Government accounts for over half of GDP in some OECD countries. The budget sends out essential economic signals about broad public policy directions and so has an influence on market behaviour.
It decides whether taxes will rise or fall and establishes spending priorities through the allocation of funding. The budget affects the basic operational aspects of government ministries and agencies, including their efficiency and productivity. And it provides a framework for overall decision-making and accountability.
With all these important roles, it may come as a surprise to learn that the future of the budget as we know it is in question. “Does budgeting have a future?” is the provocative title of one report in the latest OECD Journal on Budgeting. The budget practices and policies of OECD countries have been undergoing significant change recently. Indeed, reform is “the Holy Grail of budget people, their unending quest for a better way to parcel out money and plan the work of government”, leading to innovations like multi-year forecasts and generational accounting.
Perhaps the most striking development in budgeting is the recognition that politicians must make short-term decisions as well as investments intended to benefit several generations. OECD countries face a number of expenditure issues that can be seen as long-term in nature: the ageing population; the adequacy of infrastructure and other capital spending; and government loan and guarantee programmes.
Is budgeting simply changing focus? The trends and possibilities discerned in these articles suggest that a more radical transformation is taking place. In a globalised future, national governments may have bigger budgets but less effective influence over them. National budgets may become influenced by international rules and requirements which prescribe how they manage their finances and what they spend money on, as well as by local or regional governments which will lay claim to much of the nation’s tax revenue. Clearly, the future of budgeting will be determined by what government becomes, assuming it too has a future.
The OECD Journal on Budgeting draws on the recent work of the OECD Working Party of Senior Budget Officials, and includes special contributions from finance ministries.
OECD Journal on Budgeting, Vol. 2, No. 2
©OECD Observer No 234, October 2002