Chiara Goretti, a member of the Board of the Parliamentary Budget Office (PBO), spoke today at a hearing before the Budget Committee of the Chamber of Deputies, which is assessing the results of the procedure introduced with the recent reform of the Government Accounting Act (Article 22-bis of Law 196/2009 on public financial planning), implemented for the first time last year with the specification of cost reduction objectives for ministries.
After noting the importance and the innovative character of the procedure ‑ whose objective is to make government bodies more accountable in the preparation of their budget proposals ‑ Goretti emphasised that this first experience suggested a need to improve the effectiveness of its implementation.
Since its initial formulation, the procedure has been characterised by an ambivalence of purpose, reflecting both a top-down approach ‑ in strengthening the decision-making process for the formation of the State budget and the principle of financial planning, which requires consistency between the contribution of the ministries and the policy fiscal balances of the general government as a whole – and a bottom-up approach – using the procedure as a tool to supplement the spending review in the budget cycle, improve the efficiency of the use of resources and foster greater accountability on the part of government bodies in managing expenditure policies.
It would be helpful to conduct a preliminary assessment of whether a single procedure can have multiple purposes, namely to foster macro-financial accountability, to achieve allocative effectiveness and to improve microeconomic efficiency.
The implementation of a real top-down process would require the specification of more detailed policy objectives in the Economic and Financial Document (EFD), sufficient to serve as the framework for the State’s contribution to achieving the public finance objectives. In a top-down procedure – noted the PBO Board member ‑ conceptually, the sequence should begin with the establishment of the general government policy fiscal balance, to be structured into revenues and expenditures over a multi-year horizon. It should then move on to the allocation of the expenditure objectives among the sub-sectors, then among the segments and, finally, among the individual ministries. Such an innovation would make it possible, on the one hand, to prevent the implementation of the procedure in terms of partial contribution to achieving the public finance objectives (a feature that allowed the ministries to continue to analyse expenditure at the margin), and, on the other, to address the governance of developments in overall expenditure over a multi-year planning horizon, facilitating the identification of priorities and the different models for delivering services.
The definition of effective bottom-up spending review processes represents an even greater challenge. The experience of the initial application of the procedure indicated in Article 22-bis was in general a disappointment. It would appear to have added monitoring, reporting and requirements in a manner unrelated to the other instruments already provided for in Italian legislation. The proposed measures in the agreements and in the monitoring mechanisms focus on the micro-expenditure aggregates appropriated in the budget (at the level of budget chapters or, in some cases, management plans) without apparent connection with the main structure of the State budget, which is based on higher-level aggregates (spending programmes and actions). The taxonomy of measures set out in the Prime Ministerial Decree, in essentially rehashing traditional accounting categories (mandatory expenditure, discretionary earmarked expenditure, discretionary non-earmarked expenditure), was applied mechanically at the chapter level without requiring the ministries to conduct an economic-financial assessment of public policies. What is missing are microeconomic analyses to assess the efficiency and effectiveness of the current structure of public policies and measures to eliminate the fragmentation of the expenditure authorisations underlying the budget, the revision and simplification of which must be the basis of a better relationship between the budget structure and managerial accountability.
Goretti concluded by noting that numerous characteristics of Italian legislation place Italy, at least from a normative point of view, among the world’s best in the field of programming, budgeting and spending review. But observation of the actual operation of the processes of budget decision-making, execution and reporting suggests that there is a gap between the regulatory framework and implementation, the elimination of which is certainly possible with a significant commitment to ensure the consistency of policy decisions with their implementation at the administrative level.