Sunday, December 4, 2011

Don't Use the Budget to Pass the Budget!


The Problem:
Belgium has a government at last. 540 days after the elections a new government will be in office. The budget was the final step in the negotiations. But this final phase only started on day 517. 23 days were sufficient, not because the budget negotiations were unimportant but because the budget can always be used to pass the budget. This has been common practice for a while. As a result most European countries have built up astronomical debt which is the main cause of the current economic crisis. 
Citizens have eagerly supported politicians that mortgaged the economic future of our children. As if we were in a collective prisoners dilemma, we preferred to have our part of the welfare state rather than investing wisely in productive and sustainable growth.


The Solution:
I remember when we decided to increase our daughter's pocket money on the condition that she would buy her own cloths. Her need for designer brands suddenly evaporated. She carefully considered whether she really needed another pair of trousers. 
To avoid that the budget is used to pass the budget and that unproductive expenditure seeps into the budget, every law should have its own (multi-year) budget and when the law is passed citizens immediately also pass the tax bill attached to it. 
The law will also stipulate what type of tax is used to pay for a particular service: An import tax, a progressive income tax, a property tax, or levy. Citizens will be able to consider whether the proposed law is worth the cost (tax) and whether the polluter pays principle is applied (i.e. the groups in society that profit also contribute combined with a healthy solidarity from the rich and the strong towards the poor and the weak.) 
Finally, the tax payer can judge whether the law will result in an economic gain that is worth borrowing for (i.e. economic growth will outpace interest rates.)


The Transition:
Nothing stops the application of this idea starting today though the cold-turkey transition might be considered too radical. 
An intermediate step could be to make the budget more transparent and encourage public debate about it. It is surprising that the citizens are not interested in the figures. Politicians seem to know that so they don't try to gain political visibility through a strong position on the budget details. Maybe that is why the budget in Belgium got negotiated in only 23 days. Or maybe the government negotiations over the budget were short because the negotiators did not want citizens to have time to scrutinize the budget.