Public finance in the Netherlands Budget policy and budget process

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1 Public finance in the Netherlands Budget policy and budget process

2 Public finance in the Netherlands Budget policy and budget process

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4 Contents Introduction 5 Structure 7 Part 1 The budget policy 9 The budget policy and the importance of economic developments 9 The budget policy of the Balkenende iv Government 9 The rules of the budget policy 13 A further explanation of the budget rules 14 Part 2 The budget process 19 Budget preparation 20 Budget presentation 24 Budget proceedings and adoption 24 Budget implementation 27 Budget auditing and reporting 28 Further information 30 Budget calendar

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6 Introduction For many Dutch people public finance is a closed book, even though the government s income for the most part comes from Dutch citizens and businesses in the form of taxes and contributions. In the papers we read plenty about the latest state of affairs, expenditure and cut-backs, financial setbacks or windfalls, but not very much about the underlying principles or systems of the policies. This brochure provides more insight into the budget policy and process, in two parts, and is meant for anyone who is interested. Budget policy Budgeting is making choices, setting priorities. The fact is that you can only spend money once. The budget policy is, put simply, the way in which the government spends and receives money. At the start of each government period, the government presents its plans for the next four years in a so-called Government Programme. This programme also includes agreements on budget policies. They are agreements, for example, about whether or not to accept a budget deficit (expenditure exceeds income). Are there policy areas in which the government would like to spend more or perhaps less? The set of agreements on public finance constitutes the budget policy. The Minister of Finance is the first responsible party for this policy. Budget process Every year, on Budget Day, the government presents its plans for the budget policy in the form of the National Budget and the Budget Memorandum. The government may not spend money as it likes. Expenditure is based on a fixed system of preparations that lead up to the accounting process. The budget process refers to preparing, presenting, adopting, implementing, checking the budget and accounting for public finance. 5

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8 Structure This brochure consists of two parts. The first part outlines the budget policy while the second part describes the budget process. At the back of the brochure you will find a foldout budget calendar. Part 1 The budget policy This part of the brochure answers questions such as: what is the current budget policy? Which agreements has the current Balkenende iv Government laid down and with what objective in mind? And which rules are used to implement this? The influence of economic developments on the budget policy is also discussed. Part 2 The budget process This part answers questions such as: what stages does the budget process consist of? How are the National Budget and the Budget Memorandum prepared? Who is the final decision-maker regarding public finance? How is public expenditure checked? Who accounts for the expenditure? In short, who are the players and what are the rules? Fold-out budget calendar At the end of this brochure you will find a budget calendar. This calendar schematically outlines the entire budget cycle. You may fold out this calendar while reading the information on the budget process in order to see what stage of the budget process is being discussed: the preparation, the presentation, the discussion, the implementation, the control or the accounting stage. 7

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10 Part 1 The budget policy The budget policy and the importance of economic developments What is the budget policy? At the start of each government period the new Government lays down agreements on public finance and the budget policy. For example, the Government has to agree on objectives on which to spend money, and on the way in which the required money is received. Does the government receive adequate funds to make the necessary expenditures or should money be borrowed? In other words, does the Government accept a budget deficit or does it seek to have a budget surplus (more income than expenditure)? Are cutbacks required to limit the budget deficit or to realise a surplus? And so forth... The importance of economic developments In preparing and adopting the budget policy for the next four years the expected national and international economic developments are of vital importance. What will the world trade be like over the next four years? Are the economic prospects good or bad? Favourable economic expectations mean economic growth. More production may mean more employment and higher tax revenues in short, more public income. Favourable prospects usually mean fewer unemployed and thus fewer unemployment benefits to be paid by the government, leaving more money for other plans. Conversely, worse economic prospects usually have negative effects on public finance: higher expenditure on social security on the one hand and lower tax proceeds, for example, due to lower business profits, on the other hand. Thus lower economic growth leaves less room in the budget. In all cases budgeting means making choices. Making choices about the amount of the budget and about how it will be distributed. Economic prospects of the CPB Netherlands Bureau for Economic Policy Analysis The cpb Netherlands Bureau for Economic Policy Analysis (cpb) prepares a middle-long term survey geared towards the preparation of the coalition agreement and the adoption of the budget policy, including predictions for the average economic growth for the next four years. Based on these predictions, the cpb then calculates the available budget for the next four years. The cpb also makes economic predictions at other times when the government has to take a decision on public finance, for example, when preparing the annual national budget. The budget policy of the Balkenende IV Government The starting point Public finance has improved considerably over the past years. In 2003 the budget deficit was still above the critical 3% margin of Gross Domestic Product (gdp) (see European agreements), but upon the arrival of the present Government the budget showed only a small deficit. The economic situation has also improved. The economy shows a steady growth and the number of jobs has increased. However, this does not mean that we may now sit back and relax. There are still some (big) steps to be taken to maintain the healthy state of public finance in the long term and to ensure that facilities and benefits continue to be available in the future. 9

11 The population is ageing While a few years ago people were still talking about the future ageing of the population, the population is now really ageing! The baby boom generation that was born just after the end of World War ii will start to reach the age of retirement towards the end of this government term (i.e. as of 2010). The ageing population is not a temporary phenomenon. The ratio of retired persons to the working population will structurally be higher than at present. By 2040 senior citizens will make up 45% of the population, compared to just over 20% at present. If policies do not change, these demographic developments will mean a substantial and structural increase of public spending, especially on pensions and care facilities. Funds have to be released to meet these higher expenses. The ageing population Between now and 2040 the number of senior citizens will increase from 2.3 million to almost 4 million. At the same time the number of people aged between 20 and 64 will decrease, from 10 million people at present to 9 million people in As a result the ratio between the number of senior citizens and the number of people aged years will increase in the coming years from 23% to more than 45% in The doubling of the so-called grey pressure means that for every 10 potential members of the workforce there are more than 2 retired people, and 4.5 retired people when the ageing population has reached its maximum size. This means that there will be only be half the number of people to bear the costs of one retired person. European agreements as preconditions for the national budget policy In addition, the Netherlands as a member of the Economic and Monetary Union (the emu) has concluded European agreements on public finance that it must continue to comply with. These agreements, laid down in the Treaty of Maastricht and the Stability and Growth Pact, amount to the following: the actual deficit of a country may not exceed the 3% gdp margin and the debt must be smaller than 60% of gdp. In addition, countries must seek to meet a specific middle-long term objective over a period of around four years. This objective depends on a country s level of debt. emu countries with a low level of debt (smaller than 60% of gdp) may have a structural deficit of 1.0% of gdp as the target level. emu countries with a high level of debt (more than 60% of gdp) must seek to have a balanced budget or a budget surplus. Given that the debt quote of the Netherlands is less than 60% of the gdp, it follows from the European agreements that the middle-long term objective of the Netherlands is between -0.5% and -1%. The middle-long term objective prevents a public deficit from exceeding the 3% margin in difficult economic times. Countries are not allowed to have high deficits because this may lead to higher interest rates and inflation in the euro zone. This not only has negative implications for the country concerned, but for the euro zone as a whole. A deficit of more than 3% of the gdp is only allowed (temporarily) in the event of negative economic growth is. Debt and interest For many years now (with the exception of a few years) there has been a budget deficit. For years the government spent more than it received and thus accumulated a debt. The government pays interest on that debt, i.e. the borrowed money. Those interest payments constitute a fairly substantial share of the national budget. As the debt is repaid, the interest payments decrease. This means that there is increasing room in the budget for other expenditure, for example, to pay for the costs of the ageing population. 10

12 The objective, the agreements The objective The specific objective of the Balkenende iv Government, as agreed in the Coalition Agreement, is to improve the structural budget deficit (now -0.2% of gdp at the start of the government period in 2007) and turn it into a structural surplus of 1.0% of gdp by The Government seeks to improve the emu balance every year compared to the previous year. Policies will thereby be pursued to ensure that measures continue to contribute to meeting the costs of the ageing population after 2011 as well. The starting point is to cover a third of the so-called sustainability deficit. The actual and structural budget balance, EMU balance Since the introduction of the emu all emu The actual balance is the difference Member States use the same definitions between government income and for the debt of a country, and the balance expenditure(central Government, social (deficit or surplus) of the budget is usually funds and local authorities) per annum. expressed in a percentage of gdp to A structural balance simply means the facilitate an international comparison of balance which a country might have in public finance data. There is a difference a year if the economy were balanced. between the actual balance on the This is the deficit corrected for temporary budget and the structural balance. economic fluctuations. 11

13 The agreements The Coalition Agreement includes the agreements to realise the budgetary objectives. The expected economic growth makes for an extra sum of 8 billion euros on the budget. In addition, a sum of 8.5 billion euros has been suggested in the way of cutbacks and savings, for the most part to be realised by increasing pollution levies and efficiency, inter alia within the civil service. The total room on the budget thus equals 16 billion euros. The Government intends to invest around 10 billion euros of this sum (investment agenda). The other 6.5 billion euros is credited to the emu balance and used to realise a budget surplus of 1.0% of gdp by billion of the investment agenda is used to ease the tax and national insurance contributions burden in order to increase labour force participation, improve purchasing power, strengthen the economic structure and benefit children, juveniles and families. The other seven billion is used to intensify the six principal policy objectives, the so-called pillars, which are: (1) an active international role for the Netherlands, (2) an innovative, competitive and entrepreneurial economy, (3) a sustainable living environment, (4) social cohesion, (5) safety, security, stability and respect and (6) purposeful and properly operating public authorities. At the same time a series of measures has been suggested in fields such as labour force participation and the care sector that are to contribute to the long-term sustainability of collective provisions and public finance. In preparing the National Budget and the Budget Memorandum a review is conducted each year to examine how the agreements from the Coalition Agreement might be further implemented. 12

14 The rules of the budget policy In the Coalition Agreement the Government agrees on budget rules to realise its budgetary objectives. The rules are derived from the inflation-based budget policy developed and applied in the period The rules are geared towards administrative tranquillity and having the budget keep pace with economic developments. The most important fundaments of the inflation-based budget policy have thus remained unaltered. Some improvements have been implemented, e.g. excluding interest payments from the frameworks and raising the warning level. The adjustments are for the most part intended to improve the budget balance (realising a surplus of 1.0% of gdp by 2011) and to comply with European agreements on public finance. The adjustments are furthermore intended to safeguard public finance for the future. The most important budget rules are the following: Inflation-based economic predictions The Coalition Agreement and the annual budgets are based on inflation-based economic predictions (the inflation-based scenario of the cpb). One principal decision-making moment There is one principal decision-making moment regarding the income and expenditure sides of the budget in the spring. One annual decision on the income and expenditure improves the administrative sense of tranquillity. Strict separation between income and expenditure Income and expenditure are strictly separated. Thus what comes in does not affect what goes out. This rule is intended to avoid a situation in which the estimated income of the government would immediately lead to a discussion on additional expenditure (in the event of higher revenues) or cutbacks (in the event of lower revenues). Expenditure framework and ceilings For a proper control of public expenditure the Government avails itself of a maximum expenditure agreed beforehand: the expenditure framework. This means that the overall real expenditure during the government term is fixed. Expenditure is divided into three sectors: Central Government, Social Security and Care. For every sector a real maximum of expenditure is provided, an expenditure ceiling. Interest payments are not included. Income framework A framework is also provided for the income side, i.e. changes of tax and contribution rates during the government term are limited. A windfall may not be used for new policies and a setback does not lead to cutbacks. Temporary departures from this framework are allowed. Compensation follows in subsequent years within the government term. Automatic stabilisers Full automatic stabilisation is used for the income side. This means that windfalls on the income side are credited to the emu balance (i.e. reduce the deficit or increase the surplus on the budget). Setbacks on the income side are debited to the emu balance. An advantage of this system is that the budget on the income side is able to go along with economic developments. In the event of setbacks further measures are only taken if the warning levels for the emu balance are exceeded. As long as these limits for the emu balance are not exceeded, the development of costs as laid down in the Coalition Agreement (the income framework) is the standard. 13

15 Warning levels European agreements prescribe that the actual deficit may at no time exceed 3% of gdp. To be on the safe side, the Government uses a warning level of 2.0% of the gdp. This means that where the emu deficit approaches 2% of gdp, the Government must take further measures to prevent the deficit from increasing. Should the Government only take action once the deficit is 3% of gdp, it is often too late. The fact is that it is difficult for the Government to reduce the deficit in the very short term. Thus the warning level s objective is to ensure that the deficit does not exceed 3% of gdp. A further explanation of the budget rules Inflation-based economic predictions Economic developments are difficult to predict. How well or poorly the economy is doing has a major impact on public finance. For example, a decrease in world trade leads to less export, less production, less employment and eventually to more unemployment benefits (higher expenditure) and lower tax receipts. Thus sound estimates are essential for preparing long-term expenditure frameworks. For years, the cpb has made independent recommendations and estimates regarding public policy. The current Government has therefore opted, once again, to base long-term estimates for the government programme on the cpb s middle-long estimates. This is the so-called inflation-based scenario of the cpb. This scenario is the best available estimate of the development of the Dutch economy. One principal decision-making moment In order to safeguard a tranquil budget process, the Government has chosen to decide only once a year how the money will be spent. This means that the Government does not have to enter into discussions each time there is a windfall or setback on the income or expenditure side, or each time a Minister puts forward a new policy proposal. In order to properly weigh up the different policy objectives, the Government has thus opted to review all policy proposals and ancillary costs once a year and to decide once a year what is desired and possible within the available financial room. This principal decision-making moment on income and expenditure takes place in the spring, after which everyone knows where they stand for the next twelve months. Strict separation between income and expenditure Public revenues are largely dependent on taxes and contributions. Other sources of income are levies and the sale of natural gas. The Balkenende iv Government observes a strict separation between income and expenditure. A windfall on the income side may not be used for additional expenditure. On the other hand, no cutbacks are required in the event of a setback on the income side. Agreements are made on what to do with windfalls and setbacks, both on income and expenditure side. The agreement to separate income and expenditure was made for several reasons. First of all, if any change in the income estimates by the government were to lead to discussions about additional expenditure (in the event of higher income) or cutbacks (in the event of lower income) this would have a negative effect on the decision-making process. Income reacts strongly to economic fluctuations and the exact income is therefore difficult to predict. If the government had to respond continually to fluctuations in public income in determining the room for new expenditure, greater administrative unrest would ensue. This would be detrimental to dependability of government policy. 14

16 The expenditure framework and the expenditure ceilings In a budget a Minister outlines the plans he/she has for the next year. In order not to spend too much money, the Government agrees on the maximum expenditure beforehand: the expenditure framework. The expenditure framework acts like a boundary within which expenditure and thus policy must remain. The expenditure framework consists of three sectors of expenditure: Central Government, Social Security and Care. At the start of the Government period the government parties determine the expenditure framework for these three sectors. During the government term the expenditure framework is not adjusted, with the exception of annual inflation (price increase). The budget discipline rules are a device to ensure that expenditure remains within the boundaries set by the expenditure framework. 15

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18 Budget discipline rules In order to avoid exceeding the agreed expenditure One must seek to prevent impending setbacks by taking measures in good time. In order to signal any excess Windfalls and setbacks must be reported in good time to the Minister of Finance and the Council of Ministers. Compensating for any excess In principle a setback should be compensated within the Department or sector in which it occurs. This is called specific compensation. If, for example, more students apply to universities than estimated in the education budget, the Minister of Education may have to decide to reduce students grants or increase university fees in order to compensate for this setback on the expenditure side; In exceptional cases the Council of Ministers may opt for general compensation. In such an event the compensation may also be found in other ministries; Windfalls on the expenditure side may be used to compensate for setbacks or other expenditure. In doing so, consideration should be given to the nature of the windfall. Is it a cyclical windfall as a result of favourable economic developments? Or is it a structural, permanent windfall? A cyclical windfall may only be used for temporary expenditure and may not be used for structural expenditure. The interest payments are not included in the frameworks to reduce the pro-cyclical nature of the frameworks. Interest windfalls frequently occur in times of economic prosperity. By leaving the interest payments outside the frameworks, it is avoided that the Government might seek to spend more money when interest payments are lower than expected. Windfalls in interest payments are thus credited to the national debt and thereby contribute to the future stability of public finance. Income framework The overall income development in the government term ensues from agreements made in the Coalition Agreement. This is based on the same principles as the expenditure framework. The scope of changes in tax and contribution rates is limited for the duration of the government term. They may in principle not be higher. Temporary departures are allowed, but they must be compensated in subsequent years. Departures from the income framework are only possible if setbacks on the income side mean that the Netherlands no longer meets the European agreements (see warning levels). A setback occurs where the income within one year is lower than expected in the preparation of the budget for that year. Automatic stabilisers and warning levels The income side is in principle based on full automatic stabilisation. Income windfalls are credited to the emu balance, income setbacks are debited to the emu balance. In other words: windfalls lead, in the current Government s initial position, to a reduction of the budget deficit while setbacks lead to an increased deficit. This has the following benefits: the budget on the income side may go along with economic developments and no immediate action is required in the event of windfalls or setbacks. Further measures are only taken once we no longer meet the European agreements regarding the emu balance. In other words, once the warning level for the emu balance is exceeded: according to the European agreements the actual deficit may not exceed 3% of the gdp. To be on the safe side, the Government uses a warning level of 2.0% of the gdp and intervenes when the deficit approaches 2% of gdp. The previous Government used a warning level of 2.5% of gdp, but in 2003 this proved inadequate to meet European agreements. The warning level has therefore been raised. The fact is that it is difficult for the Government to reduce the deficit in the very short term. It requires time for certain policy changes to take effect on the economy and thus the emu balance. 17

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20 Part 2 The budget process What is the budget process? Part 1 of this brochure provided an insight into budgetary policy, the objectives adopted and the rules applied by the current administration. This part examines the system underlying the public finances: the budget process. By budget process we mean the process of preparation, presentation, adoption, implementation, and auditing and reporting of the public finances. Public spending and government revenues must be decided each year bij the two houses op parliament, the House of Representative and the Senate. The Dutch constitution stipulates that each year the Minister of Finance must present the government s budget proposals for the coming year to the House of Representatives on the third Tuesday in September, Prinsjesdag. The budget proposals together constitute the central government budget. The Budget Memorandum is published at the same time. The central government budget and the Budget Memorandum The central government budget is made up of the budgets of the individual ministries. Each of these has to be submitted as a bill to the House of Representative and the Senate. Both houses must approve the proposals (with or without amendments). After approval ministers can implement their intended plans and disburse funds from the start of the new year. Like any other bill, the budget bill consists of programmes. Each programme covers a policy objective the government wants to achieve. It gives coherent answers questions like: what is our objective, what will we do to achieving this and what will it cost? For that reason the sections are also called policy sections. The Budget Memorandum provides explanatory notes to the central government budget and sets out the main plans from the departmental budgets and their financial implications. The Budget Memorandum also discusses the national and international economic situation and sets out the main spending plans for the whole public sector (i.e. central government, social security and health care). The pivotal role of the Minister of Finance All ministers are responsible for drawing up (and eventually implementing) their departmental budget. Thus the Minister of Finance is responsible for the Ministry of Finance s budget. This covers the ministry s spending, including that by the Tax Authorities and the interest payments on the national debt. But under the Government Accounts Act the Minister of Finance has a special position in the budget process: he has first responsibility for the government s general budgetary policy. To this end the Minister of Finance has powers over the other ministers budgets. Thus ministers must submit all their plans and the financial implications to the Minister of Finance. He is the guardian of the terms of the coalition agreement and the government s other arrangements on budgetary policy. With this specific responsibility, the Minister of Finance is the pivot in the budget process. 19

21 Basic principle and rules The basic principle of the budget process is that the main outlines of budgetary policy are agreed at the start of each government s term of office. These agreements are included in the Global Agreement on Government policy of coalition agreement. In the trend-based budgetary policy adopted by the government, the expenditure framework for the whole public sector is at the centre of budgetary policy. That is to say, the maximum levels of realistic spending by the central government, on social security and health care are fixed for the whole term. These maximum levels provide the basis for the specific maximum departmental budgets within which each minister has to work. A number of budget discipline rules have been formulated to keep spending within these maximum spending levels. (see part 1: Budget discipline rules). Budget preparation The presentation of the central government budget and the Budget Memorandum (and the departmental budgets) on Prinsjesdag is preceded by an intensive process of preparation. The preparations for the next Budget Memorandum are initiated at the Ministry of Finance slightly less than a year before Prinsjesdag. The preparation process for the central government budget invariably starts with the Minister of Finance sending out the budget notice and ends with the presentation of the Budget Memorandum on Prinsjesdag. In between a number of stages can be identified. Below we will discuss each stage of the budget preparation process. The description is based on the dates for the 2009 Budget Memorandum. (Their preparation starts in 2007, presentation, proceedings and adoption take place in 2008, implementation takes place in 2009, and auditing and reporting take place in 2010.) < October/November 2007 > Budget notice sent by the Minister of Finance to ministers The Minister of Finance sends a budget notice to the other ministers which contains technical and procedural instructions which the ministers must follow when drawing up their departmental budgets. The budget notice includes procedural instructions, such as when ministers should submit their initial draft budgets to the Minister of Finance, but also economic information which will affect spending levels. The purpose of the budget notice is to ensure that all ministries base their budgets on the same principles. Within the Ministry of Finance a number of directorates are involved in the budget process. Key players within the Ministry of Finance Within the Ministry of Finance the following directorates are closely involved in the budget process: Budget Affairs, Inspectorate of the Budget, General Financial and Economic Policy and General Fiscal Policy. They play a major role in the formulation of the economic and budgetary principles. Budget Affairs also drafts the rules relating to the procedure and the organization of the budget chapters. These directorates are also the primary drafters of the Budget Memorandum. < February/March 2008 > Policy letters sent by ministers to the Minister of Finance The instructions in the budget notice are passed on internally at the ministries. Within the ministries the various directorates prepare their budget proposals. During the preparation the emphasis is increasingly on the substance of policy. That is to say, on questions such as: what is our objective, what will we do to achieve it, and what will it cost? The outcomes of the implementation of the current and previous year s budgets are also taken into account at this point. The requests are submitted to the Financial and Economic Affairs directorate of the ministry in question. They assess the proposals, comment on them and send them on to their ministers and state secretaries. The political leadership sets priorities, decides where more money should be spent, where 20

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24 less, and which policies might merit requests for additional funding. All these matters are laid down in a policy letter which each minister sends to the Minister of Finance. < March/April 2008 > Framework letter sent by the Minister of Finance to ministers Based on the information in the policy letters, the Ministry of Finance prepares an overview of the windfalls and setbacks and of the requests for new policy initiatives. With this overall picture and the latest economic insights (cpb data on economic developments, such as interest rate levels, prices and unemployment) which affect the government budget, the Minister of Finance sets out in the framework letter the possibilities and the problems for the forthcoming budget. This framework letter examines in outline whether cuts will have to be made in one or more of the sectors (i.e. central government, social security and care), or whether there is scope for additional spending, for cuts in taxes and social security contributions, or for improving the budgetary balance. Budgetary letters and budgetary memorandums During the preparation of the budget, and Ministers). Budgetary letters are not public. also during the implementation phase, Budgetary memorandums are external many documents are written. A distinction documents, which the Minister of Finance should be made between budgetary sends to the House of Representatives and letters and budgetary memorandums. Senate on behalf of his or her ministerial Budgetary letters, such as the framework colleagues. These documents are public and letter and the aggregates letter, are internal provide information on the government s documents sent by the Minister of Finance financial and economic policies. The to ministerial colleagues. These include best-known example of a budgetary the proposals and information required to memorandum is the Budget Memorandum prepare the decisions on the draft budgets published in September. by the government (in the Council of < April/May 2008 > Decisions on the main outlines of the budget and the aggregates letter In April the ministers discuss the framework letter in the Council of Ministers. This means that ministers now look together at the expenditure side and the income side of the budget: where additional funding requests have been made, how problems are solved, and which new policy initiatives are politically feasible. It usually takes several meetings to agree upon the main outlines of the objectives, spending en revenue levels. The decision making process in the spring is key period in the budget preparation process. The decisions taken on the basis of the framework letter also yield a budget total for each ministry. The Minister of Finance informs the other ministers of these totals in the aggregates letter which has been sent to them in May. The aggregates letter contains a summary of the decisions taken on the basis of the framework letter and, as its name suggests, sets the total budget by ministry for the coming budget year. It thus sets the maximum limits for the departmental budgets. < mid June 2008 > Submission of ministries initial draft budgets to the Ministry of Finance Mid June the ministers submit initial draft budgets to the Ministry of Finance. Since the Minister of Finance has first responsibility for general budgetary policy, the individual departmental budgets are submitted to and assessed by the Ministry of Finance. Inspectorate of the Budget (irf) staff examine whether the initial draft budgets comply with relevant agreements (as laid down in, for instance, the coalition agreement, the budget notice and the aggregates letter). Attention is also paid to the notes to the budget sections, to the explanatory memorandum which is included with each bill submitted to parliament. The irf decides whether the ministry in question has set out its objectives clearly, what it plans to do to achieve them, and how much money will be spent on each objective. Intensive consultations on these aspects take 23

25 place at civil servant level in June and July. Any unresolved issues are referred upwards, if necessary up to ministerial and state secretarial level. The consultations on the initial draft budgets can result in changes in the aggregates letter. The Minister of Finance submits these changes to the Council of Ministers. < June/July months of 2008 > From initial drafts to draft budgets and the Budget Memorandum During the summer months the ministries further revise their draft budgets. At the same time the Ministry of Finance is drawing up the Budget Memorandum, which sets out the main outlines of financial and economic policy and discusses national and international economic developments. < August 2008 > Final decisions on the budget by the Council of Ministers In August the final decisions are taken on the central government budget. Up to the summer, provisional figures have been used. In August the cpb publishes the latest economic figures in its Macro-Economic Outlook. The final touches can be put to the draft budgets and the budget memorandum. The Council of Ministers discusses these figures and the final decisions and then formally approves, the Budget Memorandum and the departmental budgets. < by 1 September 2008 > Submission of the central government budget and Budget Memorandum to the Council of State for an advisory opinion The final budget proposals which are submitted by the ministers to the Minister of Finance. These proposals and the Budget Memorandum are sent to the Council of State by 1 September for an advisory opinion. The Council of State advises the government and parliament on legislation and administrative matters. The Council of State gives its advisory opinion in the first week of September. < early September 2008 > Response by ministers to the Council of State s advisory opinion The ministers draft responses to the advisory opinion given by the Council of State. By now the printing presses are running at full speed to ensure that the central government budget and the Budget Memorandum are available by Prinsjesdag. Staff of the Ministry of Finance and other ministries check the proofs, add the latest figures and make some last-minutes changes to the text on the basis of the Council of State s advisory opinion. Budget presentation < The third Tuesday in September 2008 > On Prinsjesdag the results of all the preparatory work are brought into the public domain. First the Queen delivers the Queen s Speech in the Ridderzaal, and then the Minister of Finance takes a special briefcase to the House of Representatives to present, on behalf of the government, the central government budget and the Budget Memorandum for the coming year. These documents are now public. The presentation of the central government budget and the Budget Memorandum on Prinsjesdag concludes the preparatory stage and marks the start of the budget proceedings stage. Budget proceedings and adoption < September/October 2008 > General political and financials consideration The parliamentary debate on the central government budget and the Budget Memorandum starts on the day after Prinsjesdag. The main outlines are discussed in the House of Representatives. During these debates the Prime Minister speaks on behalf of the government. The Minister of Finance takes part in the budget debate in October, which deals with financial and economic policies in greater detail. 24

26 < November/December 2008 > Budget proceedings In November and December the budget proceedings take place in the House of Representatives and the Senate. The individual departmental budgets are considered first in correspondence and then in debate on the floor. The correspondence for each ministry consists of a written reply to a list of questions from members of parliament about the departmental budget. During the debate in the House of Representatives, amendments can be proposed to the budget. A member of parliament can submit an amendment or a motion. An amendment is a direct change in the bill, which must be voted on by the House. A motion is a request to the responsible Minister to change the budget or a policy. If an amendment entails an increase in spending, it is an unwritten rule that the House of Representatives also stipulates where the money should come from. The proceedings in the House of Representatives are concluded by voting on the amendments and on the budget bill as a whole. Once approved by the House of Representatives, the budget bill, amended or otherwise, is sent to the Senate. The Senate cannot make any changes to the bill; it can only approve or reject it. Only when both houses of Parliament have passed the Budget Act can the government start spending money. The legislators thus have the final say on how public funds are spent. 25

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28 Budget implementation Once the budget has been approved, policy is implemented and funds are disbursed. Budget implementation is closely monitored at each ministry by its Financial and Economic Affairs (fez) directorate. The implementation of the budget is monitored not only by the ministries themselves but also by the House of Representatives. This is kept informed of budget implementation through budgetary memorandums, such as the Spring Memorandum and the Autumn Memorandum. < From January every month 2009 > Monthly statements sent by the ministries to the Ministry of Finance The departmental Financial and Economic Affairs directorates keep track of spending and send details electronically every month to the Ministry of Finance. With the help of these monthly statements the Ministry monitors the implementation of the budgets. It can thus spot overspends at an early stage. Sometimes it becomes apparent that implementation of some budget items will require more funds. In principle a Minister has to absorb or resolve any setbacks or overspending within the departmental budget. That is what the budgetary rules prescribe. Sometimes additional savings are required elsewhere as well. Such changes in the adopted budget are proposed by ministries in supplementary budgets, and these follow the usual legislative path. The departmental monthly statements yield information for drafting budgetary memorandums (such as the Spring Memorandum and the Autumn Memorandum) on budget implementation which the Minister of Finance sends to the House of Representatives and Senate. The supplementary budgets are presented to the House of Representatives at the same time as the Spring Memorandum or the Autumn Memorandum. < May 2009 > Spring Memorandum to the House of Representatives and Senate The first budgetary memorandum on the implementation of the budget is the Spring Memorandum. This appears half way through the current budget year, by 1 June at the latest. The Spring Memorandum outlines the state of affairs concerning the current budget, and may contain proposals for necessary changes on the expenditure and/or the income side. The budget on which the Spring Memorandum reports is based on assumptions and information from the previous year. But time goes on, and many aspects have probably unfolded rather differently than assumed. The Spring Memorandum therefore often contains extensive policy changes, and in practice it is the most important report on the implementation of the central government budget. What is more, the outcomes in the Spring Memorandum also affect the government s decision making on the coming year s budget. < September 2009 > Budget Memorandum to the House of Representatives and Senate The Budget Memorandum is the second report sent by the government to the House of Representatives and Senate. These includes not only the budget plans for the coming year (2010), but it also provides information on the current budget (in this case the 2009 budget). The information in the Budget Memorandum on the current budget is known as the projected outcomes, and these set out the changes since the Spring Memorandum. < November/December 2009 > Autumn Memorandum to the House of Representatives and Senate The Autumn Memorandum is the final report sent to the House of Representatives and Senate during the budget year. This examines the implementation of the budget since the publication of the Budget Memorandum. If there are any setbacks, windfalls or policy changes, this will lead to the presentation of supplementary budgets, as may also happen at the time of the Spring Memorandum. 27

29 Budget auditing and reporting The implementation of the budget is also checked with hindsight, after the end of the budget year. Each ministry has its own audit department. The Audit and Supervision Policy directorate of the Ministry of Finance supervises and coordinates the departmental audits. In addition the Netherlands Court of Audit and the parliament also carry out audits. Audits examine whether the departmental spending actually contributed to the realization of the various policy objectives ( efficacy of expenditure ). More interesting from a policy perspective is the question whether the ministry achieved what it set out to achieve with the funds allocated to it and whether it delivered on its promises. < February 2010 > Provisional accounts to the House of Representatives and Senate This budgetary memorandum, published two months after the end of the budget year, gives the provisional outcomes for that year. < 15 March 2010 > Annual report and auditor s reports sent by ministers to the Minister of Finance After the end of the budget year each ministry prepares its annual report, or the financial accounts as it was called in the past. The annual report is the mirror image of the budget. It examines per budget programme to what extent the policy objective was achieved, what performances were provided, what activities were undertaken, and what they all cost. In the accompanying auditor s report the ministry s audit department gives an opinion on the annual report and on the ministry s performance over the previous budget year. The ministries must send their annual reports and their auditor s reports to the Ministry of Finance by 15 March of the year following the budget year under review. A final budget bill must be submitted for each annual report. < 31 March 2010 > Annual reports sent by the Minister of Finance to the Court of Audit Following a discussion of the annual reports in the Council of Ministers in late March, the Minister of Finance sends the annual reports and the auditor s reports to the Court of Audit by 31 March. And by 21 April the Minister of Finance sends the Central Government Annual Financial Report and the Ministry of Finance audit department s findings to the Court of Audit. Just as the Budget Memorandum looks ahead to the budgetary policy for the coming year, the Central Government Annual Financial Report looks back to the budgetary policy during the previous year and reviews developments and outcomes with regard to the expenditure frameworks, the budget balance (i.e. the deficit or surplus on the central government budget) and the national debt. This report also includes an assessment of the government s income and expenditure accounts. This must be approved by the Court of Audit before it can be presented to the House of Representatives and Senate. < third Wednesday in May 2010 > Presentation of the Central Government Annual Financial Report and the ministries annual reports to the House of Representatives and Senate The Court of Audit, which audits the various reports on behalf of the House of Representatives and Senate, sets out its findings on each ministry s annual report. Subject to the adoption of the final budget bills, the Court of Audit issues an unqualified audit opinion for the Central Government Annual Financial Report. The Court of Audit sends the various reports and its auditor s opinion to the House of Representatives and Senate and the responsible ministers before the third Wednesday in May. The Minister of Finance presents the Central Government Annual Financial Report and the ministries annual reports to the House of Representatives on the third Wednesday in May. Since 2000 this has been done with a special briefcase, mirroring the presentation of the central government budget and the Budget Memorandum on the third Tuesday in September. (The auditor s reports and final budget bills are also sent to the House of Representatives on the third Wednesday in May.) 28

30 <May/ June 2010 > Accountability and Discharge On the basis of the ministries annual reports and the Court of Audit reports, the House of Representatives in the early weeks of June discusses with the individual ministers the policies conducted by them. This is rounded off with a general debate. On the basis of the annual reports the House of Representatives and the Senate may discharge the ministers from liability for the financial and other policies conducted. This only takes effect, however, with the adoption of the final budget bill covering the annual report in question. This completes the budget cycle! 29

31 Further information For further and topical information on the public finances, budgetary policy, the budget process, the European aspects of budgetary policy, as well as all other aspects of fiscal and monetary affairs, please visit the Ministry of Finance s website: The Ministry of Finance publishes several background documents on its various policy areas, such as a summary of the Budget Memorandum You can order these publications and additional copies of this brochure from the Ministry of Finance s website, or by calling (within the Netherlands) the Postbus 51 information line, (free), which is open from hours on weekdays. If you have any general questions for the government, you can call (within the Netherlands) the Postbus 51 information line, (free), which is open from hours on weekdays. 30

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33 Colophon This brochure provides general information on budgetary policy and the budget process in the Netherlands. No rights can be derived from the text of this brochure. Ministry of Finance Information Directorate po box ee Den Haag Netherlands Print run 5,000 October okt2007br Design Studio Tint, The Hague Photography Kelle Schouten, Stompwijk Printing Drukkerij van Deventer, s-gravenzande

34 Budget calendar for the 2009 budget This fold-out offers an overview of the whole budget cycle for the 2009 central government budget. This includes preparation (started in 2007), presentation (on the third Tuesday in September 2008), proceedings in parliament (late 2008), implementation (in 2009), auditing and reporting (during the budget implementation in 2009 and on the third Wednesday in May 2010).

35 Budget calendar 2009 Term Ministries Ministry of Finance Council of Ministers Parliament Budget preparation October/ November 2007 Budget notice with instructions sent to ministers February/ March 2008 Policy letters sent to the Minister of Finance March/April 2008 Framework letter sent to ministers April 2008 Decisions on main outlines of central government budget based on framework letter April/May 2008 Aggregates letter sent to ministers Mid June 2008 Initial draft budgets based on aggregates letter sent to Minister of Finance June/July 2008 Consultations with Ministry of Finance on initial draft budgets Consultations with ministries on initial draft budgets Decisions based on outcome of consultations (with possible changes from aggregates letter) June/July 2008 Initial draft budgets revised Budget Memorandum drawn up August 2008 Final decisions on central government budget By 1 September 2008 Final budget proposals sent to Ministry of Finance Central government budget and Budget Memorandum sent to Council of State for advisory opinion Early September 2008 Response on the basis of Council of State s advisory opinion Response on the basis of Council of State s advisory opinion Budget presentation and proceedings Third Tuesday in September 2008 Presentation of 2009 central government budget and Budget Memorandum to the House of Representatives September/ October 2008 November/ December 2008 Parliamentary debates on the Queen s Speech and the budget Proceedings on individual budget proposals Budget implementation and controle From 1 January 2009 Monthly statements May 2009 Third Tuesday in September 2009 November/ December 2009 Spring Memorandum sent to House of Representatives and Senate Budget Memorandum 2010 sent to House of Representatives and Senate Autumn Memorandum sent to House of Representatives and Senate Budget auditing and reporting February 2010 Provisional accounts sent to House of Representatives and Senate 15 March 2010 Annual reports, auditor s reports and final budget bills Late March 2010 Discussion of annual reports Third Wednesday in May 2010 Central Government Annual Financial Report May/June 2010 Proceedings on final budget bills

36 Ministry of Finance Information Directorate po box ee Den Haag Netherlands