This presentation by Jon Blondal, OECD, was made at the 35th Meeting of Senior Budget Officials held in Berlin on 12-13 June 2014. Find more information at http://www.oecd.org/gov/budgeting/35thannualmeetingofoecdseniorbudgetofficialssboberlingermany12-13june2014.htm

1. Budgeting in Germany
Jón Ragnar Blöndal
Head of Budgeting and Public Expenditures
Organisation for Economic Cooperation and Development
35th Annual Meeting of Senior Budget Officials
Berlin, 12 June 2014

2. To Begin …
• Germany has achieved an enviable fiscal performance in
recent years
• Surprisingly little literature and research is available on the
German budget process internationally
• Our conclusion: The German budget process is robust and
encompasses all elements of modern budgeting with
significant reforms being implemented in recent years

3. Agenda
• Fiscal Rule: “The Debt Brake”
• MTEF: “The Financial Plan”
• Top-Down: “The Benchmark Decision”
• Fiscal Relations with the Länder
• Role of Parliament
• Role of Independent Expert Bodies
• Role of the Audit Office

4. Fiscal Rule: “The Debt Brake”
• Mandates balanced budgets over the economic cycle
– Since 2009, the bedrock of German budgeting
– Enshrined in the Constitution
– Enjoys universal political support and respect
– Defined as 0,35% of GDP maximum deficit for Federal level; allowance for
emergencies
– Replaced the “Golden Rule”
• “Control Account”
– Notional account
– Debit when limit on net borrowing is exceeded
– Credit when limit on net borrowing is below threshold
• Encompasses all levels of government, not just the Federal level

5. MTEF: “The Financial Plan”
• Main Characteristics
– Introduced in 1969, but has evolved into a genuine medium-term
expenditure framework.
– Formally a “five-year plan,” but three true out-years.
– Rolling in nature – with each budget a new out-year is added.
– Maintained internally at same level of detail as budget and updated to
reflect each decision with a fiscal impact.
– Submitted to Parliament along with budget, but in summary form.
– Not enacted into legislation, but reflects political commitment.
– Not binding per se but reflects “opening position” for next year’s budget
• Key Role vis-a-vis “Debt Brake”
– Operationalizes the “Debt Brake” by showing level of fiscal effort
required to comply with its terms

6. Top-Down Budgeting:
“The Benchmark Decision”
• Most recent reform.
• Further reinforces the operation of the Debt Brake.
• Starting point: the MTEF/Financial Plan.
• Provides opportunity for political input and prioritization.
• Aggregate lump sum ceilings agreed by Cabinet, essentially on
a ministry by ministry level.
• Detailed allocations are settled within these ceilings.
• Spending ministries granted maximum flexibility in
reallocation during this phase.
• A work in progress:
– Ministry of Finance and spending ministries adjusting to new roles
– Evaluations and spending reviews in early stages
– Few but large ministries; should promote internal re-allocations

7. Fiscal Relations with the Länder
• Reconciling principles of autonomy and joint responsibility
– Constitutionally sovereign
– Debt Brake applies to the Länder as well
• Role of Stability Council
– Regular monitoring of budgets
– “Budgetary Emergency” and “Budgetary Rehabilitation Procedure”
– No formal enforcement powers
• Länder must comply with Debt Brake by 2020
– Budgetary positions quite heterogeneous
– Five Länder receive multi-year assistance in order to achieve this goal
– Constitutional Court rejected special assistance to Berlin

8. Role of Parliament
• A fiscal watchdog
– Budget typically emerges with lower deficits after
parliamentary treatment
• No specific restrictions on the role of Parliament
• Budget Committee
– 40 Members; Chair from Opposition
– 5 Members focus on scrutinizing specific ministries for the
duration of a parliamentary session (Rapporteur system)
• Qualified Freeze
– “Yes, but”
• Parliamentary budget office ?

9. Role of Independent Expert Bodies
• Germany has a rich history of using independent expert
bodies in the budget process.
• Council of Economic Experts (“Five Wise Men”)
– Distinguished academics
– High-profile annual report
– Originally recommended a version of the Debt Brake
• Joint Economic Forecast
– Consortium of research institutions
– Proposes the economic assumptions

10. Role of Audit Office
in the Budget Process
• Participates in the discussions between the budget office
and line ministries on budget bids to ensure that the
results of audit findings are known in the respective areas.
• Supports the Budget Committee in its deliberations in
Parliament.
– Parliament’s Audit Committee is a sub-committee of the Budget
Committee

11. To Close …
• Our conclusion: The German budget process is
robust and encompasses all elements of
modern budgeting with significant reforms
being implemented in recent years