Ministry submits bill pursuing greater level of detail in state budget

The 'superministry' building in Tallinn houses the finance ministry, as well as the economic affairs and communications ministry, the justice ministry and the social ministry.
The 'superministry' building in Tallinn houses the finance ministry, as well as the economic affairs and communications ministry, the justice ministry and the social ministry. Source: Ken Mürk/ERR

The Ministry of Finance has submitted for a bill to the government seeking to improve the level of detail and transparency in performance-based budgeting, optimize the processes of drawing up the state budget and budgetary strategy and establish a basis for creating a long-term development strategy for the state.

"Based on the public debate that has been going on for some time between the Riigikogu, government of the republic, chancellor of justice, auditor general and many others, there is a broad-based consensus that the current program level in the State Budget Act does not have the sufficient level of detail for carrying the role of the parliament or enabling to make budgetary policy decisions," the explanatory memorandum of the bill reads.

The ministry nonetheless wishes to preserve performance-based budgeting as it deems it has added value in the process of making meaningful choices.

The bill is geared at amending the sections of the State Budget Act pertaining to breakdown of the state budget whereby the performance-based view of the annual State Budget Act is to be made more detailed and the flexibility rules of the State Budget Act will be adjusted, which should enable to preserve a balance between the decision-making competences of the legislative power and the executive as the level of detail in the state budget increases.

More specifically, budgeting will become more detailed by two levels by being broken down into program activities. Only rendering it more detailed by one level, which would mean budgeting at the level of program measures, would be hindered by the approach ending up being used inconsistently in different areas of government, according to the ministry.

The authors of the bill said that program activities describe better why the budgetary expenditures are to be made than a summary level of the program. Activities also describe the public service costs they entail, they said.

Breaking the budget down to show the services' level would be overly detailed, however, the authors of the bill added.

The bill is also geared at reducing resource costs pertaining to the state budget and budgetary strategy processes by reducing the number of substantial detailed discussions of budgetary revenues and expenditures at the government level from two to one per year. The draft legislation also seeks to formulate a long-term development strategy of the state as a new strategic development document that would create a legal basis for Estonia 2035 - a comprehensive vision document for policy areas.

Riigikogu finance committee discusses National Audit Office report

At Monday's sitting of the finance committee of the Riigikogu, the audit report by the National Audit Office which highlighted errors in the state budget for 2020 was discussed.

An audit report titled "Accuracy of the annual accounts of 2020 and regularity of the transactions of the state," published by the National Audit Office earlier this month, shows that the finance ministry has presented the revenue of the budget as higher and expenditures, investments, and financing transactions as lower than they actually are. As a result, the difference between revenue and expenditure in the state budget has been presented as more favorable by €365 million.

Erki Savisaar (Center), chairman of the finance committee, said that the committee is thoroughly analyzing the remarks and observations contained in the audit report in order to prevent the occurrence of similar errors in the course of the proceedings of next year's state budget.

"We have to agree with the assessment of the National Audit Office that the Ministry of Finance has not used the possibilities of the state budget information system and has not put in place control measures that would help to identify and correct errors in the drafting of the annual state budget law. This is confirmed by the fact that many of the errors are avoidable." Savisaar said.

The MP added that the budget's explanatory memorandum needs to be made clearer so that explanations are provided for all budget expenditures.

"The structure of the budget based on the new activity-based method requires more clarity and accuracy," Savisaar said, noting that officials of the Ministry of Finance must be given more time to set down the amendments made during the procedure.

Aivar Kokk (Isamaa), deputy chairman of the finance committee, said it is important to increase clarity over what is done with public money.

"It is essential for the activity-based budget to result in more efficient and effective performance of public tasks, higher-quality provision of public services, reduction of government sector expenditures and employee numbers, and more flexible and less bureaucratic organization of the work of the government sector," the Isamaa MP noted.

"In order to better measure the cost of the service and to monitor and evaluate the outcome, resources should be linked to more precise information about activities," Kokk added.

According to the audit by the National Audit Office, the overall assessment is as follows: the annual accounts of the state, which show the consolidated total net gain of the state for 2020 to be 1.15 billion euros and the consolidated assets as of Dec. 31, 2020 amount to 17.9 billion euros, reflect the financial standing of the state, the economic outturn and cash flows for the period ended fairly in all material respects, in compliance with the Estonian financial reporting standard, when leaving aside the remark on the value of fixed assets. 

The 2020 state budget bill. Source: ERR


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Editor: Kristjan Kallaste

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