More than 100 wildfires continue to rage in the states of California, Oregon and Portland, causing deaths to at least 35 people, massive destruction to property and displacement of thousands of residents. As of last Monday, more than 3.3 million acres have been burned, the extent of which has not been seen in more than 100 years. According to U.S. presidential candidate for the November elections, Joe Biden, ‘[f]ires are blazing so brightly, smoke reaching so far, NASA satellites can see them one million miles away in space’. The smoke can be traced to Eastern parts of the United States and as far as Europe, and in some part of the United States it has a diminishing effect on the brightness of the sun.
Last week, Connecticut’s Attorney-General sued ExxonMobil, alleging that the U.S. oil giant was involved in an ongoing and systematic campaign to hide from the public what it knew for decades, that is, burning fossil fuels contributes to climate change. He contended that Exxon knew all along, based on its own research in the 1970s and 1980s, that the burning of fossil fuels would have a significant impact on the environment, public health and the economy.
According to the court papers, because of Exxon’s withholding of information on the adverse effects of its operations on the environment, Connecticut lost out on decades of opportunities to prepare for and mitigate the effects of climate change which include rising sea levels, flooding, drought, increased temperatures, decreased air quality and severe storms. Connecticut has joined other states including Delaware, Minnesota and Rhode Island as well as several municipalities in seeking through the courts to hold Exxon accountable for its actions over the years.
Over in the UK, British Petroleum (BP) stated last Monday that the relentless growth in oil demand is over and oil consumption may never return to the pre-COVID-19 period, as energy demand is shifting away from fossil fuels to renewable sources of energy. BP has supported the goals of the Paris Accord on climate change and is reducing oil and gas output over the next ten years by 40 percent while at the same time planning to invest up to $5 billion annually in renewable sources of energy. According to BP, oil consumption is likely to slump by 50 to 80 percent by 2050. Royal Dutch Shell, Total SE and other oil companies in Europe have announced similar measures.
The 2020 Estimates of Revenue and Expenditure were presented to the National Assembly on 9 September, with the general debate concluding last Friday. This week, the Assembly will resolve itself into the Committee of Supply to consider and approve the Estimates on a programme, sub-programme and activity basis. It is therefore an opportune moment to explain the budget process, especially for the benefit of those who are not familiar with it. In 2015, Mr. Christopher Ram and I had made presentations on the subject for the benefit of new parliamentarians following the general and regional elections of that year.
Constitutional provisions
Article 219 of the Constitution requires the Minister responsible for Finance or any other Minister designated by the President to cause to be prepared and to present to the Assembly within 90 days of the commencement of the fiscal year, the estimates of revenue and expenditure for that year. Upon approval of the estimates by the Assembly, an Appropriation Bill is introduced providing for the amounts approved and for the purposes specified, to be withdrawn from the Consolidated Fund. The Bill becomes an Appropriation Act when the President assents to it.
By way of comment, it was most unfortunate that these requirements could not have been adhered to in respect of the 2020 Estimates because of the prolonged impasse surrounding the 21 December 2018 vote of no confidence in the Government; the undue delay in holding elections; the failure to convene meetings of the Assembly beyond 23 May 2019; the dissolution of Parliament on 30 December 2019 to facilitate the holding of the 2 March 2020 elections; and the five months’ delay in officially declaring the results.
If, in the execution of the budget, it is found that the amount appropriated by the Appropriation Act for any purpose is insufficient to meet the related expenditure, or if a need arises for expenditure for which no appropriation has been made, a supplementary estimate is presented to the Assembly for its approval. Similarly, if it is found that expenditure has been incurred in excess of the amount appropriated, a statement of excess expenditure has to be tabled in the Assembly for its ex post facto approval. In both cases, once the amounts involved are approved, they are included in a Supplementary Appropriation Act which together with the original appropriation, forms the revised estimates for the fiscal year.
We emphasise the words “if it is found” because one cannot proactively or deliberately set out to incur excess expenditure and claim protection under this Article. Indeed, the excess expenditure is a by-product of the operations of the budget where expenditure is inadvertently incurred in excess of the budgetary requirements. The discovery is based on a kind of “stocktaking exercise” involving the review of expenditure incurred against budgetary allocations. The then Chief Justice had ruled that such action was unconstitutional. This is what we wrote in our article of 4 January 2016:
If we liken Financial Paper 01/2015 [dealing with advances made from the Contingencies Fund] to that of a great flood, then we must consider Financial Paper 2/2015 a tsunami in the context of public financial management. The circumstances giving rise to the latter is a complicated piece of constitutional issue that was the subject of two rulings by the Chief Justice: the 2012 budget cuts case; and the $4.544 billion excess expenditure incurred in the first half of 2014.
While many may fault the ruling on the 2012 budget cuts case, the Chief Justice has made amends when he considered that the $4.544 billion excess expenditure that the then Minister of Finance had authorised, was a violation of the Constitution. Little did we realise that such excess expenditure had also been incurred in 2012 and 2013. The combined total of the excess expenditure for the period 1 January 2012 to 16 June 2014 was $6.471 billion. Extrapolating, in all probability, an additional $4 billion would have been expended during the period 17 June to 31 December 2014 for which the related statement of excess expenditure is yet to be presented to the Assembly. This will give a whopping $10.5 billion in excess expenditure vis-à-vis the approved budgets for the period 2012 to 2014!
By Article 220, if an Appropriation Act has not come into effect at the beginning of the fiscal year, the Minister responsible for Finance is authorized to make withdrawals from the Consolidated Fund to meet the cost of essential services of the Government up to four months or until the coming into effect of the Appropriation Act, whichever is earlier. Where Parliament is dissolved before any provision or insufficient provision is made, the Minister is authorized to make withdrawals from the Consolidated Fund to meet expenditure on essential services of the Government for up to three months commencing on the date the Assembly first meets after the dissolution. A statement detailing such expenditure has to be laid in the Assembly as soon as possible for its ex post facto approval. Once approval is granted, the expenditure is included in the next Appropriation Bill under the appropriate heads.
In accordance with Article 221, where the Minister is satisfied that there is an urgent need for expenditure for which there is no appropriation, he/she can authorize an advance from the Contingencies Fund to meet the expenditure. As soon as practicable, the Minister must present a Supplementary Estimate to the Assembly for its ex post facto approval and to enable replenishment of the Fund.
Legislative provisions regarding budget preparation and execution
These are provided for under Sections 12 to 15 of the Fiscal Management and Accountability (FMA) Act. At least 182 days prior to the commencement of the next fiscal year, the Minister is required to establish a timetable for the preparation of the estimates of revenue and expenditure for that year. He/she does so by preparing and distributing a Budget Circular to the heads of all budget agencies setting out the following:
(a) Timetable for submitting the required information;
(b) Economic situation and the fiscal policy objectives and priorities of the Government;
(c) Medium-term fiscal policy objectives and priorities of the Government, including a brief description of how the Government plans to manage the public debt;
(d) Targets for budget surplus or budget deficit;
(e) Pro forma of the annual estimates; and
(f) Budget costing parameters to be used in determining the allocations to be made to budget agencies.
The budget submission for each budget agency must be first approved by the concerned Minister before it is submitted to the Minister for review and incorporation into the annual budget proposals that the Minister is required to present to the Assembly. These proposals are to include:
(a) Financial plan for the next fiscal year;
(b) Overview of the medium-term domestic and international economic outlook, together with the major economic assumptions upon which the financial plan is based;
(c) Statement of the fiscal policy objectives that the Government has set for the medium-term;
(d) Statement of the Government’s social and economic policy objectives and priorities that have guided the preparation of the annual budget;
(e) Review of the execution of the annual budget for the current fiscal year, together with a projection of the likely outcome for the entire year and explanations for any major differences between the financial plan and actual performance;
(f) Tabulations and analyses of actual and projected tax, non-tax and other revenues for previous relevant years, the current fiscal year, the next fiscal year, and the following three fiscal years, including proposed changes to the Government’s revenue bases required to support the expenditure proposals of the Government;
(g) In the case of non-tax revenue, details of the type of revenue to be received in the next fiscal year by each budget agency;
(h) Tabulations and analyses of actual and projected expenditures, classified by government function, for the previous relevant fiscal years, the current fiscal year, the next fiscal year, and the following three fiscal years, including a discussion of any new or changed expenditure policy by the Government;
(i) Estimates of all statutory expenditures, for the previous relevant fiscal years, the current fiscal year, the next fiscal year and the following three fiscal years;
(j) Estimates of expenditures for investment by each budget agency for the next fiscal year and the following three fiscal years;
(k) Statement of usage of a planned budget surplus or the sources of financing a budget deficit, as the case may be;
(l) Statement setting out the budget surplus or deficit and the stock of short-term public debt and long-term public debt;
(m) Details of the fiscal relationship between the Government and the regions, including proposed general and special purpose transfers to the regions during the next fiscal year and the following three fiscal years;
(n) Programme Performance Statement from each budget agency that administers one or more programmes of the Government for which an appropriation during the next fiscal year is to be sought;
(o) Copies of the Appropriation Bill detailing the amounts to be provided for current expenditure and capital expenditure by budget agency; and
(p) Drafts of any proposed new legislation or amendments to existing legislation required to implement the revenue, expenditure and financing policies presented in the annual budget proposal.
Once the estimates have been approved, there are certain restrictions in terms adjustments. In particular, appropriations may only be varied across programmes within the budget agency to which they relate. Those for current expenditure may be moved to appropriations for capital expenditure, but not the reverse, and the variation must not be by more than ten per cent of the total amount appropriated for that programme. New appropriations cannot be created. The Minister is required to present to the Assembly all changes to appropriations up to the end of the tenth month of the current fiscal year in an Appropriation Amendment Bill, not later than the eleventh month of the fiscal year. These are provided for under Sections 22 and 23. By Section 24, variations in excess of ten percent must be authorized by a Supplementary Appropriation Act prior to the incurrence of the related expenditure.
In accordance with Sections 26, all appropriations lapse at the end of the fiscal year, and all unspent balances must be returned to the Consolidated Fund.
