Let's Have More Budget Transparency

Nat O'Connor21/11/2011

Nat O'Connor: Seán Whelan on RTÉ Six One News last Friday quipped that democratically elected representatives were the first to see Michael Noonan's budget proposals... except that they were not our elected representatives, but those of the German people.

It is unfortunate that the Dáil did not receive the draft papers before the Bundestag, but a more important lesson from the episode is that there is every reason to increase the transparency of budget documentation and proposals from now on.

Irish democracy did not collapse because draft proposals on VAT increases and other measures were circulated before the Government met to consider them. Instead, the democratic process was strengthened by their release.

Strong democracy is when everyone has the right to participate in the decisions affecting themselves and, crucially, the resources they need to do so. Information is just one of the essential resources people need to understand and meaningfully participate; through discussion, lobbying, etc.

Consider the traditional budget process, by way of contrast:

1. All proposals are initially developed in secret by the Department of Finance. (Drafts may or may not be circulated, but certainly not to Opposition spokespersons or the public).

2. Government Ministers are briefed by the Minister for Finance in a meeting of the Government, and may even be asked to agree proposals at the same meeting - without access to alternative expert opinion, advice, etc. Even if they do not agree them in the same meeting, they have only days to seek advice and cannot avail of a richer public discussion with analysis from all perspectives.

3. Some, all or none of the budget proposals may be discussed by Government Ministers with their colleagues on the backbenches of the Dáil. Advice from chosen experts may or may not be sought, at the discretion of each Minister.

4. The final Budget is kept secret until read out by the Minister for Finance on Budget Day. In fairness, the IMF/EU obligation to publish a four-year plan has created more openness.

5. Opposition spokespersons and economic commentators prepare most of their responses in the absence of information about the Budget proposals, often based on rumours or leaks. They are only given minutes to prepare a response to the actual proposals, and must make off-the-cuff responses without research or advice. This makes for shallow analysis that tends to highlight more immediate proposals, or more populist concerns, while neglecting deeper effects on the economy and society.

6. The Dáil votes on the Budget without most of the TDs having read the documents. Strictly speaking, TDs vote on a series of 'financial resolutions' based on the Budget speech. There will be (limited) time for discussion later when the annual Finance Bill, Social Welfare Bill, etc are introduced to make most the resolutions into law. However, votes on resolutions are sufficient for measures that come into effect at midnight. And legislation is sometimes rushed through the Dáil; like last year's Social Welfare Bill the very next day.

Traditional Budget secrecy is seriously flawed and undemocratic. It is also a hugely inefficient and impractical way to run the Government in an advanced economy!

For example, the proposal to raise VAT by 2 percentage points has a range of complex effects on the economy. It requires TDs to know what goods and services attract the standard rate of VAT, as well as to know that VAT dampens employment in the economy less than income tax but more than wealth taxes. The regressive nature of VAT also needs to be explained - that is, that people on lower incomes pay proportionately more of their incomes. It takes time to put together analysis and briefings for those making the decisions, let along for those whose lives will be affected by them.

This year by accident (and again because of the IMF/EU loan) we have a new and improved process:

1. Draft proposals from the Department of Finance are aired in public.

2. Economic analysts (including think-tanks), sectoral lobbyists and the general public are given time to reflect on these proposals and respond to them. An informed public debate is possible.

3. The members of the Government and TDs on both sides of the Dáil can learn from the public discussion and expert analysis. The Government has the option of fine-tuning or even changing proposals.

4. The Budget Day proposals are likely to be less of a surprise and Opposition spokespersons will have had access to information and advice to prepare more detailed and considered responses.

5. TDs have had the benefit of public discussion and contact from their constituents before voting on the Budget.

Does anyone have a problem with making this more open approach permanent?

There are a couple of issues raised by more openness, but in balance I don't think they outweigh the benefits.

The Government is not weakened in its ability to choose to accept or modify proposals. Getting more feedback from lobbies, experts and constituents can only be a good thing. The Government is not exhibiting weakness by changing proposals in the face of evidence, although they would have to justify decisions that appear to simply cave in to politically powerful lobby groups.

(In practice, capitulation to lobbyists tends to happen between Budget Day and the final Finance Act three months later, which often contains quite different proposals - especially on the minutae of tax law - than were in the Budget. However, media and public scrutiny of the Finance Act is very limited).

One tricky issue relates to the 'midnight' proposals: changes that will apply with near immediate effect. For example, excise might change at midnight to prevent people stocking up on alcohol beforehand.

Whether people should get more than a couple of hours warning on such changes is an open question. It may be more effective for raising revenue, but it is arguably more democratic if people know what's being proposed and have a chance to react to it (even if that reaction is a trip to the off-licence). After all, the Government can never fully predict the 'behavioural' effects of Budget changes. And the short-term loss of excise revenue may be off-set by longer-term public understanding and acceptance of how we pay for the services provided by our state.

And if there really are some new taxes that require secrecy before being announced 'with immediate effect', good quality analysis on the day can be preserved through 'lock ins'. They do this in Canada. Several hours before the budget announcements, a selection of Opposition spokespersons and their advisors are locked into a room without mobile phones but with a copy of the budget documents. In another room, a selection of journalists and economic analysts are likewise locked in with the budget. The result is that Opposition responses and expert analysis can be based on the detail of what's being proposed.

Voting on how public money is spent is one of the main purposes of parliament and the Constitution of Ireland makes it very clear that the Government can only spend money in line with budgets agreed by the Dáil.

There is every reason why the vital scrutiny of public money should be as open as possible.

Posted in: EconomicsEuropeDemocratic accountability

Tagged with: EU/IMF fundtransparencybudget

Dr Nat O'Connor     @natpolicy

Nat O'Connor

Nat O’Connor is a member of the Institute for Research in Social Sciences (IRiSS) and a Lecturer of Public Policy and Public Management in the School of Criminology, Politics and Social Policy at Ulster University.

Previously Director of TASC, Nat also led the research team in Dublin’s Homeless Agency.

Nat holds a PhD in Political Science from Trinity College Dublin (2008) and an MA in Political Science and Social Policy form the University of Dundee (1998). Nat’s primary research interest is in how research-informed public policy can achieve social justice and human wellbeing. Nat’s work has focused on economic inequality, housing and homelessness, democratic accountability and public policy analysis. His PhD focused on public access to information as part of democratic policy making.



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