Clarity of Roles and Responsibilities

• Pages: 10-34

Contenidos

• The Scope of Government.
• The structure and functions of government.
• Roles of the executive, legislative, and judicial branches.
• Responsibilities of different levels of government.
• Relationships between the government and public corporations.
• General government and the central bank.
• General government and public financial corporations.
• General government and nonfinancial public corporations.
• National resource companies.
• Government involvement in the private sector.
• Regulation of the nonbank private sector.
• Government involvement in the banking sector.
• Direct equity investment.
• Framework for Fiscal Management.
• Comprehensive laws, regulations, and administrative procedures.
• Explicit legal basis for revenue collection.
• Fiscal regime for resource sectors.
• Use of public funds and resources.
• Revenue collection.
• Accessibility and understandability.
• Clear criteria for administrative application.
• Judicial appeal for tax and regulatory impositions.
• Revenue administration.
• Public comment on legislative or regulatory changes.
• Contractual arrangements.
• Public-private partnerships.
• Accounting for PPPs.
• Contracts for resource development.
• Liability and asset management.
• Debt management.
• Asset management.

Page 10

32. This chapter discusses fiscal transparency principles and practices that concern the scope of government and the framework for fiscal management. They are crucial as a basis for assigning accountability for the design and implementation of fiscal policy. Identification of all those entities that provide a public good or service provides the public with an understanding of the true scope of government. A legal and administrative framework that clearly assigns the roles and responsibilities of government in the collection and use of public resources promotes accountability and good governance.

The Scope of Government

1.1 The government sector should be distinguished from the rest of the public sector and from the rest of the economy, and policy and management roles within the public sector should be clear and be publicly disclosed.

33. The Code includes good practices relating to (1) structure and functions of government; (2) roles of the executive, legislative, and judicial branches of government; (3) responsibilities of levels of government; (4) relationships between government and public corporations; and (5) government involvement in the private sector.

34. Basic requirements under this principle are to ensure that

* a published institutional table clearly shows the structure of the public sector, identifying all government entities by level of government, as well as public corporations;

* the extent and purpose of all quasi-fiscal activities is explained; and

* revenues and responsibilities are clearly assigned between different levels of government.

The structure and functions of government

1.1.1 The structure and functions of government should be clear.

Page 11

Figure 1. Public Sector

[SEE THE FIGURE IN THE ATTACHED PDF]

35. The public sector consists of the general government sector and public corporations.¹⁴ The two main types of public corporations are nonfinancial public corporations and financial public corporations, which include the monetary authority (central bank) and nonmonetary financial corporations.¹⁵ Separation of government functions from commercial and monetary activities helps to establish clear accountability for the conduct of these very different activities and facilitates assessment of the macroeconomic impact of fiscal activities. To help achieve clarity in the description of the structure of government, the publication of an institutional table¹⁶ showing the structure of government and the rest of the public sector is a requirement of fiscal transparency. The institutional table should include entities that make up the subsectors of the public sector shown in Figure 1.

36. A fundamental first step in developing fiscal transparency is to identify all those entities that carry out government functions. Government functions are defined as activities related to the implementation of public policies through the provision of nonmarket¹⁷ services and the redistribution of income and wealth, financed primarily by taxes and other compulsory levies on nongovernment sectors. However, defining the boundaries of government and of the public sector is a complex task, and one that is particularly challenging for countries undergoing rapid change.

37. The Code uses the term "government" to describe the general government sector as defined in the United Nations (UN) System of National Accounts, 1993 (SNA) and the 2001 IMF Government Finance Statistics Manual 2001 (GFSM 2001).¹⁸ The general government sector consists of all government units and all nonmarket nonprofit institutions (NPIs) that are controlled and mainly financed by government. Government units encompass all national and subnational institutional units that perform functions of government as their primary activity. This would include any entities that receive the majority of their funds through transfers, earmarked revenues, or other government sources to carry out government functions, as well as any spending of public money for fiscal purposes even if not coveredPage 12 by institutional arrangements.¹⁹ Revenue and expenditure that are not included in the annual budget appropriations are referred to as "extrabudgetary" and may be associated with two types of institutions that can be found at all levels of government and should be included in the institutional table: "extrabudgetary funds" (see Box 13 in Chapter II for further details) and nonmarket nonprofit institutions. Nonmarket NPIs perform activities on a noncommercial basis and are financed mainly by government transfers or earmarked revenues, but may also have other sources of revenue. Extrabudgetary funds and nonmarket NPIs are both quite common, but the latter are more problematic for defining government, as explained in Box 2 (see also the GFSM 2001 for further details on nonmarket NPIs). As such,Page 13 the general government sector can be defined as all the public institutional units that are nonmarket producers. Government-controlled units that are market producers are not part of general government; they comprise the rest of the public sector.

    [SEE BOX 2 AT THE END OF THE DOCUMENT]

38. Good practice for fiscal transparency requires that all of these types of activities be included when referring to government, not only conceptually by including them in an institutional table of government, but in budget documentation and fiscal reports.²⁰ Furthermore, the definition of general government and institutional table should be uniformly applied by all agencies reporting on government activities. An example of good practice in defining the boundaries of government is the application of the European System of Accounts, 1995 (ESA) to economic statistics in European Union countries.²¹

Roles of the executive, legislative, and judicial branches

1.1.2 The fiscal powers of the executive, legislative, and judicial branches of government should be well defined.

39. The Code requires that the roles of different branches of government in fiscal management be clearly defined but does not advocate a particular structure of government on the basis of fiscal management concerns. Relationships between different branches of government vary greatly across countries, and are often subject to change as political and administrative systems develop. A number of recent studies illustrate the important influence of budget institutions on fiscal outcomes.²² The authority of different branches of government at different stages of the budget process should be clearly defined in a budget system law or the constitution. For example, the executive may be given power to conduct fiscal policy when the budget for the fiscal year has not been adopted by the legislature before the start of the fiscal year to which it relates.

40. The powers and limits of each branch with respect to changes in the budget during the fiscal year should be clearly specified in the legal framework. In presidential (as opposed to parliamentary) systems it is more common for the legislature to introduce changes to the draft budget. Where this occurs, the draft budget submitted by the executive to the legislature as well as the final budget approved by the legislature should be publicly available to allow the public to hold each branch accountable for its part in the budget process.

41. The legislative and judicial branches should play an active role in ensuring the availability and integrity of fiscal information.²³ This would include having an active committee of the legislature to oversee the conduct of fiscal policy and to facilitate civil society input into budget deliberations (e.g., through receiving public submissions). With respect to the judicial branch, taxpayers as well as recipients of specific public services, public pensions, or other social insurance should be able to challenge the legality of a ruling by appeal to the courts. In some cases decisions by the courts can have significant fiscal impact.

Page 14

Responsibilities of different levels of government

1.1.3 The responsibilities of different levels of government, and the relationships between them, should be clearly specified.

42. A clear demarcation of roles within government is essential for transparency. At the broadest level, it is necessary to clearly define the allocation of tax powers, powers to borrow or incur debt, and expenditure responsibilities between different levels of government. The intergovernmental structure varies widely among countries, ranging from federations in which individual states or provinces have considerable powers to unitary forms of government. At the local level the inclusion of many informal as well...