Workshop Cash and Budget “Cash is King!”

Workshop Cash and Budget “Cash is King!” Helmer Vossers Ministry of Finance The Netherlands 17 February 2006

Budget process:summing up

Questions: • Is the budget the instrument for implementing government policies? • Do you report on a regular basis on the budget-outcomes during the execution? • Can you relate your cash information to budget-lines? • Do you analyze every year the budget outcome and the budget forecasts? • Is this review done for every line-item?

Budget paradox • Trend: we see reforms towards performance based budgeting and management • But cash info still remains very important  why? 1. fiscal aggregates (EMU-deficit) is based on cash (sub-national parts!) 2. allocation, authorisation accounting is on cash 3. input info needed for benchmarking: number of personel, it and housing-costs

The rules of the game, part 1! Dealing with windfalls and overspendings…. • The rules of budgetary discipline • Status rules: part of coalition agreement, no law • Main rule: Compensate within your own budget! • An unwritten law but even used in parliament • Surplus windfalls are for minister of Finance, but • Carry-over principle ( 2 % of total budget)

The rules of the game, part 2! ….. But can only be maintained when budget is reliable • Monthly report of budget-execution • Monthly meeting inspectorate and spending department • Under- and overspending review for 4-5 years • Strong link between realization and multi-year forecast • To be supported by IT-system

The rules of the game, part 2 ! ….. But can only be maintained when budget is reliable • Multi layer financial responsibility: flexibility • Bottom-up approach: estimates based on assumptions from line ministries • Estimations in unchanged prices • Assumption of unchanged policy (demographic development included) • Check by ministry of Finance

Bookkeepers  budget analysts!

How does it really work? • Example of budget preparations and budget execution in relation to overruns and compensation • Underspending for us! But also carry-over principle: service not delivered

Multi annual budgeting year t t+1* t+2* t+3* t+4* Appr. budget 100 110 120 130 140 15 Exec 15 10 5 0 Comp 15 10 5 0 Total 115 110 120 130 140

Conduction of central administration • Spending department can decide on the number of banking-accounts • No ex-ante checks on payments • Discussion on cash forecasts by spending units • All government units included! • Working processes supported by IT-systems • Complex process

Information flow; but zero balancing Ministry of Finance Government Offices c 1 a d Commercial bank e Central Bank 2 b Information flow Customer/person Real money transfer

To wrap up…. • No money on bank accounts: zero balancing • Using infrastructure of commercial banks • Current account administration with MoF • Many checks and balances • Spending ministers are responsible themselves!

Information exchange supported by IT-systems • Budgetary system RIS/IBOS  forecasts versus realization  explanation of mutations  insight in liabilities (intended and realized)  on a multi annual basis  linked with cash information through banking accounts

Check your position on the web

Animatie door Daan Vossers

To summarise • All mentioned features and agreements of Dutch Budget policy are covered in our IT-systems • Systems comply with division of responsibilities • Conditions: Information shoud be in time, complete and correct: but also sharing of information • Rules, rules, rules • Teach the line-ministeries • System works with multi annual figures • Cash info essential for reliability

Workshop Cash and Budget “Cash is King!”