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2011-04-13

Reforming budgeting processes to raise quality of fiscal policy

Comments on Stephen Kirchner “Trimming to fit budget's reduced revenue”, 13/04/2011, http://www.theaustralian.com.au/national-affairs/commentary/trimming-to-fit-budgets-reduced-revenue/story-e6frgd0x-1226038104396

It is always the case that both the macroeconomic level and balance of a government budget and its content of both expenditure and revenue are important.

Textbook macroeconomics assumes that the content of both expenditure and revenue measures is as good as it could get, then what is left is the level and balance of the budget.

In reality, the content should be more important, since it is there the microeconomic efficiency comes in.

Currently most governments don't publish the real ranking of expenditures in terms of their social and economic benefits, similar to private or government investments.

Maybe a far reaching fiscal reform is to publish estimates of the social and economic benefit of each significant budget expenditure item, including the average and marginal benefits.

Should such a reform is undertaken, then people can scrutinise government budget in a much consistent and transparent way.

More importantly, government has to work hard to get its expenditure right, better or close to best and it has explain major discrepancies or departures from higher social and economic returns expenditure to lower ones.

That will really improve the quality of government fiscal policy.

PS: To be fair to Treasury and Finance departments bureaucrats, they may have done a lot of calculations and estimates (though not necessarily in the explicit concept of social and economic benefits that I just wrote), but not many or much have been published except used by governments in their budget spins.
Secondly, a framework needs to be developed to do the job of estimating social and economic benefits of government expenditures. That framework may evolve and be perfected through practice.

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