Policy tool: Strong oversight institutions
Parliaments, supreme audit institutions and independent fiscal institutions are all oversight institutions that, when operating independently and effectively, can help guarantee integrity in the use of public funds and the quality of budget execution, and therefore generate trust in government.
With commitments to sustainable public finances under close scrutiny, policy makers have been searching for new ways to safeguard fiscal discipline and rebuild public trust in their efforts to manage public budgets prudently and transparently. In particular, governments around the world have been setting up independent fiscal institutions (IFIs), which are independent bodies with responsibility for the oversight of fiscal policy. The growing trend in the establishment of IFIs can be seen in Figure 5.2.
Figure 5.2. The growth of IFIs in the OECD
Source: Author’s own work.
IFIs are now considered among the most important innovations in the emerging architecture of public finance management. The remit of these institutions varies across countries but often includes assessments of fiscal plans, fiscal risks, and long-term sustainability. To the extent that fiscal councils promote stronger fiscal discipline, long-term sustainability, transparency and credibility, they may improve the quality of public finance and trust in government. An IMF study found that fiscal councils can promote stronger fiscal discipline as long as they are well designed (Debrun, 2013). The OECD Recommendation of the Council on Principles for Independent Fiscal Institutions (2014) aims to assist countries in designing an effective enabling environment while codifying lessons learned and good practices that are firmly grounded in the experience of practitioners to date. An example of how the Italian Parliamentary Budget Office oversees fiscal policy is provided in Box 5.6.
Box 5.6. Oversight of fiscal policy by the Italian Parliamentary
Law No. 243 of 2012 established the Italian Parliamentary Budget Office (PBO) as an “Independent Body for the analysis and monitoring of public finance developments and evaluation of compliance with fiscal rules”. The mandate of the PBO stipulates that the office shall perform analysis, audits and assessments of macroeconomic and public finance forecasts; the macroeconomic impact of major legislative measures; public finance developments and compliance with budget rules; the long-term sustainability of public finances; the activation and use of the corrective mechanism and deviations from targets arising from exceptional events; and other matters relating to economics and public finances.
Source: von Trapp, Lienert and Wehner, 2016.
In addition to overseeing fiscal policy, some IFIs have responsibility for costing election platforms to help ensure that political parties put forward realistic proposals that have been independently costed. The two IFIs that have responsibility for costing of election platforms are the Netherlands and the Australian parliamentary budget offices.
Box 5.7. Costing of election platforms by the Australian Parliamentary Budget Office
The 1998 Charter of Budget Honesty was introduced to reduce the likelihood of elections being won - or lost - on the basis of poorly costed promises. In the event, the measure did not fully achieve its objectives since both sides misused the system by not providing sufficient time or information for the process to take its course. Following the 2010 federal election, the Australian Labor Party (ALP) entered into an agreement with the Australian Greens and independent members to establish a Parliamentary Budget Office (PBO) to provide independent costings, fiscal analysis and research to all members of the parliament, especially non-government members. Less than three months after its establishment, the first PBO Work Plan for 2012-13 was released on 12 October 2012. Two key priorities were identified: to make the PBO fully operational with the capacity to fulfil its mandate; and to gain the trust of the parliament as a valued source of budget and fiscal policy analysis. In June 2014, the Australian National Audit Office published an independent performance audit of the PBO, titled The Administration of the Parliamentary Budget Office. The audit found that since commencing operation in July 2012, the PBO has effectively undertaken its statutory role and is already well regarded as an authoritative, trusted and independent source of budgetary and fiscal policy analysis.
Source: Australian National Audit Office, 2014.