue raising powers and the objectives it intends to achieve by using those revenues, government must provide information about what it intends to do, what is currently happening and what it has done on an ongoing basis as the cycle repeats.?

Information is already publicly provided for each of the three elements of the accountability regime described above:

1.???????? What the government plans to do ? the budget process and documents as well as possibly other sources of information such as business plans, fiscal plans etc.

2.???????? What is happening ? quarterly reports and mid-year financial statements, etc.

3.???????? What has happened ? Public Accounts, annual reports,[2] the Financial and Economic Review, etc.

The issue is how the accountability regime can be improved, but to what end.? When a person or organization is ?held to account,? that provides a powerful incentive for that person or organization to be as efficient and effective as possible in discharging its responsibilities.? The value of a strong accountability regime is that it makes it more difficult to appear to be efficient and effective without actually being so.

Proposed Objective

Based on the foregoing discussion and as a basis for the work of the panel, the Panel believes that:

The objective of the budget process and the other elements of a government accountability regime should be to provide appropriate information to the public about:

1.????? revenues raised by government and the uses to which those revenues are put to create an incentive to be efficient and effective in achieving intended results and discharging responsibilities, and

2.????? the effect that current government actions will have on future taxpayers, including the effect of providing physical and other assets that provide a means of producing public goods and service and the effect of imposing the costs of current operations on future taxpayers.

This statement has implications for many of the topic areas identified for discussion by the Panel, including the entity issue.? The remaining Issue Papers will link back as appropriate to this statement of objective.

The key phrase in this statement may be ?appropriate information.?? The following principles are proposed to provide a more complete conceptual framework, especially around that phrase.

Proposed Principles

The panel believes the following principles should underlie an effective accountability regime:

The government is responsible ? the government is elected to, within the framework of the Constitution and the statute and common law, govern the Province on behalf of the people.? It is responsible for making public policy, including proposing tax and other revenue measures to the Legislative Assembly and establishing programs, policies and other mechanisms whereby public money is used for achieving public policy purposes, subject to the approval of the Legislature.? The accountability regime is not intended to fetter government?s discretion or remove its responsibility but to ensure that sufficient information is available to understand what government?s intentions are and what the results were.

The accountability regime should be transparent ? the process should be open in terms both of disclosing how the process works and providing opportunity for input and dialogue throughout the process by interested parties.

The accountability regime should be clear ? the roles and responsibilities of those involved in the accountability regime should be clearly articulated.

The accountability regime should be comprehensive ? governments should be held accountable for all uses of its revenue generation power and for all public policy purposes to which those funds are put.

The information should be credible ? it is important that the information provided be credible.? Unless there is reason to believe the information provided, it will be of little use and will not achieve its objective.? Credibility can be provided or enhanced through a number of means, including independent review.? For the information to be credible, it must also be accessible and understandable by the users.? The information must also, to the extent possible, be auditable, consistent and comparable over time and across jurisdictions.

The information should be timely ? the objectives of the accountability regime will not be achieved if the information is not provided in a timely manner.

Scope of the Panel?s Work

In the context of this discussion, the Panel has considered the scope of its work.? The scope of the Panel?s mandate is generally prescribed by its Terms of Reference and the recommendations made in the Auditor General?s report.? The Panel intends to fulfil the requirements set out in the Terms of Reference, including both the issues to be addressed and timeframe within which the Panel?s work must be completed.?

There are, however, alternatives in terms of the breadth and depth of the Panel?s work within that general framework.? The Panel believes that it must set its scope appropriately in order to provide value-added to the ongoing discussion in the area of accountability and provide government with practical advice that can be implemented without drilling so deeply into the issues that the timeframe cannot be met.

The Panel has established its scope, within the framework of the Terms of Reference and Auditor General?s recommendations as:

?        testing the Auditor General?s recommendations for effectiveness and practicability;

?        recommending the next step forward in terms of implementation of some specific measures;

?        framing the Panel?s recommendations so that they can be built upon as further steps are pursued;

?        to the extent the Panel is unable to examine issues fully, indicating what issues need further work and how that might proceed; and

?        generally concentrating on ?what? needs to be accomplished and only recommending ?how? it should be accomplished to the extent that is necessary to make it possible to implement the recommendations.

[1] Enhancing Accountability for Performance in the British Columbia Public Sector, June 1995, p. 29

[2] It is noted that annual reports can also look forward, although it is rare for ministry annual reports to do so at present.