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The third IEB Report analyzes the emerging trends in budgetary reform after the Great Fiscal Crisis

DOWNLOAD THE IEB REPORT 3/2018

Developed economies in general are currently characterized by high levels of indebtedness, exceeding 100% of GDP as a whole; with a forecast of slow reduction in the medium term. In this year’s IEB Report 3, the contributing researchers look into this scenario to analyze emerging trends of budgetary reform after the Great Crisis in order to ensure the sustainability of public finances and regain the confidence of the citizens in their respective governments.

In their editorial article, IEB researcher and professor of the University of Barcelona, Daniel Montolio, and professor of the University of Barcelona, Jordi Baños, explain that facing the challenges of this situation which puts the sustainability of public finance at risk depends on having “robust institutional and budgetary management models, which ensure the solvency of finances and rational decision-making, prioritizing and maximizing the social impact of resources”. Specifically, the contributions in this latest edition of the IEB Report illustrate models through which technology, citizen participation, the introduction of budgetary logic into the economic programs of political parties or exhaustive control of expenditure have been shown as tools that allow to confront the challenges of public budgeting in the current post-Crisis scenario. Transparency and responsibility for the budgetary impact of programmes can be effective tools for better management and results of public resources.

Technological integration in financial management
ODI researchers Marco Cangiano and Mark Miller, in their contribution, analyze the role of technology in the new management systems of public finance. Experts believe, despite the fact that “the digital revolution is underway”, there has not yet been a complete integration of technology into public financial management (PFM).

Cangiano and Miller cautions against the misconception by governments in seeking from information and communication systems “a silver bullet to their budgetary problems”, and consider that the application of technology to the management of public finances should be linked to “a unitary vision of the priorities and the objectives to be achieved”. The article highlights public initiatives such as those of the governments of Mexico, Estonia and India, which have digitized payment systems, improving the efficiency of the administration, encouraging financial inclusion and facilitating the monitoring and audit of subsidies.

While technology has facilitated improvements in administrative systems, so far, it is not yet a relevant element in the management of fiscal risks, which, according to analysts, “are the factors that lead to differences between a government‘s forecast and actual fiscal position”. Cangiano and Miller understand that “the lack of fiscal transparency” currently remains a critical risk factor for public finances. In other words, the quality of the data “is the very essence of a modern PFM.” Instead, what we find today are “dysfunctional management systems”.

Participatory budgeting
CSIC researcher, Ernesto Ganuza, for his part, focuses his article in the analysis of participatory budgeting as a tool to improve citizen participation, transparency, budget decision-making and accountability on the part of the public sector. In Spain, these processes tend to be at the local level and allow citizens to decide on the 1 and 2% of the public budget allocation, usually in infrastructure investments.

For Ganuza, these participatory budgets, beyond generating greater political trust, are a “guarantee of transparency and publicity in public management”, in contrast to the “poorly justified expenses that municipalities have been doing for many years”.

The researcher also takes into account the essential the role of technology to encourage participation. The incorporation of digital tools in municipalities such as Madrid or Sant Cugat del Vallès has opened the votes on these budgets to all citizens.

Election platforms, key to budgetary coherence
Santiago Lago-Peñas, professor at the University of Vigo and associate researcher of IEB, emphasizes the fact that election platforms can be considered as documents that serve as “the stage prior to the next budgetary cycle” since they put forth important measures that can affect the social welfare and the state of public finance, but omitting information about the cost of these platform promises and their potential social impact, makes the voting exercise difficult on the part of citizens.

Lago-Peñas points to data from Spain, based on a survey conducted by the by the Fundación Transforma España, which show that “90% of respondents consider it important that parties incorporate the cost of electoral promises in their platforms and the means for financing them” and thus advocates that “parties provide clear and rigorous economic reports of their promises” to ensure the congruence of their proposals, and furthermore, have an external institution “that can scrutinize these reports”.

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