The New Italian Accounting and Public Finance Bill

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The New Italian Accounting and Public Finance
Bill
International Association of Treasury Services
(AIST)

• Emilia SCAFURI
• Andrea VASSALLO

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Preliminary remarks
Why a reform of the Accounting and Public Finance
Bill ?

• to improve budgetary control
• to coordinate fiscal policies across levels of
  government
• to increase transparency in budget allocations
• to increase focus on performance and results of
  public spending programs.

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Preliminary remarks
Present stage of the reform

• The Accounting and Public Finance bill was
  presented last February to the Parliament. At the
  moment it is being discussed at the Senate after
  being approved by the Chamber of Deputies. It
  should be definitely approved within the end of
  this year.
• It will replace the 1978 law (No. 486) and
  consolidate the changes introduced ever since and
  more recently, including amendments to the Title
  V of Constitution concerning fiscal federalism.
• This bill marks a decisive step in modernizing
  Italys public financial management and bringing
  it more in line with best practices and main
  recommendations of international organization
  (IFM, OECD , European Commission).

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Main innovations of the reform
Agenda

• Coordination of public finance
• Medium-term fiscal planning framework
• State Budget Structure
• Performance budgeting and spending review
• Cash-based accounting system for State Budget

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• Coordination of public finance

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1. Coordination of public finance

• The bill covers all General Government entities
  identified according to the ESA 95 definition of
  intuitional Units, broken down in three main
  sectors
• Central government 178 entities (Ministries,
  Constitutional and Independent bodies, Agencies
  and central research institutions).
• Local Government 9.773 entities Regions (22),
  Provinces (104), Municipalities (8.101),
  Universities and local health agencies, Hospitals
  and research institutions (608)
• Social Security Funds 27

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1. Coordination of public finance
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1. Coordination of public finance

• Coordination is a main goal because all the
  bodies included in the General Government sector
  must
• contribute to pursue fiscal targets
• share the responsibility for fiscal outturn.
• The coordination is realized with the involvement
  of all levels of government in the process of
  setting fiscal targets in the Public Finance
  Decision.

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1 .Coordination of public finance
Coordination tools/1

• The bill foresees
• the harmonization of accounting and reporting
  practices across different levels of government.
• Particularly it recognizes the need to adopt
• internationally accepted accounting and reporting
  standards (e.g., COFOG and ESA95 economic
  classification),
• the structure of budget for missions and programs
  aligned with functional classification
• unitary and integrated chart of accounts for all
  government entities

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1. Coordination of public finance
Coordination tools/2

• the creation of an unitary database for all
  levels of government budgets and final accounts
  in order to timely monitor developments in
  public finance during the year and to consolidate
  accounts among entities
• the coordination of fiscal policies across levels
  of government through the Domestic Stability
  Pact. It is a regulatory framework to implement
  measures needed to meet fiscal targets decided in
  the Medium-term fiscal document (Public Finance
  Decision). The measures allow to reach targets
  set in the EU Stability Growth Pact and represent
  the contribution to the final results given by
  the lower levels of government.

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• Medium-term fiscal planning framework

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2. Medium term fiscal planning

• The Medium term fiscal document (Public Finance
  Decision), presents the medium-term projections
  for the base-line and planned scenario.
• It identifies the public finance adjustment
  required to achieve the results for the period
  covered by the three-year budget.
• Relevant changes in the Public Finance Decision
• presentation time is moved from June to September
  in order to get a more precise value for
  base-line macroeconomic and fiscal scenario. In
  September are available assessed data based on
  nine month outturn.
• fiscal targets are broken-down by levels of
  governments and set in agreement with Local
  authorities
• more detailed and transparent content in line
  with standards required by the EU Stability
  Program. It reports output gap analysis,
  structural budget indicators, one- off measures.

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2. Medium term fiscal planning

• In accordance with the criteria and parameters
  established by the Public Finance decision, the
  Government subsequently draws up
• the annual and three year draft Budget based on
  current legislation
• the Stability Law, containing the manoeuvre,
  indicates the measures required to meet the
  targets for each of the years covered by the
  budget .

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2. Medium term fiscal planning
By 15 September
Public Finance Decision (DFP)
Within 30 November
Update of the Stability Program
Parliament
By 15 October
Stability Law
By 15 October
Annual Budget
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• State Budget Structure

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3. State Budget Structure

• Key points
• Transparency
• Medium-term expenditure frameworks
• Flexibility

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3. State Budget Structure
Trasparency/1

• The structure (missions and programs) recently
  introduced (2008) is now definitive
• 34 missions, representing the main functions
  carried out by the State through public
  expenditure, such as Justice, Health, Defense,
  Education, etc. (with a long term perspective)
• 168 programs, representing activities needed to
  reach mission targets
• The reform
• allows a more direct link between available
  resources and policy targets
• makes more transparent the allocation of
  resources in the budget (what is the spending
  for), abandoning the administration
  classification of the budget items (who does the
  spending).

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3. State Budget Structure
Trasparency/2

• Before the reform, the voted budget was
  excessively fragmented (700 line items), with no
  clear relations to the objectives of public
  spending.
• The budget is now voted by Parliament along more
  aggregate line items (168 programs), encouraging
  discussions focused on policy priorities.

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3. State Budget Structure
Ministry
Mission Program Budget Structure
DECISION-MAKING LEVEL AFTER REFORM
Mission
Public policies
Program
N. 34
Macro-aggregate Unità Previsionale di
Base (Funzionamento,interventi, investimenti,..)
DECISION-MAKING LEVEL BEFORE REFORM
N. 168
Type of expenditure
N. 700
Responsable center
Adminsitrative structure
N. 154
Chapters
Program management
N. 6.418
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3. State Budget Structure

• The medium-term orientation of the budget is
  strengthened. The three year budget base line
  projections are more reliable because are based
  on proposals of line Ministries.
• New criteria for expenditure ceilings will be set
  with subsequent legislation. Expenditure
  ceilings, established by the Public Finance
  Decision and adopted with the budget law, will be
  coherent with the three year planning of
  resources.

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3. State Budget Structure
Flexibility/1

• At present the majority of budget spending is
  mandatory and governed by rigid laws. These
  leaves marginal room to resource allocations
  without new spending legislations.
• The reform reduces these rigidities giving the
  possibility to reallocate spending in response to
  changing needs during budget preparation. It
  allows to reallocate funds between programs
  within each mission.

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3. State Budget Structure
Flexibility/2

• The reform divides the budget items in two main
  categories on the basis of their different level
  of flexibility
• nonadjustable has to do with mandatory charges
  (oneri inderogabili) where the government has
  pre-exiting obligations, including pensions,
  wages, salaries, interests, repayments of loans.
• adjustable has to do with legislated
  expenditures where specific activities are
  encumbered by existing legislative prescriptions
  that specify exact spending requirements and with
  discretionary charges .
• Flexibility during budget execution is allowed to
  managers only for discretionary charges.

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4. Performance budgeting and spending review
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4. Performance budgeting and spending review

• The bill emphasizes the importance of performance
  measurement to accompany the State budget and the
  Final Statement of Accounts.

• Preliminary notes to Budget Law
• Objectives, targets and indicators
• the objectives associated to each spending
  program
• a description of the activities and the targets
• operational and strategic indicators

• Preliminary Notes to Final Statements of Accounts
• Objectives, targets and indicators
• the results obtained during the year according to
  the selected indicators,
• motivations for discrepancies between observed
  results and target values

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4. Performance budgeting and spending review

• A specific section of the bill regards the
  implementation of
• a permanent process of expenditure analysis
  (spending reviews) carried out on regular basis
  by a special unit in each line Ministry, with the
  participation of a Ministry of economy and
  finance representative. The process is finalized
  to integrate performance based result into budget
  preparation and to identify program to be
  eliminated, expanded and re-designed.
• a three year comprehensive spending reviews
  report prepared by the Ministry of economy and
  finance, submitted to Parliament. The Report
  includes an assessment of the major results of
  the permanent reviews analysis, indicates
  inefficient areas and illustrates the necessary
  actions to improve efficiency and efficacy of
  public expenditure.

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• Cash-based accounting system for State Budget

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5. Cash-based accounting system for State Budget
The reform bill provides for a gradually abandon
of the appropriations on commitment-based
accounting system in order to adopt only a
pure-cash accounting criterion in budget
preparation, approval, execution control and
audit. At present State budget appropriations
are compiled both on a juridical commitments
basis (revenue assessments and expenditure
commitments) and on a cash basis (receipts and
payments). The juridical commitment-based system
is responsible for the creations of carry
forwards which could make the budget items less
transparent and accountable.
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5. Cash-based accounting system for State Budget

• The transition from present accounting system to
  cash accounting have to be planned and managed
  carefully.
• The reform foresees
• a two years trial period with some pilot
  Ministries
• a full implementation at the end of the trial
  period, trough subsequent legislation
• a list of legal obligations (registro degli
  impegni) assumed to monitor and report
  commitments, especially for capital expenditures
• an annex to State budget, reporting
  commitment-based appropriations in order to
  preserve information suitable for ESA 95
  accounting

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Thank you for attention
International Association of Treasury Services
(AIST)

• Emilia SCAFURI
• emilia.scafuri_at_tesoro.it
• Andrea VASSALLO
• andrea.vassallo_at_tesoro.it