IN PRAISE OF THE BUDGET

"In sum, no society, no union in life, could be either pleasant or lasting without me” — these words were spoken by the eponymous character ‘Folly’ created by Erasmus of Rotterdam in his work ‘In Praise of Folly’. In the 21st century, these words may be applied to budgets that unite people. Indeed, we all contribute to the state budget together, and make decisions on what to spend it on, as well as how to account for it. But is this union lasting? Or pleasant?

At the Centre for Civil Education in Vilnius, visitors come across Erasmus of Rotterdam in the context of an exhibition about the budget. More than 500 years ago, his authority was greater than that of the then Pope’s. As one of the first fighters against corruption, his voice called for reforms and public good in Europe. In 1509, in a flash of inspiration over a period of seven days spent in England at the home of Thomas More, he wrote the satire ‘In Praise of Folly’, in which he allowed his creation — the character Folly — to praise herself in person. He used an unusual literary form to evoke his readers’ critical thinking. The book was a bestseller at the time. However, several decades after his death, the ‘powers that be’ lost their patience and banned all of his writing. This should come as no surprise, as Erasmus’ idea of public good, as he would have put it, affected their ability to line their own pockets.

Can Erasmus inspire us today when we consider matters concerning our main communal pocket — the state budget. The budget is like a pasture of public good where everybody wishes to graze. Erasmus acknowledged this when writing: “In brief, go whither you will, among prelates, princes, judges, magistrates, friends, enemies, from highest to lowest, and you’ll find all things done by money”. The word ‘budget’ is enchanting; upon the mere mention of it, the pockets of many of us are filled with expectant hope. However, hopes are often broken by the perpetual problem of common resources and the tragedy of the commons. Paraphrasing Erasmus in ‘The Complaint of Peace’ (Querela Pacis) written 500 years ago, one could say that if everyone solely serves their own personal wishes, this will be harmful to society. Therefore, no one will manage to achieve their intended goals. Well-known people and the state authorities should judge everything in the public interest.

Photo: Olga Posa?kova

It is a pity that it was only as recently as 50 years ago that economists started to analyse this phenomenon more deeply. The American scientist and philosopher Garret Hardin analysed the example of pastures commonly used by herders in England: a common shared pasture heads toward inevitable ruin because of the individual actions of the self-interested herders. Since each herder’s incentive is to gain the utmost individual benefit, this leads to the destruction of the pasture. Freedom in a commons brings destruction to all. The concept of the tragedy of the commons could be transferred to both regional and global levels.

This tragedy also affects the budget, which is an agreement and a contract between a citizen and the state. The state budget is also the main political document of the state authorities, making plans and future aspirations a new reality. If the budget could talk, it could speak of itself in Erasmus’ words: “Briefly, no society, no association of people in this world can be happy or last long without my help”. The state budget is therefore the cornerstone of mutual trust between the state and its citizens. The conclusions of the work carried out over the last decade or so by the Organisation for Economic Cooperation and Development (OECD) Working Party of Senior Budget Officials were published in 2015 in the ‘Principles of Budgetary Governance’[1], revealing which budgets would deserve praise.

First of all, a praiseworthy budget is managed in line with a clear, reliable, and predictable fiscal policy. Erasmus stated that,“Princes do not love to hear the truth, and therefore wise men must be very cautious how they behave themselves before them, lest they should not take too great a liberty in talking what is true, rather than what is acceptable”. Every year, when considering what the state budget should be, we inevitably return to the term ‘reserves’. Those who like to regard themselves as being educated are not afraid to consider complicated concepts as ‘pro-cyclical policy’ or ‘fiscal space’. However, it is possible to look at things more simply. Take Denmark — in good times, it accumulates its reserves for a rainy day; which is a sustainable and stable approach. Even boring! Meanwhile, the Lithuanian budget has seen a lot during its lifetime; for instance, during the period between 2004-2008, it was particularly overstretched and torn by different macroeconomic balances. The budget at that period was happy to turn cyclical revenue into long-term liabilities. At the end of the “party”, it woke up subdued, indebted, and supported only by increased taxes.

TWO SISTERS CANNOT COME TOGETHER BECAUSE OF A HILL - LITHUANIAN RIDDLE ABOUT EYES / General government structural balance (in percent) / Denmark / Lithuania / Source: www.signals.lt / Illustration from the Lithuanian IQ Magazine: https://bit.ly/2Y0sewO

One more feature of a praiseworthy budget is orientation towards results and strategic goals. Money means influence. And so the budget is also influential. For instance, in Austria, for every single budgetary allocation in excess of the €100,000 threshold, decision-makers assess the likely impact on: the environment, gender equality, consumers, children, young people, as well as its administrative burden and whether it is in line with the strategic goals and priorities.

In Lithuania, the term ‘impact assessment’ is banded around at every opportunity as if it is somehow inherently sophisticated. It is not only carried out when money is distributed — the impact of every adopted legal act is measured. In our country, there is an obligation to carry out an assessment on how the proposed changes are likely to affect business conditions and development, what impact it will have on the criminogenic situation, and on corruption. It is also necessary to provide information on the costs of the implementation of the law in question. Additionally, of paramount importance is whether or not the legal act has been prepared in line with the requirements of the state language of the Republic of Lithuania. Erasmus would probably sigh — “We have as many grammars as grammarians”, acknowledging that “…even grammar alone is work enough for any man for his whole life”.

The difficulty in Lithuania is that, in theory, a comprehensive impact assessment could be provided, along with at least several other alternatives and a cost-benefit analysis; however, there is no criterion expressed in monetary terms that could serve as the basis for deciding whether or not it is necessary to carry out an impact assessment of the adopted legal regulation. In Lithuania we have the following criterion: a comprehensive assessment must be carried out when hitherto unregulated matters are becoming subject to new legislation or when essential changes are made to existing legal regulations. This therefore meant that it was not necessary to conduct an impact assessment for the legal regulation of the structural tax reform adopted in Lithuania in 2018, because it was not a “new” regulation. This is in spite of the fact that the planned changes are associated with €500 million, rather than with €100,000.

It is also true that in Austria an IT system automatically calculates the impact of decisions related to the budget. Austrians boast that there is almost no need to work at all — lucky them with those systems! In Lithuania we have only just (perhaps for the fifth time since regaining independence) come to an agreement regarding who, in principle, will be responsible for the IT policy.

Photo: Olga Posa?kova

Other notable features of a praiseworthy budget are openness, transparency, and the accessibility of its data. The budget can provide direction; it is like a mirror. For example, we most often agree that in practically every area, preventive measures have a greater effect than investing in the correction of errors or remedial fixes to unwanted situations. This can be reflected in the so-called CITIZENS’ BUDGET. Simply talking about increasing resources in a given area should not be considered transparent and open without providing the general context, or explaining the way the allocation will affect other sectors in which citizens also work. You might have heard about the shareholders of a private company who, within just half an hour, made the decision to open a new factory but then spent two hours considering whether it would be worthwhile buying a coffee machine! Does the same not happen with our state budget?

Billions have already been allocated to Lithuania's growth and the formation of a favourable economic environment. Have we invested this money in an efficient manner? Invested or absorbed it? Where do the rivers of this money flow? In our present reality, it is no longer enough for citizens to live in a well-maintained environment, to enjoy a central city square or pavement with a cycle path leading to a cemetery — citizens now need self-realisation. This is why The World Bank, IMF, and OECD all urge us to develop a simple, understandable CITIZENS’ BUDGET to enable people to understand what rivers flow and where. Erasmus, however, liked the ancient Greek tragedian Sophocles’ saying, “Not knowing anything is the sweetest life”. Ignorance, indeed, may be bliss.

The next feature of a praiseworthy budget is the integrity and quality of its implementation. It is important to consider budgetary accountability. Erasmus drew attention to the fact that “…nothing is more trifling than to treat of serious matters triflingly, so nothing carries a better grace than so to discourse of trifles as a man may seem to have intended them least”. For the Dutch, for instance, everything is clear with accountability; every year on the third Wednesday in May ‘Accountability Day’ is held. Their annual reports account not only for how much money has been spent and on what; the specific goals that were envisioned and to what degree they have been achieved in the past year are also discussed.

QUICKLY AND CLEARLY - DEADLINES FOR ACCOUNTABILITY IN LITHUANIA AND THE NETHERLANDS: Government Performance Report (March) / Accountability Day (the third Wednesday in May) / Financial Statements (October) / Source: www.signals.lt / Illustration from the Lithuanian IQ Magazine: https://bit.ly/2Y0sewO

Lithuania is even more interesting in this respect: reporting on performance and on money spent (i.e. budgetary spending) are carried out separately — as if there were two different Lithuanias. Thus, performance is accounted for in March, whereas financial statements don’t reach the Parliament until October — at the same time as the draft budget for the next year. Therefore, there is no possibility for budgetary decision-making to take into account the most up-to-date information about the country’s public finances. Erasmus listens and shakes his head: “I know not […] how he could have the key of knowledge that had no knowledge himself”. Such a separation of accountability has no parallel either in the private sector or international practice. To confuse citizens even more, we fund social services from health insurance, and state liabilities from social services, and return back to health care when it comes to state property. Do you think it is necessary to get rid of that confusion? Why? It is obvious to everyone that there is too little money in the budget but taxes are too high.

We should ask how it is possible to learn whether the country is wealthier or poorer compared to the previous year. Only the sets of national financial statements can show the true and fair view of the country’s financial state. Since 2010, the whole public sector introduced accounting methods according to new standards based on accrual accounting. Several years ago, the accounting maturity of the 28 EU Member States was evaluated. Lithuania was the fourth! What is there left to do? We have to agree the deadlines for the submission of accountability reports in order to have the sets of financial statements ready when considering the next year’s budget and be able to use them in decision making.

Photo: Olga Posa?kova

Let us listen. Let us hear. Let us act. The Budget sends signals with numbers. Auditors speak about millions of euros, even billions. So why is it that stories about thousands receive more attention in the public arena? It is because, together, we are making the first highly moral and natural step. We place value on morals and can expect public outcry to ensue when trust is broken, even when cases involving the inefficient usage of public funds actually only amount to a few thousand euros or less. However, when facing really big numbers, we lose our courage. Our eyes cannot see where to mark those millions and billions on our moral ruler... Erasmus nods sadly that “it is a lesser crime to kill a thousand men than to set a stitch on a poor man’s shoe on the Sabbath day”.

I would not be objective if I didn’t acknowledge that the process of change in the budget governance in developed and forward-looking countries has lasted from 20 to 50 years. Should it put us to sleep? Should it console us that in Austria, it took about a decade to come to an agreement concerning the start of the budget governance reform? It appears that it was important for politicians that the dates for the implementation of the reform would not coincide with the dates of their term in office, or as Madame de Pompadour, the lover of King Louis XV of France put it, “Après nous, le déluge” (“After us, the flood”). Speaking frankly, there is a suspicion that politicians regarded the changes in budgetary governance not as a means to assist the state but as a way to punish those who were elected afterwards... Thus, budget governance may remind us of Hans Christian Anderson's short tale “The Emperor's New Clothes” — however, it is not only the Emperor who has no clothes, but all of us.

Through an audit report published at the end of 2016, the Supreme Audit Institution of Lithuania sent out a clear signal concerning the importance of changes in the governance of the state budget. Also, in 2018 a maturity evaluation of the Lithuanian budget governance was carried out. Based on almost 100 public audits, 70 percent of the observations demonstrated that our budget maturity is higher than zero, but it has not yet stepped outside the boundaries of the first level. It is worth pointing out that no country has ever reached the highest — the fourth — level of maturity. Nevertheless, it is not always necessary to compare ourselves with those weaker than us or to maintain that the time has not yet come to act.

What should we start with? First, now is the very time for changes in our culture of debate — we should ask WHY more often than HOW MUCH, and not only speak about the possible implications, but in the first place clarify the reasons why. Second, let us bear in mind that the source of the river of vices and corruption lies within the governance of the budget; therefore, it follows that for the sake of the public good, a CITIZENS’ BUDGET is absolutely necessary. Third, let us get rid of our bad habit of addressing one and the same problem at the same time; we are all guilty of this. Fourth, out of the three variables of price, quality, and speed, it is only ever possible to have two at the same time. Therefore, a budget that is modest in monetary terms could be strong in quality. Fifth, let us learn to say NO. What starts poorly ends poorly; therefore, we are all encouraged to read public audit reports.

Furthermore, Erasmus warned in his work ‘Colloquies’ (Colloquia familiaria) that, “Monks who mind books much are not so obedient, they answer again out of decrees and decretals of Peter and Paul”. On the other hand, knowledge and truth are more frightful than Satan, not only for the authorities but also for some people. It is not for nothing that, “St Bernard interprets that mountain whereon Lucifer had fixed his habitation to be the mountain of knowledge”. The view from the mountain of budget governance knowledge can frighten citizens as it will become clear that the net assets of the state are not as they seemed at the foot of the mountain; it will therefore be necessary to tear out a part of the resources from ourselves and leave it for the citizens of the future. Besides, a CITIZENS’ BUDGET will reveal that it is not only the authorities but also every citizen that has power, and more importantly — responsibility. Maybe it is more attractive to live at the foot of the mountain without having such personal responsibility? According to Erasmus, “each truth has to sail its own waters”.

Not only will smart budget governance make our country more competitive, but it could also form the fundamentals of our national security. Let the words CITIZENS’ BUDGET be uttered more often than CITIZENS’ CLAIMS. Erasmus was categorical: “He that takes the sceptre in his hand should manage the public, not his private interest”; however, in reality we often see the opposite. Let us admit that often we write very smooth template responses to an ordinary citizen’s claim, but we speak about the budget in a rather confusing manner. Most of us engage into emotional debate about the public good; however, in reality we do not actually understand the essence of the agreement between the citizens and the state. In his work ‘The Complaint of Peace’ (Querela Pacis), Erasmus understood this in such a way: it is easiest to conquer those who do not know what the agreement is and then force them to obey.

Photo: Olga Posa?kova

Maybe the first Roman Emperor Augustus Octavianus could awaken us from our bureau-pathological coma? He has been recognised as one of the most noble-minded leaders in the history of mankind and was prepared to sacrifice his throne in favour of the public good. It is assumed that Erasmus of Rotterdam has preserved for humankind the words uttered by the Emperor more than two thousand years ago: “Let my children die if anyone else can better manage and take care of the public good”.

• ECA JOURNAL – AUDIT AND THE NEW EU POLITICAL ENVIRONMENT – "PROCRASTINATION IS THE NIGHTMARE SCENARIO FOR THE EU": https://bit.ly/2RxdML8 / Edition's highlights: ECA Journal Long Read – In praise of the budget - By Arūnas Dulkys, Auditor General, National Audit Office of Lithuania - Page 101: https://bit.ly/30yKOPb

SIGNALS'2018: https://bit.ly/2LhV1eT

IQ: https://bit.ly/2Y0sewO

Medium.com: https://bit.ly/2NVb1SW

[1] https://www.oecd.org/gov/budgeting/principles-budgetary-governance.htm