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BUDGETING IN NORWAY

BUDGETING IN NORWAY. 27 th Annual Meeting of Senior Budget Officials Sydney, June 5 th 2006 Teresa Curristine, Budgeting and Public Expenditures Division, Public Governance Directorate, OECD. Three things to know…. Prosperous country with large oil reserves

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BUDGETING IN NORWAY

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  1. BUDGETING IN NORWAY 27thAnnual Meeting of Senior Budget OfficialsSydney, June 5th 2006 Teresa Curristine, Budgeting and Public Expenditures Division, Public Governance Directorate, OECD

  2. Three things to know… • Prosperous country with large oil reserves • In 2004, ranked 3rd among OECD countries in terms of GDP per capita • In 2005, UN index named Norway most liveable country in the world • Relatively large public sector • Public sector expenditure makes up 56% of mainland GDP • Wide Political Consensus • History of minority governments

  3. In Brief…. • Successful management of oil assets • Medium-term deficit rule • Strong role for Cabinet in budget process • Strong formal role for Parliament • Decentralised public administration • Slow progress with government-wide system of performance

  4. Successful Management of Oil Assets • Avoided mistakes of some other oil-rich nations • Established Government Pension Fund - Global(previously called Petroleum Fund ) • Unique example of long-term budgetary planning

  5. Fiscal rule • Medium-term deficit rule, stating that structural non-oil budget deficit should be kept at 4% (the assumed long-run real rate of return) of the assets of the Government Pension Fund • 4% rule never actually adhered to • Widespread political consensus

  6. Strong Role for Cabinet • Cabinet Government • Cabinet plays central role in budget formulation • Two annual cabinet budget conferences • Relatively weak formal role of Ministry of Finance

  7. Role of Parliament • Formally strong role for Parliament • Unlimited power to propose amendments to budget • Power curbed by party discipline and type of government • Ministry of Finance provides objective information to Parliament • But some members of opposition are calling for more independent information

  8. Decentralised Public Administration • Decentralised • Local government plays large role in public service delivery • Central government Nordic model: Small ministries and larger number of agencies • Over 97% of central government employees work in agencies • High degree of flexibility for government agencies • Few restrictions on choice of inputs • Can carry over funds • Extensive flexibility to recruit, hire and dismiss non-senior civil servants

  9. Decentralised public administration(continued) • Individual ministries responsible for monitoring and control of agencies’ spending activities • Ministry of Finance has few formal controls over ministries - limited steering capacity • Informal system works on consensus and tradition • Requires high degree of trust between actors

  10. Slow Progress with Government-Wide System of Performance • Few central requirements • Largely left to individual ministries and agencies • Sporadic implementation by ministries • Limited capacity at ministry level • Heavily dependent on agencies for information • Varying quality of information

  11. Direct/Activity-based performance formula budgeting • Introduced in areas of education and health • Increased activity and reduced waiting lists • Problems due to • Increased expenditure and exceeding spending limits, especially in health • Perverse incentives • Questions about quality of service delivery

  12. Conclusion • Modern budget system • Unique in terms of management of oil assets and long-term budgeting • Strong role of Cabinet • Formal versus informal roles of Parliament and Ministry of Finance • System based on wide political consensus

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