Auditor general: Activity-based state budget is demonstrably unworkable

The explanatory memorandum to this year's state budget.
The explanatory memorandum to this year's state budget. Source: ERR

The National Audit Office (Riigikontroll) has long criticized the activity-based state budget, as deployed in Estonia in recent years, citing a lack of clarity on the use of state funds.

While the audit office recommends ditching this model, Finance Minister Mart Võrklaev (Reform) is sticking to his guns, ETV news show "Aktuaalne kaamera" (AK) reported Monday.

Auditor General Janar Holm characterizes the current activity-based state budget as one of double accounting. 

Each ministry knows exactly how much money it has and for what, yet it is not possible to calculate that from the state budget itself, since when that document is under preparation, ministries budget entries tend to get mixed up, Holm said.

This was not satisfactory, the auditor general went on. "Time has shown us that this new approach has turned out to be unsuitable," he told AK.

"Unfortunately, for a country like Estonia, there is nothing to be done with a state budget of this kind. We have certainly been discussing the matter for many years, just as the chancellor of justice, several Riigikogu MPs, journalists and others have also been talking about it."

Auditor General Janar Holm. Source: ERR

""We have actually lost sight of any overview of where the state's money goes and whether we can check that that money did get spent on the objects it was pledged for," Holm went on.

Finance Minister Mart Võrklaev (Reform) rejects this criticism.

While the Ministry of Finance has justified the use of an activity-based budget on the grounds of its helping better to monitor the budget planned in relation to government areas, programs and services, according to Holm, that budget is not actually transparent. 

State money should not be handled in this way, he added.

Võrklaev told AK that: "Various developments are at all times, but at some point the time should arrive when it is clear that this 'Heimlich maneuver' and artificial respiration can no longer help; a line must be drawn, and we must still go back to the point where we can talk about what money is given, for what, and to whom."

Minister of Finance Mart Võrklaev (Reform). Source: Ken Mürk/ERR

The finance minister says it is not viable to make the switch from an activity-based budget to a cost-based budget in the blink of an eye, as several IT developments have been made over the years. 

Võrklaev says he also does not consider that change necessary in any case since, according to him, it is an innovative solution.

What is necessary is to make the budget more precise and clearer than before, Võrklaev added.

"What we have done before, what can be done again in our smart e-state, would be to have a budget 'desktop' available on the Ministry of Finance website, where you can get a quick overview of the budget in a few minutes or even seconds," he said.

Võrklaev also said the current discussion as to whether the state budget should continue to be activity-based, or should instead be cost-based, was a diversion from the main event.

A balanced budget, was the bigger issue, he said, "plus if you don't understand some sections of [the state budget] at first glance, you can always ask what lies behind it," he said.

A cost-based budgetary principle might bring short-term popularity, Võrklaev added, but ultimately would not bring money into the state coffers.


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Editor: Andrew Whyte, Merili Nael

Source: 'Aktuaalne kaamera', reporter Hanneli Rudi.

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