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8 OVERALL BUDGET PROCESS

OVERALL BUDGET PROCESS

Overall Budget Process

Introduction

The Australian federal budget can be defined as a document setting out the federal’s government proposed expenditures as well as revenues and how it will carry out its operations in the ensuing financial year. Basically, the budget normally includes the government’s estimates of expenses and revenue while the new policy initiatives could be summarised. According to Webb (2010, p.1), the annual Budget is Australia’s major social, economic and political document. The Budget’s sheer size demonstrates its impact over the resources allocation in the Australian economy. Normally, information contained in the budget is on matters like its economic implications, the political and social priorities of the government, the provision of services and goods, and details on how these priorities will be achieved (Webb, 2010, p.1). The budget formulation process normally starts in November when the latest estimates is updated with the accrual information management system, and after the Prime Minister, Minister of Finance as well as Treasurer meet with the goal of establishing the strategy and policy priorities for the next financial year. This essay seeks to describe the overall budget process in terms of how it is shaped, and will identify the roles and responsibilities of the main actors and institutions involved in public budgeting in Australia’s federal system.

Main Body

The budget process highlight is always in May during the budget night, but the ‘typical’ cycle starts as early as September in the year prior to the budget night. The Budget preparation process normally involves a lot of participants and institutions. Some of the institutions include the Expenditure Review Committee (ERC), the Strategic Priorities and Budget Committee, agency and portfolio ministers, in addition to the three central agencies (Webb, 2010, p.2). The budget preparation is normally coordinated by the Finance, wherein the forward estimates are first prepared. The Finance is responsible for statements of non-tax revenue as well as expenses. On the other hand, the Treasury responsibility involves assessing the fiscal and economic outlooks in addition to tax revenues estimates. The responsibility of other agencies involves collecting data that will be included in the budget documents and estimates as well as offer other information. Before bringing down the budget in September, a submission for Cabinet is prepared by the Minister of Finance together with the Treasurer on the Budget timetable and process. In October, the portfolio ministers are asked by the Prime Minister to submit their new policy proposals. After the proposals have been submitted, they are reviewed by officials from the
Department of the Prime Minister and Cabinet (DPMC), the Finance, and the Treasury, before commenting on them.

Later, the Strategic Priorities and Budget Committee receive the proposals as well as the comments. The role of the committee is to establish the policy priorities and fiscal strategy for the government at the start of all budget cycles. The committee is chaired by the Prime Minister while other members include the Deputy Prime Minister, the Minister of Finance as well as the Treasurer. Other ministers as mentioned by Webb *2010, p.3) are normally invited when the committee is discussing the new policy proposals associated with their portfolios.
After receiving the proposals and comments, the Committee reviews them with the objective of determining whether they are in line with the priorities of the government. The Ministers are later notified about the proposals that have been approved by the Strategic Priorities and Budget Committee so as to develop them further for ERC consideration. The objective is to make sure that every proposal on major spending is bound by the process of the annual budget. After the new policy proposals have been approved, submissions documents of portfolio budget are prepared by the agencies between January and February before they are submitted to the ERC for consideration. Imperatively, the submissions of the portfolio budget illustrate every proposal and the possible savings. Normally, the portfolio budget submissions include the cost-recovery statements summaries prepared by the agencies. The statements are reviewed by the Finance before the government is briefed about adhering to the cost-recovery policy.

The Budget process key component is the estimates’ preparation of revenue and spending, which normally include earlier decisions made during the last Budget, but does not involve new programs. The updating of the estimates usually happens thrice a year: in February, April and October. The agencies’ estimates are consolidated by the Finance so as to generate estimates for the overall government sector.
The ERC’s responsibility is to develop the Budget according to the priorities of the federal government. Therefore, it always meets a number of times in March to consider the gathered information on revenue and spending for the Budget. As a Cabinet committee, the ERC is tasked with recommending new policy proposals to the Cabinet. Besides that, it is the responsibility of the ERC to review on-going spending as well as the savings proposals. Drawing on the prepared briefs from the agencies and the Finance as well as portfolio budget submissions, the ERC forms recommendations. In April, the ERC’s recommendations are discussed during a full Cabinet meeting, before the recommendations are formally made to the budget Cabinet.

Agencies start preparing budget documents simultaneously with the ERC process, especially the statement of risks and the portfolio budget statements. After the Cabinet has approved the new policies, agencies are expected to update their estimates between March and April in order to facilitate the preparation of Appropriation Bills as well as budget documents. After that, the Treasury and the Finance start preparing the budget papers (Webb, 2010, p.4). The Treasurer’s budget speech in May is normally the highlight of the budget process. According to Singleton et al. (2012, p.163), When bringing down the Budget, the Appropriation Bill , Appropriation Bills No. 1 and No. 2, budget papers as well as the associated documents are introduced by the government. During the budget day, the Government announces publicly its intentions for expenditure and raising revenue in the coming financial year (Parliament of Australia, 2011). To promote fiscal transparency and good governance, the active engagement of the legislature in the budget process is very important (Stapenhurst, 2008, p.99).In parliament, while debating the medium-term budgetary objectives and the fiscal policies, budget policies and strategies become more widely ‘owned’. Still, Lienert (2010, p.1) believes that when the legislature actively participates in the budget process it can reduce the risk fiscal indiscipline. After the budget has been presented in the parliament, the main roles of the parliament are to debate and review the budget as well as authorising spending so that the annual budget plan could be implemented. Besides that, the Parliament responsibility also includes reviewing the execution of the budget (Parliament of Australia, 2016). Another role of the parliament as cited by Lienert (2010, p.2) includes reviewing the medium-term budget strategy of the government as well as approving the supplementary budgets.

In Australia, the budgeting process involves three notable organisational arrangements features of the. The first feature is that the Cabinet committees possess an influential role in shaping the budget process. Another feature is that the budget process has three distinct central agencies, and they all play a crucial role in shaping the budget. The last feature is that the role of the spending ministries in the budget process is limited as compared to their agencies (Blöndal et al., 2008, p.9). The three central agencies according to Pusey (2003, p.81) includes the Finance, the Treasury and the DPMC. As mentioned earlier, the Finance focus is on the expenditure part of the budget; therefore, it coordinates the expenditure preparation and also oversees the financial framework as well as budget accounting (Blöndal et al., 2008, p.11). Furthermore, the Finance role is to ensure that the Budget documentation, processes and estimates are timely and accurately prepared and delivered (Department of Finance, 2016). On the other hand, the main focus of the Treasury as mentioned by OECD (2012, p.80) is on taxation and economic issues. According to Blöndal et al. (2008, p.12), the DPMC is normally structured with desk officers whose role is to offer the Prime Minister advice on revenue and expenditure proposals by pooling the policy objectives of the government, the fiscal and economic strategy, and the portfolio ministers’ policy objectives.

Conclusion

In conclusion, this essay has described the overall budget process in terms of how it is shaped and has identified the roles and responsibilities of the main actors and institutions involved in public budgeting in Australia’s federal system. Without a doubt, the ability of the federal government to achieve its objectives and ensure its policy commitments are delivered depends heavily on effective budgeting. As mentioned in the essay, the budget process starts in September when new policy proposals are submitted by the portfolio ministers to the Strategic Priorities and Budget Committee while the documentation starts after ERC process has been concluded. The agencies normally prepare two components: the mid-year fiscal and economic outlook as well as the portfolio budget statements. The main actors involved in the budget process include the DPMC, the Finance, the Treasury, the agencies, the Parliament, the ERC and Strategic Priorities and Budget Committee.

References

Blöndal, J.R., Bergvall, D., Hawkesworth, I. & Deighton-Smith, R., 2008. Budgeting in Australia. OECD Journal on Budgeting, vol. 8, no. 2, pp.1-63.

Department of Finance, 2016. Budget process. [Online] Available at: HYPERLINK «https://www.finance.gov.au/resource-management/budget/» https://www.finance.gov.au/resource-management/budget/ [Accessed 22 July 2016].

Lienert, I., 2010. Role of the Legislature in Budget Processes. Technical Guidance Note. Washington, D.C.: International Monetary Fund.

OECD, 2012. Value for Money in Government: Australia. Paris : OECD Publishing.

Parliament of Australia, 2011. The Budget And Financial Legislation. [Online] Available at: HYPERLINK «http://www.aph.gov.au/About_Parliament/House_of_Representatives/Powers_practice_and_procedure/00_-_Infosheets/Infosheet_10_-_Budget_and_financial_legislation» http://www.aph.gov.au/About_Parliament/House_of_Representatives/Powers_practice_and_procedure/00_-_Infosheets/Infosheet_10_-_Budget_and_financial_legislation [Accessed 22 July 2016].

Parliament of Australia, 2016. Budget Review 2016–17. [Online] Available at: HYPERLINK «http://www.aph.gov.au/library/budgetreview» http://www.aph.gov.au/library/budgetreview [Accessed 22 July 2016].

Pusey, M., 2003. Economic Rationalism in Canberra: A Nation-Building State Changes Its Mind. Cambridge, United Kingdom: Cambridge University Press.

Singleton, G., Aitkin, D., Jinks, B. & Warhurst, J., 2012. Australian Politcal Institutions. Melbourne, Victoria: Pearson Higher Education AU.

Stapenhurst, R., 2008. Legislative Oversight and Budgeting: A World Perspective. Washington DC: World Bank Publications.

Webb, R., 2010. The Commonwealth Budget: process and presentation. Research Paper. Canberra: Commonwealth of Australia.