accrual budgeting and fiscal policy - oecd.org · accrual and cash • accrual budgeting...
TRANSCRIPT
© The Treasury
Session Outline
• Fiscal Strategy and Accrual Budgeting
• Why NZ went to Accrual Budgeting
• Did it work?
• What are the Challenges?
– Presenting the fiscal strategy
– Appropriations management
– Capital Management
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Roles of fiscal policy
• Fiscal stabilisation – tends to be a short-term role, what’s been happening to the economy recently and in the next few years. (Likely to be stabilisation issues in
the future but deal with them when they happen).
• Fiscal sustainability – tends to be a medium- to long-term issue except that big shocks or big policies can occur in the short-term that have on-going effects.
• Fiscal structure – tends to be a medium- to long-term issue because tax and spending programmes are typically adjusted at the margins in each Budget. But
have to start somewhere.
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Roles of budgeting
• Aggregate Fiscal discipline – Effective control of budget totals to ensure fiscal objectives. Necessary to ensure that goals of stabilisation, sustainability and desired financial structure are met.
• Allocative Efficiency– Maximise effectiveness of comparative initiatives. Ensure strong aggregate fiscal discipline doesn’t freeze lower quality old activity in and new higher quality activity out.
• Productive efficiency – Maximise the relationship of
budget resources to purposes.
• Accountability - Establish expectations for holding democratic governments to account
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Accrual and Cash
• Accrual Budgeting – Forecasting, for the government
entity, revenues when they will be earned and received,
expenses when they will be incurred and settled, and the
resulting balances of assets and liabilities
• Cash Budgeting – Forecasting receipts and payments
into designated government bank accounts.
Memorandum information on supplementary items
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Accrual and Cash Accounting
Aim: Assessment:
Stabilisation Accrual accounting builds in assessment of probability of risks,
contingent liabilities. Seen as supplement to cash accounting.
Sustainability Balance Sheet information provides more complete information
on rights and obligations, useful when considering sustainability.
Structure Balance sheet information facilitates analysis of fiscal structure
Aggregate Control Control being exercised when obligations are occurred more
likely to be more effective
Effectiveness Accrual approach facilitates matching of costs to outputs,
Efficiency Accrual information on costs useful, ensures financing costs
separately and fully considered. Integrated system efficiencies.
Accountability Accrual provides richer suite of information to assess
performance, and compare against actual,
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Did it work? – Fiscal Aggregates
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-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1980 1985 1990 1995 2000 2005
Gross Debt as % of GDP
Net Debt as % of GDP
Accrual budgeting
introduced
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Operating Balance
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-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18 19/20 21/22
% GDP
Fiscal Year
Historical
Years
Forecast
Years
Projected
Years
Oper ating Balance to GDP
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Debt
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0%
10%
20%
30%
40%
50%
60%
70%
80%
93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18 19/20 21/22
Fiscal Year
% GDP
Historical
Years
Forecast
Years
Projected
Years
Gross Debt to GDP
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Demographics
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0.0
0.1
0.2
0.3
0.4
0.5
0.6
1880 1900 1920 1940 1960 1980 2000 2020 2040 2060 2080 2100
Older (65+)Projection
Ra
tio
to
po
pu
latio
n a
ge
d 1
5-6
4
Source: Statistics New Zealand
2009
Ratio of those aged 65+ to 15-64
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Will accrual budgeting help ?
• Maybe ?
– Requires more complete recognition of costs
– Integrated system = simpler system to
operate
– Compliance with GAAP, and a single (but
comprehensive) forecasting/reporting
template reduces concern over form and
focuses on content
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Survey of Users of Fiscal Reports
“If you step back and look at the system it’s really fine. The level of
disclosure is something to be proud of”
“What’s required of the Government under the Fiscal Responsibility Act
and what we’ve got is great. It goes far beyond other countries in
terms of accessibility.”
“Over the 34 years I’ve been looking at this 35 perhaps, they’ve got a
lot better”
“Other than looking at the headline stuff I don’t do any analysis at all ...
I just use Treasury’s figures. There’s no reason to do any more”
“We trust their data and its 99.9% reliable”
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Challenges
• Presenting the fiscal strategy
• Appropriations management
• Capital Management
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Presenting the Fiscal Strategy
• Accrual Financial Statements do not
present the fiscal strategy:
– Report on financial performance, position and
cash flows, values comprehensiveness,
comparability.
• Fiscal Strategy communication is critical to
Government,
– Focuses on important, desire for a compelling
narrative
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NZ Solution: Fiscal Reconciliation
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Year to date
Amounts in $ millions December December
Fiscal Strategy Financial Statements 2008 2008
Actual Forecast
Taxation as a % of GDP 30.0% 31.1%
Taxes… Taxation 26,917 27,883
… combined with other revenue … Core Crown other revenue (344) 3,328
… fund core crown expenses … Core Crown expenses (30,044) (29,873)
… and with the results of entities outside the budget process …Net surpluses/(deficits) of SOEs
and Crown entities(2,753) 850
… results in a surplus or deficit… Operating balance (6,224) 2,188
… part of which is due to gains or losses set aside for fiscal purposes… Other (gains)/losses 6,322 (987)
… and so we have an operating indicator excluding these items. OBEGAL 98 1,201
Some of this is income retained that is not available for fiscal purposesNet return on NZS Fund (excl.
gains and losses)(186) 30
" " " " " " Net retained surpluses of SOEs
and Crown entities(561) (512)
and some is income and expenses not impacting cashNon-cash items and working
capital movements(3,273) (3,892)
The operating cash flow that results, needs to provide sufficient funds to:Core Crown Cash flow from
Operations(3,922) (3,173)
- build up assets in NZ Superannuation Fund Contribution to NZS Fund (1,123) (1,122)
- meet the capital expenditure budget, and Purchase of physical assets (793) (824)
- make advances (e.g. to students and DHBs) Advances and Capital injections (2,423) (2,286)
with a residual impact on debt that allows it to remain at prudent levels Residual Cash (8,261) (7,405)
… and as a percentage of GDP -4.6% -4.1%
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Appropriations Management
• Accrual appropriations:
– Provide authorisation to incur expenses and
capital expenditure
– Require focus on internal control systems
– Integrate with forecasts and reports
– Legislature may grant flexibility
• Cash disbursements:
– Integrated with but separate from
appropriations16
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Capital Management
• Different processes for approving Capital Expenditure between Core
Crown, Crown Agencies and SOES (only 27% of the Government’s
property plant and equipment is held by the Core Crown)
• Imperfect transmission of capital items from the Crown to Crown
entities (e.g. An investment made by the Crown to a Crown entity for
Capital Expenditure purposes will not always equal the capital the
Capital Expenditure that entity makes)
• Budget processes can be affected by different methods of funding the
capital expenditure (e.g. from pre-funded depreciation, from a capital
budgeting allowance, from hypothecated revenue, from commercial
revenue, from borrowing, and perhaps from PPPs)
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Capital Management cont.
• Some capital items from an national economic perspective,
are not capital items from a Government perspective, as they
are not reported as assets on the Government balance sheet
(e.g. local government infrastructure)
• The lack of a “bright line” between capital and operating,
particularly between maintenance expenses and capital
improvements
• The different timeframes between large capital developments
which may span up to twenty years and the annual budget
allocation and process which just forecasts four years ahead.
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Key Messages
• Accrual information can facilitate fiscal
decisions, fiscal policy and accountability
• Fiscal policy is currently critical,
accounting is a support player
• Accrual budgeting, being more complete,
can direct attention (and discipline) to
important areas that might not otherwise
receive attention
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