ATC170217:Report of the Standing Committee on Appropriations on its Study Tour to Sweden and Germany from 28 January to 05 February 2017, dated 17 February 2017
REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON ITS STUDY TOUR TO SWEDEN AND GERMANY FROM 28 JANUARY TO 05 FEBRUARY 2017, DATED 17 FEBRUARY 2017
The Standing Committee on Appropriations having undertaken an international study tour to Germany and Sweden from 28 January to 05 February 2017, reports as follows:
The Standing Committee on Appropriations (the Committee) was established in terms of the Money Bills Amendment Procedure and Related Matters Act, No 09 of 2009 (the Act). In terms of section 4(3) of the Act, each House must establish a Committee on Appropriations whose powers and functions include considering and reporting on the following matters:
- Spending issues;
- Amendments to the Division of Revenue, the Appropriation Bill, Supplementary Appropriation Bill and the Adjusted Appropriation Bill;
- Recommendations of the Financial and Fiscal Commission (FFC);
- Reports on actual expenditure published by the National Treasury (section 32 reports); and
- Any other related matters.
- Delegation of the trip
The delegation from Parliament was as follows:
- Ms YN Phosa (Chairperson, African National Congress)
- Mr NE Gcwabaza (African National Congress)
- Ms SCN Shope-Sithole (African National Congress)
- Dr CQ Madlopha (African National Congress)
- Dr M Figg (Democratic Alliance)
- Ms EN Ntlangwini (Economic Freedom Fighters)
- Mr AM Shaik-Emam (National Freedom Party)
- Ms Z Hulley (Committee Secretary)
- Mr T Masoeu (Content Advisor)
- Terms of Reference
The purpose of the tour was to learn from these countries’ experiences on ways of ensuring the budget process is effective, the legislative process followed on amending the budget and best practice in oversight mechanisms over budget implementation. The team was led by Ms YN Phosa, the Chairperson of the Standing Committee on Appropriations. The team met with Parliamentary Committees, Ministries of Finance, and the National Audit Office.
The aims and objectives of the study tour in both countries were:
- To get an overview of how the Budget/Finance Committees give effect to the role of Parliament in the budget process;
- To assess the overall approach of the Budget/Finance Committees when considering and effecting amendments to the budget proposed by the executive with respect to the following:
- Practical measures used to deal with procedures and time-frames in case of proposed budget amendments;
- Approach in balancing competing budgetary priorities;
- Mechanisms used to ensure a sound interface between the Budget/Finance Committee and sectoral committees; and
- To understand the mechanisms that the Budget/Finance Committees use to perform in-year monitoring of expenditure performance of the government.
- To interact with the Ministries of Finance and other institutions
The delegation met with the following institutions in the two countries during the study tour:
- Federal Ministry of Finance : Mr Mießen -Head of Directorate-General: Federal Budget, around the budget process and the way they ensure value for money;
- Budget Committee, Bundestag : Dr Gesine Lötzsch -Chairperson of the Budget Committee in the Bundestag, around the function of the Committee, its main budgetary oversight and scrutiny activities and amendments to the budgets (procedures and timeframes and the balancing of competing priorities); and
- Finance Committee, Bundesrat: Mr Christian Rodenberg-Advisor to the Finance Committee in the Bundesrat around the function of the Committee, its main budgetary oversight and scrutiny activities.
- Committee on Finance, Riksdag: Dr. Mikael Åsell- Head of Secretariat, around the function of the Committee, its main budgetary oversight and scrutiny activities and amendments to the budgets (procedures and timeframes and the balancing of competing priorities);
- National Audit Office: Mr Dag Levin Sparr-Senior International Advisor, around mechanisms to promote good use of central government resources and an efficient public administration.
- Ministry of Finance: Mr Nordlander, Director General & HoD, Budgetary Affairs around the budget process and the way they ensure value for money; and
- At the initiative of the South African Embassy in Sweden the Committee delegation also met up with representatives from the International Institute for Democracy and Electoral Assistance around their research output and capacity enhancement initiatives that the Committee could benefit from. The delegation had extensive discussions on this output as well on deepening democracy in budgeting.
2.1 Parliamentary system
The German Parliament is bi-cameral, and its two houses are called the Bundestag (equivalent to the National Assembly in the South African Parliament) and the Bundesrat (the representative body of the Länders or provinces or Germany's federal states which is equivalent to National Council of Provinces in the South African Parliament).
The Bundestag comprises of 613 seats which are divided amongst 6 political parties. Half of the seats are held by constituency members and the remaining are held by members elected from the parties’ regional lists. The Bundestag has 22 permanent committees which reflect the government’s distribution of ministerial portfolios
The Bundesrat has 69 full members and only cabinet members from federal states may be members of the Bundesrat. The seats are allocated according to the population of each federal state with each federal state having at least 3 seats and the additional seats based on the population. The Bundesrat has 16 committees and their portfolios correspond in essence to the portfolios of federal ministries.
- The Budget and Budget Process
The Ministry of Finance prepares and leads the preparation of the budget before it is considered and adopted by the Federal Government. The delegation met up with the Head of the Directorate-General: Budget in the Ministry of Finance which has a lead responsibility within the government in drawing up the federal budget and financial plan. The Directorate also monitors budget implementation throughout the year and steps in to keep the budget on course where necessary – for example by freezing expenditure or drawing up supplementary budgets. Once the fiscal year has ended, it also puts together the budget account and the account of assets and liabilities
Budget preparation in Germany is regulated through a legislative framework called the Federal Budget Code. A key budget feature in Germany is the ‘debt brake’ or limit on government debt which was enshrined in the Basic Law in 2009, this means that the budget is always a balanced budget and all spheres of government i.e. federal government and federal states have to adhere to this. The Federal government has adopted a top-down approach in preparing its budget based on available revenue which is then allocated to the various ministries or departments. In order to enhance tax revenues, the German government is considering measures such as a wealth tax and inheritance tax.
The German budget process is input- based. Germany’s budget documentation includes much detail about financial allocations and purposes, but does not include detailed performance information correlating budget programmes with strategic objectives or performance indicators. However, the budget is differentiated to about 8000 budget line items which enables better scrutiny in terms of ensuring that spending is in accordance with the specific purpose for which the budget was allocated. Spending that involves large procurement as well as investments in infrastructure are approved and only allocated in the budget after an efficiency feasibility study.
The annual budget cycle starts in late February or early March when the Federal Cabinet adopts the ‘benchmark figures’ which set binding spending limits for all departments and also includes the estimated revenue and the financial plan for the coming five years. Between March and June, the departments establish the detailed plans for their budgets and negotiate them with the Ministry of Finance and in July, the Cabinet adopts the government draft of the Budget Act with the budget as an appendix (approximately 3000 pages).
During September, the first reading of the draft budget act takes place in both the Bundestag and the Bundesrat and this is followed by deliberations in the Budget Committee and Finance Committee, and debates by the relevant sectoral committees. Sectoral committees may submit non-binding recommendations to the Budget Committee. Concurrently, the Budget Committee conducts the rapporteur discussions on the departmental budgets which culminate in a settlement session in November where the Budget Committee votes on motions for amendment of the budget and makes recommendations for adoption by the plenary. The Budget Act and the Budget receive their second and third readings and are adopted by the Bundestag and thereafter transmitted for 2nd passage to the Bundesrat for their consent. Thereafter the Budget Act and the Budget are promulgated in the Federal law Gazette in December and budget execution by departments commences. For each department, there is a designated budget officer who heads the ministry’s budget office, and whose role it is to ensure that funds are assigned to the proper areas and that budget limits are respected. The budget officer is accountable directly to the minister and to the administrative head of the ministry in the exercise of this task. The Budget Officer plays a critical role in the budget process including budget preparation and budget implementation.
The German budget process has no significant challenges in budget underspending as the budget is an authorisation to spend and not an obligation. However, there are cases wherein budgets were not spent due to infrastructure and construction projects not competed in a particular budget year. With regards to overspending, if a line ministry were to overspend, this has to be defrayed through savings in another department. Additional or unforeseen expenditure is accommodated through reprioritisation within and across departments and the Ministry of Finance usually submits a supplementary budget for the Budget Committee’s approval in this regard. However the additional or unforeseen expenditure must not relate to a budget item which was rejected by Parliament when the budget was approved.
In terms of the composition of the federal budget, social contributions (pensions, unemployment benefits etc.) are a main driver of spending and equate to about 50 per cent of the budget. Education and Health are not a federal function but a function of the federal states, however, the federal government does fund research. Germany contributes approximately 23 percent of the European Union’s budget.
2.3 Meetings with relevant Committees
2.3.1 Budget Committee: Bundestag
The Budget Committee in the Bundestag is a permanent committee which consists of 41 members and is chaired by a member of the opposition, Dr Gesine Lötzsch. The Committee’s function is to prepare the plenary’s decision on the Budget Act and also oversee the execution of the budget. The Budget Committee also has a right to scrutinise and be involved in decision-making on laws with significant financial implications in all fields of policy.
In executing its budget approval function, the Budget Committee utilises sub-committee structures referred to as ‘Rapporteurs’ which comprise of committee members from all parliamentary groups and are responsible for scrutinising each departmental budget. Rapporteurs scrutinise their assigned departmental budgets line item by line item and hold discussions with federal ministers, state secretaries and civil servants and may propose changes to the departmental budget that block or reject certain budget line items. The proposals by Rapporteurs form the basis of the Budget Committee’s consideration of the departmental budget. The Bundestag’s sectoral committees also submit non-binding recommendations which are taken into account. The Budget Committee will then vote on motions for amendments thus resulting in a collection of recommendations based on a majority decision. The recommendations are submitted to the plenary of the Bundestag where the Budget Act and the budget are adopted. The Budget Committee does not engage in public participation, as the Bundestag is viewed to be representing different constituencies.
In terms of oversight, the Budget Committee has weekly meetings with the Federal Ministry of Finance where budget execution is scrutinised. The Ministry of Finance publishes monthly reports covering trends in the federal budget, credit resources, general government tax revenues and guarantees. The Budget Committee also has a sub-committee, the Auditing Committee, which is responsible for the parliamentary scrutiny of budgetary and financial management and in this context it has a close working relationship with the Federal Court of Auditors. The Budget Committee works closely with the Federal Court of Auditors to ensure that the relevant audit findings are continuously introduced into the budgetary process. Auditors are often present in Committee meetings and are frequently asked to make inputs into the work of the Budget Committee. The Federal Audit Office, whose members enjoy judicial independence is not only responsible for auditing the government accounts to determine whether public finances have been properly and efficiently administered but it also monitors and assesses the execution and progress of particular projects, quite often at the instigation of the Budget Committee. The Federal Court of Audit submits an annual report directly to the Bundestag and the Bundesrat as well as to the Government.
2.3.2 Finance Committee: Bundesrat
The Finance Committee in the Bundesrat (Federal Council) consists of 16 members most of which are either Ministers or Senators of Finance in the Länders/ Federal states. The Finance Committee is responsible for considering the federal budget; budget law and the budgetary system; national and international financial policy (including the banking, insurance and investment sector, the stock exchange and securities); currency policy; taxes and levies and financial relations between the Federation and the federal states.
The Finance Committee members are also involved in the Stability Council which is a joint body of the Federal government (Bund) and federal states (Länder). The Stability Council strengthens the institutional framework for safeguarding the long-term sustainability of public budgets on the federal and Länder levels. In sum, the Stability Council supervises and monitors the budget and is able to initiate a stability intervention for states which are in financial distress.
The Bundesrat’s role in the budget process and other financial legislation is more a matter of giving consent. The norm is that the Budget Bill adopted by the Bundestag is presented to the Bundesrat and if the Bundesrat through the Finance Committee agrees to it, the Budget is signed by the Federal Minister of Finance, the Federal Chancellor and the Federal President, then published in the Federal Law Gazette. However, if the Bundesrat has reservations, the Mediations Committee may be convened and if this Committee proposes amendments, the Bundestag has to again vote on the Budget Bill.
There is constitutional autonomy of the Länder (provinces) in their budgetary affairs although Germany’s budgetary system is strongly influenced by the principle of solidarity and mutual support with redistribution from poor to rich provinces cited as an important guiding principle. The Finance Committee plays a critical role in the distribution of revenues between the spheres of government emanating from German Basic Law which states that the Bundesrat is responsible for establishing equal living standards in all federal states. This division of revenue is effected through the Fiscal Equalisation Scheme (FES). Currently the FES involves vertical distribution to all 3 spheres of government as well as a horizontal model which entails the redistribution of tax revenues from financially strong states to financially weak states. However in October 2016 the German government and federal state parliaments adopted a resolution for the revision of the FES whereby it is envisaged that financial strength of the states will be largely offset by an initial distribution of value-added tax (VAT) revenues among the federal states. In addition, Landers (provinces) are assigned exclusive functional responsibilities in area of education.
- Committee Observations in respect of Germany:
- The German Parliament passed legislation that prescribes a balanced budget for all spheres of government i.e. no sphere of government can raise new debt or have a budget deficit.
- The Federal Government has a top-down approach instead of a needs-approach in its budgeting whereby the Finance Ministry determines each department’s available budget for a financial year.
- The Federal budget allocates half of the country’s resources to public social spending which includes pensions and other social contributions such as immigration support services.
- Budgets for large procurement and infrastructure projects are allocated and approved after feasibility studies are conducted to determine if the projects will be efficient and have positive outcomes.
- The Budget Committee has about 6 months to scrutinise the federal budget prior approval. The Budget Committee has power to recommend variations in the proposed allocations, and these recommendations are usually fully adopted by the Parliament. Detailed scrutiny of each department’s budget (per line item) is done through rapporteurs (sub-committees) whereby each Minister and departmental officials have to provide motivation for each line item in the budget. This intense scrutiny often results in the amendment of the Budget where certain budget line items where there is no justifiable evidence of economy and effectiveness are blocked or reprioritised.
- The Budget Committee through the rapporteurs interacts weekly with the Ministry of Finance Ministry in all phases of the budget process throughout the Parliamentary term.
- The Budget Committee, through its sub-committee, the Audit Committee works closely with the Federal Court of Auditors to effect parliamentary scrutiny of budgetary and financial management. Auditors are often present in Committee meetings and the Federal Court of Auditors monitors and assesses the execution and progress of particular projects, quite often at the instigation of the Budget Committee.
The Swedish Parliament is known as Riksdag and it is a unicameral system i.e. it has only one house. The Riksdag has a total of 349 seats, which are divided among eight (8) political parties. All members of the Riksdag are elected on a proportional representation basis, and this is similar to the South African context. In Sweden MPs are elected to serve a four-year term, and this is differs from the South African context where MPs serve a five-year term.
Overall, the Riksdag has a total of 15 committees, and they include the Committee on: The Constitution, Finance, Taxation, Civil Affairs, Cultural Affairs, Defence, Education, Environment and Agriculture, Foreign Affairs, Health and Welfare, Industry and Trade, Justice, Labour Market, Social Insurance, Transport and Communications.
4.2 The Budget and Budget Process
Sweden has two levels of government i.e. central and local government and each level contributes about 45 per cent of total government expenditure whilst 10 per cent of total government spending is on the pension system. Central government spending focuses on the judiciary, defense, infrastructure, transfers to local governments, higher education, transfer to households, international aid, European Union fee, different supportive programs in terms of regional growth, small business, innovation, energy and research and interest on debt. Local government comprises of 20 regions and 290 municipalities. Spending at this level focuses on healthcare at the regional level whilst municipalities focus on primary and secondary education, elderly care, child care, social care and infrastructure. Local government in Sweden has high autonomy in decision making and have tax power with 90 per cent of their spending coming from own revenue whilst transfers from central government make up 10 per cent of their budgets.
The central government comprises of the Ministry of Finance, Line Ministries and Agencies. Line ministries are responsible for policy initiatives, medium term budget forecasts, monitoring execution in agencies, and performance reporting to Parliament whilst agencies are responsible for execution and performance reporting to line ministries. The delegation met with the Ministry of Finance which is responsible for budgeting pre-conditions, budget totals and budget control, support and setting a good example. The budget process is managed by the Ministry of Finance and the Minister of Finance is responsible to meet fiscal targets and to take part in all issues that has financial consequences.
Sweden focuses on fiscal discipline in their budget process and this is marked by a top down approach that comprises of Parliament setting a 3 year total expenditure ceiling, a one year ceiling on all expenditure areas and a fiscal rule of a balanced budget i.e. all levels of government cannot raise new debt. The Swedish budget is surplus biased since most taxes are proportional and grow with Gross Domestic product in the long run. Expenditure areas do not show any particular trend in relation to GDP as there are hardly any expenditure areas which grow with GDP. Growth in expenditure usually depends on government priorities, macroeconomic conditions and policy decisions.
A critical feature of the Swedish Budget is that it is a performance informed budget. Sweden implemented a performance management reform in 2009 whose main objectives included an adapted steering where there is different methods for different agencies or activities and also a focus on activities and not on agencies themselves. The Budget Act prescribes that government presents an account of results that have been achieved in activities relative to the targets adopted by Parliament. The account focuses on impact and performance and is drawn up in accordance with the expenditure areas. The Budget Bill is therefore the main document for reporting results to Parliament.
The Budget Bill is made up of performance information per expenditure area which sets outs targets, indicators and other criteria, results and conclusions; political priorities; appropriations per expenditure area; and estimates for revenue. The budget contains over 500 appropriations for different expenditures and the appropriations apply for one year. The 500 appropriations in the budget are grouped into 27 different areas known as expenditure areas. The Riksdag/Parliament and the Government use goals for the various expenditure areas to steer central government activities. In addition to estimates for revenue, the Budget Bill often contains proposals to change taxes and charges of different kinds.
The main events in the Swedish budget process include the processing of the Spring Fiscal Policy Bill in April and the Budget Bill in September. Government also submits a revised budget for the current year together with the Spring Fiscal Policy Bill. The Spring Fiscal Policy Bill contains the Government’s proposed guidelines for economic policy and budget policy over the next few years and in the longer term. It also makes an assessment of the economic situation and of the projected development of the economy in the next few years. The bill also contains proposals on the long-term direction of budget work. Parliament can make amendments to the Spring Fiscal Bill without any form of restrictions but is required to enact the Spring Fiscal Bill by June. The annual budget or Budget Bill is submitted to Parliament in September and Parliament is required to make approval on the aggregates for the 27 expenditure areas by late November followed by a decision on appropriations within each expenditure area in December. The Budget Bill primarily concerns appropriations and revenue for the following year and Parliament can amend the annual budget presented by government.
Overall, the budget is made up of about 500 appropriations and there are separate appropriations for operating costs, transfer programmes and capital outlays. Again, the Riksdag can amend each appropriation as long as the outcome is in line with the aggregate level of expenditure for each of the 27 expenditure areas. Proposals for amendments of the running budget can be submitted by the government and opposition parties. However, any submission proposing an amendment to the budget needs to be accompanied by a complete alternative.
It is worthwhile to note that higher education tuition in Sweden is financed by the government though there is a loan system for the provision of books and accommodation. There is a dedicated agency that is tasked with managing loans and ensuring loans are repaid. However, universities and university colleges remain separate state entities from the state and make their own decisions about their own affairs. There are strict procurement regulations in place for all government contracts which includes directives and principles that prohibit discrimination on the basis of nationality and including procurement process must be open and transparent. The Swedish Competition Authority provides support in issues relating to public procurement. The agency is responsible for the implementation of the national procurement rules and informs about the rules and important decisions and a violation of procurement regulations has been criminalised.
4.3 Meetings with relevant Committees and stakeholders
4.3.1 Committee on Finance: Riksdag
The Committee on Finance consists of seventeen members and is chaired by Mr Fredrik Olovsson of the Social Democrats. The Committee is supported by a secretariat of 10 officials which comprises of economists, solicitors, political scientists and administrative staff. The Committee meets twice a week and annually has about 50-60 meetings, 35 hearings (public and closed), and its output is about 60 reports and statements which are submitted to the Chamber.
The Committee is responsible for fiscal policy, the adoption of the central government budget, setting of estimates of revenue and the expenditure limits for expenditure areas i.e. set expenditure frame for each line ministry, and the supplementary budgets. It also has a co-ordinating role amongst sectoral committees when it comes to the budget.
Following a presentation of the Budget Bill by government in September, Parliament allows its members and opposition parties to present their counter-proposals during the general private members' motions period. The opposition parties present their proposals for maximum expenditure ceilings and for the allocation of expenditure between different expenditure areas. These proposals are known as shadow budgets. They also present an overview of the changes in taxes and charges they wish to implement and how proposals for different reforms should be financed. The government’s proposed budget and the proposals by opposition parties are then considered by the parliamentary committees i.e. Committee on Finance and sectoral committees. Parliament considers the proposals in 2 stages i.e. first take a decision on the total budget followed by the determination of the details of the budget.
The Committee on Finance plays a central role in the first stage by setting the ceilings for the 27 expenditure areas. The sectoral committees are responsible for specific expenditure areas and they submit their views (i.e. statements of opinions) on the government's and opposition parties' proposed ceilings to the Committee on Finance. The sectoral committees can also propose that an expenditure area receive more or less money or that money be distributed differently between the different expenditure areas. Once all the committees have submitted their proposals, the Committee on Finance examines these proposals and uses them as a basis for submitting an overall proposal on ceilings for the central government budget and the expenditure areas in the form of a committee report. The report is then submitted for a decision by Parliament in mid-November and this decision effectively determines the expenditure ceiling for each of the next three years; the total expenditure for the next budget year; how much money each expenditure area will receive in the next budget year; changes in taxes and charges in the next budget year; and an estimate of central government revenue for the next budget year.
The second stage of the budget process entails a consideration by sectoral committees of the government and opposition parties’ proposals on how to allocate money within each expenditure area. The committees can set different priorities to those presented by the government and can redistribute money between different appropriations in an expenditure area, but they cannot present any proposals that would lead to an exceeding of ceilings already determined in stage one of the budget process. Any increases must be financed by an equivalent reduction elsewhere. Separate reports for each expenditure area are then compiled by the sectoral reports and submitted for a decision by Parliament at the beginning of December. Parliament decides on the size of the appropriations and how the money is to be divided between appropriations in each expenditure area by means of a single decision. Once all the decisions have been taken, Parliament compiles the finalised central government budget for the coming year and hands it over to the Government a few days before Christmas.
The Committee on Finance does not really monitor execution of the budget during the financial year however given that the Budget Bill contains performance information, the Committee utilises that information to satisfy itself that the budget is utilised for its intended purpose. Sweden cites success in spending because of a general understanding of adhering to expenditure ceilings and esteem of fiscal discipline. There’s a general sense of deriving value for money for the budget as a whole and money on items on the budget that are not seen as efficient is usually re-allocated to more efficient areas. The National Audit Office plays a critical role in providing information to the Committee in identifying these areas of inefficiencies through their reports on financial and performance audits.
- National Audit Office: Riksdag
The Swedish National Audit Office (NAO) is part of parliamentary control and its mission is to promote the effective use of central government resources and an efficient public administration through independent audit of all central government activities. The NAO’s contribution includes improved transparency in public accounting and operations; improved cost-effectiveness and efficiency; supporting the chain of accountability and improved trust in the public administration. It examines what central-government funds are used for and how effectively and efficiently they are used through financial audits and performance audits and it audits the operations of the government, agencies and State Owned Enterprises.
The National Audit Office submits all reports on performance audits and financial audits to Parliament including an annual report and audit plan. Reports are also made public. Parliament, in laws, determines the orientation of audit operations and also decides on actions on reports submitted by the National Audit office. It also decides on the NAO’s appropriations, appoints 3 Auditor-Generals, and assesses the operations of the NAO.
The NAO performs financial audits annually on all auditees and issue an opinion based on reasonable assurance and the risks of material errors. The Swedish National Audit Office has a mandate to audit all State Owned Enterprises and all State Owned Enterprises consent to the authority of the national audit office. The National Audit Office indicated that while all State Owned Enterprises maybe audited, it is a resource consuming process and with over a 100 SOEs, this is done selectively. All State Owned Enterprises have internal audit units.
The Swedish National Audit Office are independent of any political influence auditors choose their own areas of focus determine their own findings and recommendations. There is a systematic follow up on state agencies to ensure findings are not repeated and for the 60 largest agencies the Swedish National Audit Office produces a midyear-report on progress of remedial actions. The National Audit Office works in support of state agencies to ensure that these have compliant annual report. In terms of enforcement and accountability, the Swedish National Audit Office indicated that they exist to help Parliament hold those tasked with government policy implementation accountable. The Swedish National Audit Office does not itself hold state agencies accountable.
In terms of the prevalence of irregular, fruitless, wasteful expenditure, the Swedish National Audit Office indicated that there is no large scale serious misuse of funds and that findings are often a matter of improving efficiency and highlighting where things can be bettered. This has been the case for the past 50 years. The Swedish National Audit Office does not audit annual performance information submitted by line ministries. However, the Swedish National Audit Office conducts about 30 performance audits per year which are submitted to the Riksdag. Performance audits are oriented around conditions that may affect the central government budget and focus on economy, efficiency and effectiveness (EEE). They are concerned with implementation and the results of government operations and commitments. Performance audits are submitted to Parliament and also presented to government agencies and ministries. They also form part of the annual reports of the Auditor-Generals. Auditor-Generals decide independently on which performance audits to conduct guided by law-EEE and budget, public interest, risk analysis and room for added value. Some examples of performance audits that the National Audit Office has conducted include the state’s credit losses on study loans, experience of the Public-Private Partnership solution for the Arlanda rail link, and protection for pension savers. The Swedish NAO has also audited the transparency and clarity of the Government’s reporting of fiscal policy in the Budget Bill for 2016. The Finance Ministry has found value in this audit which entails findings issues such as validating the surplus target and the considerations concerning fiscal policy in a longer perspective.
When the NAO submits a report on performance audit to Parliament, Parliament hands it over to government and government is required to provide written response in 4 months. The response by government is tabled in Parliament and referred to relevant parliamentary committee for their deliberation and recommendation of action on the Report by the NAO and government’s response. The committee process may also include public hearings on the matter. The Committee’s report is debated and a decision taken in Parliament. Government is obliged to report annually on the status of implementation of decision by Parliament. The National Audit Office also does follow ups on recommendations and findings to check for implementation thereof and submits a special annual report to parliament
- Committee Observations in Sweden
- Sweden focuses on fiscal discipline in their budget process and this is marked by a top down approach that comprises of Parliament setting a 3 year total expenditure ceiling, a one year ceiling on all expenditure areas and a fiscal rule of a balanced budget i.e. all levels of government cannot raise new debt.
- The Budget Policy objectives dictate that central government expenditure shall not exceed the set expenditure ceilings. There’s a general sense of deriving value for money for the budget as a whole and money on items on the budget that are not seen as efficient is usually re-allocated to more efficient areas.
- The Swedish Budget is a performance based budget and the Budget Bill is the main document for reporting results to Parliament. This includes detailed performance information and service delivery indicators and the executive is responsible for collecting monitoring and evaluation information and there are monthly reports on spending and performance. The performance information is key for the Committee on Finance in determining whether the budget is spent for its intended purpose. It also assists Parliament in deciding on ceilings in expenditure areas and appropriations within the expenditure areas.
- The Riksdag considers the annual budget in 2 stages i.e. first take a decision on the total budget i.e. allocation per expenditure area or line ministry followed by the determination of the details of the budget i.e. appropriations within the expenditure area. This system provides a good framework and allows adequate time for proposing and effecting amendments to the budget presented by government.
- The Committee on Finance has an overall co-ordinating role and has responsibility for the aggregate spending total as well as frames for each of the twenty-seven expenditure areas. Fifteen sectoral committees then have responsibility for expenditure areas and make allocation proposals within the approved ceilings.
- The Swedish National Audit Office is part of the central control power of the Swedish Riksdag (Parliament). They ensure that the Riksdag receives a coordinated and independent audit of the state finances and is key in promoting the effective use of central government resources especially through performance audits. The National Audit Office also does follow ups on findings and recommendations to check for implementation and submits a special annual report thereon to the Riksdag.
- The Riksdag takes action on reports from the National Audit Office and the Parliamentary Committees are central in the performance audit process through a well-defined process which begins with soliciting responses from government on performance audit reports. Parliamentary committees then consider the performance audit report and government responses thereto, and recommend actions to be taken for implementation by the government.
- There is no specialized parliamentary audit committee, such as the Standing Committee on Public Accounts as in South Africa. Instead, findings are considered by any committee they are referred to.
6. Observations for the South African context
6.1 German and Sweden Parliament’s budget oversight objective is underlined by a clear commitment to fiscal discipline and debt reduction. With clear fiscal policy objectives, top-down budgetary management should be applied to align policies with resources for each year of a medium-term fiscal horizon. Overall budget targets for each year should ensure that all elements of revenue, expenditure and broader economic policy are consistent and are managed in line with the available resources.
6.2 Both German and Swedish parliaments outlined that key guiding principles underlining deliberations in the budget process were, while engagements were robust, a focus on fiscal prudence and reducing debt, the national interest and the willingness to compromise. This has particular relevance for South Africa government given that that although the Constitution requires government to pursue a progressive expansion of access to public services within its available resources, without faster growth and additional resources, government may not be able to sustain its current policy commitments. Choices will need to be made about which programmes can be maintained, which are rescheduled and which are to be expanded.
6.3 The German and Swedish budget systems have an intergovernmental fiscal structure similar to the South African Division of Revenue. Key learnings for South Africa are the emphasis on redistribution of resources from wealthier provinces to poorer provinces; and the assignment of exclusive provincial responsibilities over areas such as education and health. One of the key challenges in the current South Africa’s intergovernmental system is the dual responsibility of national government and provinces for concurrent functions in areas such as education and health which creates multiple points at which executive and legislative decisions can be and are taken over the same mandate.
6.4 The Swedish Finance Ministry reported that departments do report on the balance sheets of each line ministry. The Committee views information on balance sheets is critical as it allows more detailed scrutiny of each line ministry.
6.5 Public spending in both countries has focused on education and health, which are necessary driving forces behind economic growth and reducing unemployment and inequality. Similarly, South Africa’s social spending which includes social grants, education and health remain the largest component of government expenditure.
6.6 South African higher education sector can learn from the Swedish experience wherein whilst higher education tuition in Sweden is financed by the government but is complemented by a loan system for the provision of books and accommodation. There is a dedicated agency that is tasked with managing loans and ensuring loans are repaid. However, universities and university colleges remain separate state entities from the state and make their own decisions about their own affairs.
6.7 The allocation of adequate time for legislative scrutiny of the budget is key in the German and Swedish budget process. In particular, The German Budget Committee has about 6 months to scrutinise the federal budget prior approval. This intense scrutiny often results in the amendment of the Budget where certain budget line items where there is no justifiable evidence of economy and effectiveness are blocked or reprioritised.
6.8 The Swedish Finance Committee has an overall co-ordinating role and has responsibility for the aggregate spending totals. The role of the Standing Committee on Appropriations in coordinating the budget process, with a focus on government wide spending issues as per the Committee’s legislated mandate; and with due regard to the role and responsibilities of other Committees will need to be enhanced.
6.9 Throughout the Parliamentary term, the Budget Committee through the rapporteurs interacts weekly with the Finance Ministry in all phases of the budget process. Parliamentary oversight of the budget process should consider allocating time for more engagements between the Money Bills Committee and National Treasury throughout the budget process.
6.10 The role of the Supreme Audit Institutions in both countries is deeply embedded in the budget process which includes budget preparation and budget implementation. Specifically, The German Budget Committee works closely with the Federal Court of Auditors to ensure that the relevant audit findings are continuously introduced into the budgetary process. The Swedish National Audit Office is part of the central control power of the Swedish Riksdag (Parliament). They ensure that the Riksdag receives a coordinated and independent audit of the state finances. Auditors are often present in Committee meetings and are frequently asked to make inputs into the work of both Budget Committees. Parliament to consider more direct and deliberate involvement of the AGSA in all phases of the budget process.
6.11 In Germany, there is a Budget Officer who plays a critical role in the budget process including budget preparation and budget implementation. The Budget Officer is accountable directly to the minister and to the administrative head of the ministry in the exercise of this task. For South Africa, elevating the role and status of the Chief Financial Officer may enhance budget management within departments and state agencies.
The Committee expresses its sincere appreciation to our hosts in Germany and Sweden who made time to meet and discuss with the Committee on these critical issues pertaining to legislative budget scrutiny.
Report to be considered.
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