What is a charter of budget honesty? The case of Australia.

• Author: Chohan, Usman W.
• Position: Feature

It is now nearly 20 years since Australia introduced a prominent piece of legislation known as the Charter of Budget Honesty Act (1998) to improve the transparency and the discipline of its budget process. This article examines the success of the charter, as well as its limitations, in the context of Australian budget process, including an analysis of its most pertinent components, so as to then reflect more broadly on the impact of budget honesty mechanisms for parliaments with a similar structure and history, including Canada.

In our time, most Parliamentary democracies in the world are faced with the question of how to maintain budget discipline, particularly with respect to three overarching concerns: a long-run reliance on deficits; the ability to manage unforeseen economic shocks; and the level of transparency and accountability in the budget process. Following the economic crisis of the past decade, more parliaments are finding themselves debating questions of fiscal discipline and fiscal transparency at ever more frequent intervals. Some legislatures have tried to give a more concrete form to their beliefs in budget discipline and budget transparency by enshrining them into charters or acts.

Among such budget-discipline enshrinements, the one that has gained the most prominence in its local legislative budgeting context is Australia's Charter of Budget Honesty ([Charter], 1998). (1) Since its promulgation, the Charter has come to occupy a central role in the national budget process, creating a system of processes that inter alia involve Parliament, the Treasury, the Department of Finance, and the Parliamentary Budget Office (PBO). The Charter has also initiated a set of rituals which are now considered core aspects of the annual budget, and which much of the Australian public has come to consider standard political and economic practice.

To understand the evolution of such an important document, it is worth quickly visiting the historical context in which the need for such a Charter emerged. Australia has had a long history of fiscal rules at a subnational level: in the 19th century, the Australian colonies passed legislative debt-limits and balanced-budget requirements; and some of those provisions are still in place today. (2) That being said, it was not until the latter half of the 20th century that a significant consensus arose in Australia for budget discipline and transparency at a level underwritten by national fiscal rules. This thinking was in large part inspired by reforms that were pioneered in neighbouring New Zealand, which in 1994 promulgated the Fiscal Responsibility Act that placed explicit importance on improving budget transparency. The intent of New Zealand's law was to consolidate the finances of government (debt and deficit), which had accumulated over the 1980s and 1990s; and the promulgation of the Act should be seen in the context of the movement in most anglophone societies at that time towards reducing the size of government and "rolling back the state". (3)

Both the United Kingdom and Australia drew from these reforms in New Zealand, and by 1998, both countries had enacted some form of law addressing financial discipline and transparency. In the UK, this law was called the Finance Act (1998) which included a Code for Stability of national finances; and in Australia, it was the Charter of Budget Honesty (1998). It can be said that some of the important common factors shared by these laws include: guidelines and guiding principles for fiscal policy; an emphasis on clear statement of fiscal objectives; a fairly demanding set of requirements for reporting fiscal statements to the public; and an emphasis on long-term orientation towards fiscal policy.

At the time that it was instituted, the Charter represented the very best in fiscal policy legislation, both in terms of scope and rigour. The stipulated purpose of the Charter is to provide "to improve fiscal policy outcomes," and it provided for this "by requiring fiscal strategy to be based on principles of sound fiscal management and by facilitating public scrutiny of fiscal policy and performance." In order to meet these outcomes, the Charter was comprised of several important moving parts that were to work in concert to collectively push for fiscal discipline and transparency.

The Moving Parts of the Charter

Within the Charter, the most important documents that collectively give it force as budget legislation include:

* a Fiscal Strategy Statement (FSS)

* a Mid-Year Economic and Fiscal Outlook report (MYEFO)

* a Budget Outcome Report (BOR)

* an Intergenerational Report (IR), and;

* a Pre-Election Fiscal Outlook (PEFO).

Under the Charter, the government outlines its budget...