THE PARLIAMENTARY BUDGET OFFICE - Keynote Address to the CPA Congress 2012

THEPARLIAMENTARY BUDGETOFFICEAN INDEPENDENT ANDNON-PARTISANINSTITUTION OFTHEAUSTRALIANPARLIAMENT

KeynoteAddress to theCPACongress 2012Canberra, 16 November2012

by

MrPhil Bowen PSM FCPAParliamentaryBudgetOfficer

At the outsetIwish to thank CPA Australia for invitingme to give this keynote address. It is averygood opportunityfor me to spread theword about the newly-created ParliamentaryBudgetOffice(PBO).

TodayIwish togiveyouanoverviewofthe roleand functions of thePBO,and explain what theestablishment of thePBO means in practical terms forthe Parliament. Iwill alsotalk brieflyabout how important it is forthe PBO to havetimelyaccess to informationfromCommonwealthdepartments andagencies,often on a confidential basis. Iwillconclude with some briefremarksabout some ofthe challengesfacingthe PBO andmylonger term vision for theOffice.

Thethemeof thisyear’sCongress,“Your guide throughuncharted territory”is veryapt forthecurrentuncertain times. It certainlyresonates withme andmycolleagues inthe PBO,asI expectit does with the PBO’s Parliamentarystakeholders.

ThePBOcommencedoperationsas the fourth Parliamentarydepartmenton 23 July2012; thedaythatItook up myappointment as the inaugural ParliamentaryBudgetOfficer. Not onlyisthe PBO anew institution, but it hasbeengiven arolethat has notpreviouslybeen undertakenwithin the Australianpoliticalsystem.

ThePBO was born out of acommitment that formed part ofanagreementnegotiatedbetweenpoliticalparties and independentmembers of Parliament afterthe 2010 federal election. Thisagreementwas knownasthe Agreement for a BetterParliament: Parliamentary Reform.

AJointSelect ParliamentaryCommitteewas establishedto inquireinto the proposedParliamentaryBudgetOffice.TheCommitteereported in March 2011andunanimouslysupported the establishment of aParliamentaryBudget Office.Subsequently,legislationwaspassed(the Parliamentary Service Amendment(ParliamentaryBudget Officer)Act2011)establishingthe PBOas an independent and non-partisan institution ofthe Parliament.

The roleandfunctions ofthe PBOareset out in theParliamentaryServiceActandIwill discussthem in some detailshortly. However, the mannerin which the PBOapproaches its role andhow it interacts with its Parliamentarystakeholders willof necessityevolveover time. In thissense thePBO is still in relativelyuncharted territory. There will be an element of learningthroughdoing, particularlyin theearlystages ofthe PBO’sestablishment.

We are, ofcourse, lookingto international practice; specificallythe operations of other morewell-established andexperiencedparliamentarybudget organisations, to helpguide theoperations of thePBO. Thedetailed mandates and levels of resourcingofparliamentarybudgetorganisationsaround theworldvaryconsiderably,as do the politicalsystems within which theyoperate.However, theyallplaytheirpart in helpingto enhance budget transparencyandtheintegrityof fiscal policyin their individual jurisdictions.

Thebest known oftheseorganisations is undoubtedlythe highlyrespectedandinfluentialCongressionalBudget Office(CBO)oftheUnitedStates. Itcommencedoperations in 1975andhas approximately250 staff.Others include theUK Office forBudget Responsibilitythat wasestablished in 2010 with approximately17 staff, the Canadian ParliamentaryBudget Officethathasbeen operatingsince 2008with approximately16 staff,and, in our ownregion, theKoreanNational AssemblyBudgetOfficethat was set up in 2003and now hasaround 125 staff.TheAustralian PBO hasa budget forapproximately30 to 35 staff.

A network ofparliamentarybudget officialswasestablished bytheOECDin 2009.Thisnetwork builds on the success of theOECD’snetwork of SeniorBudgetOfficialsthat has beenin existence for many years. Wewillparticipateactivelyin the OECD’snetwork ofparliamentarybudget officialsto sharegood practices andlessons learnedfromthe practicalexperiences of similarorganisations inotherOECD membercountries.

TheRoleand Functionsofthe PBO

Iwill shortlyturn to therole andfunctions of thePBO; but first a small anecdote from theUnited States.

In theearlydays of theestablishment of the CBOthere was much debate asto whatits roleshould be. InauguralCBO Special AssistantBobReischauer, who someyearslaterbecameCBODirector,helped the firstDirector,Alice Rivlin, establish theCBO. Reischauer,characterisedwhat somein the Congress wanted from the CBO as: “basically a manholeinwhich Congress would have a bill or something and it would lift up the manholecover and putthe bill down it, and youwould hear grinding noises and twentyminuteslater a piece of paperwould be handed up with the cost estimateanswer on it. No visibility, justsomekind ofmechanism down belowground level…”Others, includinginauguralCBODirectorRivlin, hadmoreambitiousexpectationsfor the CBO,and todaythe remit of theCBO is probablythebroadest of anyofthe parliamentarybudget organisations.

OurPBO, likethe CBO,is charged with preparing costings ofpolicyproposals. Ican assureyouthough that our costingswillnot be prepared in amanhole, norin the mechanisticmannerfavouredbysome members ofthe USCongressin 1975. Whilethe PBO’s costingfunction isimportant and perhaps most well-known, the PBOhas arangeofotherfunctionsthat it isrequired to undertake.

Theroleof thePBO as set out in the ParliamentaryService Actis to inform the Parliamentbyprovidingindependent and non-partisananalysisof thebudgetcycle,fiscalpolicyand thefinancialimplications ofproposals. Inbrief the legislationgives the ParliamentaryBudgetOfficer thefollowingfunctions: (1)to prepare budgetanalyses andpolicycostings on requestby

Senatorsand Members; (2)toprepare submissions to inquiries of ParliamentaryCommittees;and (3)at its own initiative, to conduct and publish research on the budget and fiscal policysettings. ThePBO’sanalysesof thebudget arenot constrained to the annual budget but extendto the entirebudget cycle.

Following consultation with theJointCommitteeof Public Accountsand Audit (JCPAA), thePBOreleased its first work plan on 12 October 2012. Thework plan is posted on the PBO’shome page on the Australian Parliament Housewebsite.

Thekeypriorities identified in thePBO’swork plan for2012-13are:

1.to place the PBO onafullyoperationalfootingwith thecapacityto fulfil its mandateas aresponsive andeffectiveindependent institution of theParliament;and

2.to gain thetrust of the Parliament in the PBOas avalued sourceof budgetandfiscal policyanalyses andpolicycostings that strengthen thepolicydevelopment process and enhance thetransparencyof thebudget and fiscal policy.

ThePBO is located in ParliamentHouse, we areaccessible to ourParliamentarystakeholders,and weareopenforbusiness.We have been acceptingrequests for work sinceearlySeptember.

ThePBO currentlyhasastaff of12.We expect tobe at or near our full complement ofapproximately30 to 35 staffbyearlynextyear.Eachandeverystaffmember ofthe PBO willneed to bringa relevant set of professional skills to the organisation. Layers ofmanagement willbe kept to asensible minimum andstaffwill be deployed with maximum flexibility.The PBOwill alsoengage temporarystaffand specialist consultants or advisers to help fill skills gapsandmeetpeakworkloads. CPAs withappropriateexperience could be well-suited to manyof thepositions within the PBO.

It is important to be clearthat the PBO’s mandateis toinform the Parliament on budgetaryandfiscal policyissues.The PBOwillwork tohelp improvethe policydevelopment processthrough providinganalyses of the budget andfiscal policysettings,and policycostings. But, thePBOdoes not haveapolicyadvisoryroleand it will not make policyrecommendations.ThePBO alsohas no audit orcompliance role.

ThePBOhas not been established tocompete with or duplicate thework of theTreasuryor theDepartment ofFinance and Deregulation (Finance). Some ofthe PBO’sfunctions aresimilar tothose ofTreasuryandFinance, particularlyduringthecaretakerperiodfora general election. However, thePBO has been established to providearangeof services to the ParliamentthatTreasuryandFinance,asdepartments of State,are not mandated to provide.

It is also importantto understand the differencesbetween the PBO’scostingroles duringandoutsideof thecaretaker period. TheParliamentaryService Actmakes a verycleardistinctionbetween howthe PBOmaygoabout its policycostingrole outsideof the caretaker period, asopposed to duringthecaretaker period.Outsideofthe caretakerperiod thePBOmaypreparepolicycostings on request bySenatorsand Members, with the requestsand the PBO’s responsesto be keptconfidential ifso directedbythe requestor. Duringthe caretakerperiod the PBOmayonlyprepare costingsof publiclyannounced policies on requestbyauthorised members of

Parliamentaryparties orindependent membersofParliament. The PBO’scostingspreparedduringthecaretakerperiodmust also be made public.This is consistent with thepublic natureof allcostings undertaken duringthecaretaker period under theCharter of Budget Honesty.

ThePBOmaypreparebudgetanalyses on aconfidential basis overthe entire courseof theelectoralcycle. Likewisethe PBO is not constrainedas to when it maypublish its own studies.

Implications for ParliamentaryStakeholders

What does all of this mean in practiceforthe PBO’s Parliamentarystakeholders? Howdo theservices provided bythePBOdifferfrom theservices available to SenatorsandMembers underthe previousarrangements? Howcan the workof the PBOadd value and help to enhance thequalityof public policydebates?

Iwill outline five features of the PBO’s operations that differ from the previousarrangementsandhaveconsiderable potential to improvethe policydevelopmentprocess.

First, with the creation ofthe PBO,allmembers ofParliament, forthe first time, have access toindependent and non-partisan budgetanalyses andpolicycostingsover theentirecourseof thethreeyearelectoralcycle.This is a majordifference, particularlyfor non-government membersof Parliament who in thepast havenot had access to suchservices.

Under thepreviousarrangements,policieswere onlyable to besubmitted to TreasuryandFinance forcostingunder theprovisions of the Charter of BudgetHonestyAct1998. TheCharterrequires that onlypubliclyannouncedpoliciesmaybecostedandtheymaybe costed onlyduringthe caretakerperiod. Inpractice this means that the costingprovisions of theCharterapplytoaperiod ofapproximatelyfourto sixweeks in anelectoral cycle ofthreeyears.Moreover,partieswith fewer than fivemembersin the Parliament,andindependentMembers of Parliamenthaveno access to Chartercostings. That has now changed, with the PBO beingable to providecostings andbudget analyses over the entireelectoralcycle.

Second, outsideofthecaretaker period,thePBO’sservices will beprovided on a confidentialbasis if that is the wish of the requestor. Iam not awareof anyothersimilarinstitutionelsewhere in the world that is ableto undertake work of this natureon behalf ofindividualmembers ofparliament,let aloneon aconfidentialbasis. Thismeansthat the requestorcannowdeal confidentiallywith the PBOandusethe process inaninteractiveandmoremeasuredfashion to help developmorerobustpolicies thathave been properlycostedbefore theyarepubliclyannouncedatatime ofthe requestor’schoosing.

Politicalparties and independentmembers of Parliament areno longer bound to run the gauntletofthe CharterofBudgetHonestycostingprocesswith publiclyannouncedpoliciesthat havenotbeen professionallycosted in advanceoftheir public release. In the past therehavebeenexamples of policies that havebeen publiclyannounced with costings that, whenreviewedbyTreasuryand/orFinanceunder theCharter costing arrangements,have beenfound to beverywideof themark.Suchdiscrepancies in costingscan haveaverydetrimental effect on thecredibilityofthe policiesinvolved. Inextremecasesmajor shortfalls in costingscouldevendamage theelectionprospects of thepolitical partyconcerned. With the PBO nowin place, suchundesirable situations should be avoidable.

Third, because the newservicesareprovided byan independentand non-partisan institution ofthe Parliament,when individual parliamentariansor politicalparties request the PBO toundertake work ontheirbehalf, theycan beassured that the PBOwill respond to theirrequests inanobjective fashion.

The independence of the PBO is enshrined in theParliamentaryService Act. TheParliamentaryBudget Officer reports to the PresidingOfficersofthe Parliament on the operationandadministration ofthe PBO. However, theAct provides that the ParliamentaryBudgetOfficer isnot subject to a directionbyaPresidingOfficer inrelation to the performance of his/herfunctions.

ThePBO’s independenceis reinforcedbythe factthat the ParliamentaryBudget Officer isappointedbythe PresidingOfficers, followingtheapproval of theJCPAA, for a term offouryears.There arealso stringentrequirementsthat must be met,includinga majorityvote ineach Houseof theParliament,before theParliamentaryBudgetOfficer maybe removedfromoffice.

Inessence, the independenceof theParliamentaryBudget Officeris subjecttosimilarprotections to thosethat applyto theindependenceof theAuditor-General.

Fourth, the PBO’s mandate givesit the flexibilitytowork in a relativelyinformalandinteractivemannerwith its stakeholders, particularlyoutsideof thecaretaker period.For instance, we areencouragingour stakeholders to have informaldiscussions with us beforeformallysubmittingtheir requests to us. This will help to ensure that the requests, whether for costings or budgetanalyses, areadequatelyexplained and the necessarysupportingmaterialisprovided to enablethe PBO to undertake its workand cometo its best professional judgementsin a timelyfashion.

We arealso happytoengagewithstakeholders duringthe preparation ofour responses. Wemayinitiatediscussions to clarifyissuesor to seekadditional information. Requestorstoo maywishto contact us iftheybecome aware of anyadditionalinformationthat could have a materialbearingon thework thattheyhave requested the PBO to undertake.

This level of informalinteractiveengagementbetween the PBO and Senators andMembers onpolicycostings andbudget analyses has not beenpossible in the past.This is a positivedevelopmentthat has considerablepotential to improve the policydevelopmentprocesses.

Fifth,through its published workprogram thePBO will be asourceof independentanalysis ofthe budget and fiscal policysettings. This program provides the PBOwiththe scope to examinea range ofissues that could impact on the structureand sustainabilityof the budget over themedium to longer term. Thereare anumberof“think tanks” andprofessional firms thatundertake work ofthis nature. However, the Parliamentnow hasan institutionofits own that itcan call on to undertakeindependentanalyses of this nature.

Let merecap brieflyonwhat is newthat the PBObrings to thepolicydevelopment table: (1)thePBO can preparecostingsandbudgetanalyses over theentirecourseof the electoralcycle, notjust duringthe caretakerperiod;(2)the PBO canprovidebudgetanalyses on a confidential basisat all times, and undertake costings ona confidential basis outside ofthecaretaker period; (3)the

statutoryindependenceof theParliamentaryBudgetOfficerprovidesassuranceas to theobjectivityofthe PBO’swork;(4)the PBO canengage interactivelywith its Parliamentarystakeholders to help enable them todeveloptheirpolicies in a more measuredand well-considered fashion; and(5) the PBO provides theParliament witha new independentand non-partisan sourceof publishedbudget andfiscal policyanalysis.These fivepoints of differenceflowingfrom the establishment ofthe PBOcharacterise anew and enhanced environment forpublicpolicydevelopment.

The PBO’sAccess to Information

It is essential for thePBO to have access to awide range ofinformationinatimelyfashion foritto be able to undertake its workeffectively. It is also importantforour Parliamentarystakeholders to beassured thatthe confidentialityoftheir requests tothe PBO will be preservedwhen that is theirwish.

I am verypleased,therefore, to have concludedaMemorandum of Understandingwith the headsof Commonwealthbodies in relation to the provision of information and documents(theMoU)tothe PBO. TheMoUwasposted on the PBO’s websiteon 10 October2012. TheMoU has a pro-disclosurebias and provides that heads of Commonwealth bodies should aim to providesufficientrelevantinformation to satisfyeach requestwithin reasonable timeframes. TheMoUalsoplacesstrict confidentialityobligations on theParliamentaryBudgetOfficerand the Headsof Commonwealth bodies.

To facilitate its rolein undertakingconfidential work forSenatorsandMembers, the PBO is anexempt agencyunder theFreedom of InformationAct 1982(FOIAct). Without this exemptionthe PBO’seffectivenessas a source of confidentialbudgetanalyses andpolicycostings would beseriouslycompromised.

The confidentialityprovisions of theMoU have been bolsteredbyrecent actions takenbytheGovernment. The Government issued protocols on 28 September 2012 that mandatethatMinistersand their staffwill not ask heads of Commonwealth bodies for anyinformation whichwould disclose the nature of aconfidentialrequestfrom theParliamentaryBudget Officer.

TheGovernmentalsointroducedlegislation into the House of Representatives on10 October2012 to amend the FOI Actto providean exemption underthe FOIAct forinformation held bydepartments and agenciesthatrelates to aconfidentialrequest to the PBO.Theamendmenthas beenpassedbythe House of Representativesand is expected to bedebatedin the Senate shortly. Passageof this amendmentto the FOIActwill be important to assureSenatorsand Members that, consistent with the spirit of the PBO’sconfidentialitymandate,theirconfidentialrequests to the PBOcannot be accessedunder the FOI Act at anypoint in theprocess.

Concluding Comments

Theestablishment of thePBOas an independentand non-partisan institution ofthe Parliamentrepresents a significant strengtheningof Australia’s public sectorgovernanceframework. Thesenewarrangements havethepotential to provide SenatorsandMembers with amorelevel playingfieldfrom which to accessanalyses of thebudget andfiscalpolicy,andcostingsofpolicy

proposals. Ifusedeffectively, thePBO canworkwith the Parliament tohelpimprove theintegrityof thepolicydevelopment process, better inform public policydebates, andstrengthenbudgettransparency.

JournalistVeronaBurgess, writingin theAustralian Financial Review recently,describedtheroleofthe ParliamentaryBudget Officer as“oneof themost delicate high-wire acts in theCommonwealth.”

Therecan belittle doubt thatthe periodfrom nowto the next general election will bea verychallengingonefor thePBO,as well as forthe Commonwealthdepartments and agencies thatwerelyso heavilyonfor much ofthe informationthat we need to undertakeour work. A keychallenge for thePBOwill beto work with our Parliamentarystakeholdersto prioritisethePBO’sworkload toensurethat the PBO’sfinite resourcesareallocated in themost appropriatemanner.

At the sametime, the pre-election period presentsan earlyopportunityfor thePBO todemonstrate thevaluethat it canaddbyhelpingtostrengthen policydevelopment, minimise thescope forargumentaboutthe accuracyofcostings,andsharpen the focusofthe public debatewhereit belongs, namelyon the substantive policyissues.

Myvision for thePBO is that it will become arespected independent and non-partisan institutionofthe Parliament that is effective in helpingto improvebudget transparencyand theintegrityoffiscalpolicy.To realise thisvision the PBOwill continue to build its capability,forgecloselinks with itsParliamentarystakeholders,and maintain a clearand unswerving focus on itsmandate to inform the Parliament on the budget, fiscal policyand the financial implications ofproposals.ThePBO’sperformance will bejudged bythe quality, timeliness and relevance of itsoutputs as assessedbyfeedback from its Parliamentarystakeholders.

Itrust thatmyaddress todayhasgivenyouareasonableappreciation of the role ofthe PBO andthe potentialimpactthat it canhave on policydevelopment and budgettransparency. Iam happyto take questionsfrom thefloor.