Grzegorz W. Kolodko

Transformation, Integration

and Globalization Economic Research

Kozminski University, Warsaw

www.tiger.edu.pl

Off-budgetin transition economies

The case of Poland

3

it refers to all outcomes, incomes and public financial processes which don’t belong to the budget system

Off-budget

„Off-budget” – international aspect:

„Off-budget units” – international aspect:

the institutions (organizations) engaged into off-budget operations, which have their own structure and often are independent, or quasi-independent, on the basis of specific legal acts

4

budgetary establishments

auxiliary units of budgetary entities own revenues accounts motivations funds appropriated funds (central government

and local authorities)

The system of the off-budget entities in Poland consists of:

Off-budget

These off-budget entities are in a broad way connected with public budgets.

5

are legal persons realize state tasks are supervised by proper minister financial plans are being attached to the State

Budget and hence scrutinized by theParliament

Off-budget

Off-budget in broad understanding embraces also state agencies, which are regulated by separate acts and:

6

functioning within the national/State budget system

financial plans are attached to the budget

cover the cost of its activity by their own incomes

the rules concerning finance policy of extra-budgetary units in Poland are set in the Public Finance Act of June 30th, 2005

moreover financial policy of appropriated funds is defined by separate acts

Off-budget

Main rules:

7

enable flexibility of public means usage

enable to avoid competition for budget means each year

are useful in social areas

enhance activity and increase efficiency of public means utilization

Advantages:

Off-budget

8

pressure to create units which independently run a business

lack of accountability for financial outcome can cause a danger of abuse

mistaken decisions and policy errors are done at the costs of the state budget

Off-budget

Threats:

9

independent, but not being legal person, state or council organizational unitcollect payments for its servicescover its expenses with own revenuesfinancial plan is the base of financial

policy and embraces incomes, among others budget subsidy, costs, the level of turnover, the level of amount dues and obligations at the beginning and at the end of the period and settlements with the budget

Budgetary establishments (I):

Off-budget

10

Connections of budgetary establishments with the budget – simplified version (II):

Off-budget

Budget

Budgetary establishments

subsidypayments

11

can be granted subject subsidies

on the basis of separate acts can receive entity subsidies or purposeful subsidies in order to co-finance investments

newly created budgetary establishments can be granted single budget subsidy devoted to its first equipment in financial means

subsidies granted to the budgetary establishments cannot exceed 50 percent of its activity costs

are obliged to pay to the budget the surplus of turnover which is established at the end of settlement period

Off-budget

Budgetary establishments (III):

12

Off-budget

Incomes and costs of state budgetary establishments

in 2005-07

350 000

390 000

430 000

470 000

2005 2006 2007

Incomes of budgetaryestablishments (000 PLN)

Costs of budgetaryestablishments (000 PLN)

13

Off-budget

Incomes and costs of local authorities budgetary establishments

in 2005-07

8 150 000

8 250 000

8 350 000

8 450 000

2005 2006 2007

Incomes of localauthorities budgetaryestablishments (000 PLN)

Costs of local authoritiesbudgetary establishments(000 PLN)

Off-budget

Number of state budgetary establishments

55

65

75

85

2005 2006 2007

Off-budget

Number of local authorities budgetary establishments

1000

2000

3000

4000

2005 2006 2007

16

Off-budget

Employment in budgetary establishments in 2007

Item State Local

authorities

Employment

(full-time)

2 280 82 000

17

From Shock without Therapy

to Therapy without ShocksGDP growth (left scale) and unemployment rate (right scale)

in Poland, 1990-2008

-11,6

3,8

6,2

4,5 4,2

0,6

1,9

3,8 3,5

6,1 6,5

2,6

-7

5,27,0 7,1

5

1,1

5,34,8

Shock "therapy"

Strategy for Poland

0vercooling

Public Finance Reform Program

EU memberrship

-14

-7

0

7

14

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 I poł 2002 II poł

2002

2003 2004 2005 2006 2007 2008

-15

-10

-5

0

5

10

15

20

18

19

Thank you

21

22

www.kolodko.net

23

not being legal person, state or council organizational unit,

separated from the budgetary entity part of its basic activity or side activity in terms of finance and organization,

financial plan is the base of financial policy and embraces incomes, among others budget subsidies, costs, cash flow statement, the level of turnover, the level of amount dues and obligations at the beginning and at the end of the period and settlements with the budget,

collect payments for its services, cover its expenses with own revenues.

Auxiliary units of budgetary entities (I):

Off-budget

24

Connections of auxiliary units of budgetary entities with the budget – simplifies version (II):

Off-budget

Budget

Budgetary entity

Auxiliary units

of budgetary entities

Subsidies Income

25

sell services to its budgetary entities with no margin (profit),

can be granted subject subsidies,

newly created auxiliary unit of budgetary entities can be granted budget subsidy devoted to its first equipment in financial means,

are obliged to pay into the budget half of its profit.

Auxiliary units of budgetary entities (III):

Off-budget

26

Off-budget

Incomes and costs of state auxiliary units of budgetary

entities in 2005-2007

1 700 000

1 800 000

1 900 000

2 000 000

2005 2006 2007

Incomes of state auxiliaryunits of budgetary entities(000 PLN)

Costs of state auxiliary unitsof budgetary entities (000PLN)

27

Off-budget

Incomes and costs of local authorities auxiliary units of

budgetary entities in 2005-2007

510 000

525 000

540 000

555 000

2005 2006 2007

Incomes of local authoritiesstate auxiliary units ofbudgetary entities (000PLN)

Costs of local authoritiesstate auxiliary units ofbudgetary entities (000PLN)

Off-budget

Amount of state auxiliary units of budgetary entities:

380

400

420

440

460

2005 2006 2007

Amount

29

Off-budget

Employment in auxiliary units of budgetary

entities in 2007

Item State Local authority

Employment

(full-time)

11 530 5 920

30

budgetary entities, which are obtaining revenues from defined sources, can accumulate them on separated own revenue account,

means can be accumulated on this account among others from the following revenues:

– payments for making tender documents available,

– inheritances, legacies, donations in form of cash, which are given to budgetary entities,

– compensations and payments for lost or damaged property which is managed or used by budgetary entity,

– other receipts and payments which are indicated in Public Finance Act or resolution of local authorities,

own revenues can be devoted to financing expenditures connected with obtaining revenues by budgetary entity and to other expenditures,

Separated own revenues account (I):

Off-budget

31

decision concerning creation of own revenues account is made by managers of budgetary entities,entitlement of budgetary entities is connected with

revenues which are occasional and with revenues which usually cause generation of additional costs,own revenues together with interests cannot be devoted

to finance personal expenditures, except additional salary of police and Internal Revenue Service,own revenues from each source has strictly defined

destination.

Separated own revenues account (II):

Off-budget

32

Off-budget

Incomes and expenditures of state separated own revenues

account in 2005-2007

630 000

700 000

770 000

2005 2006 2007

Incomes of state separatedown revenues account (000PLN)

Expenditures of stateseparated own revenuesaccount (000 PLN)

33

Off-budget

Incomes and expenditures of local authority separated own

revenues account in 2005-2007

640 000

750 000

860 000

970 000

2005 2006 2007

Incomes of local authorityseparated own revenuesaccount (000 PLN)

Expenditures of localauthority separated ownrevenues account (000 PLN)

34

financial means accumulated by state budgetary entities on separated bank accounts, from the part of budget incomes which are obtained from forfeiture of property or financial benefits coming from disclosure of crimes and offences against property and treasury crimes and treasury offences,

devoted to rewards for employees, soldiers and officers who are responsible for creation budget incomes which are mentioned above.

Motivation funds:

Off-budget

Motivation funds are not appropriated funds

which are defined in Public Finance Act.

35

Off-budget

Incomes and expenditures of motivation funds in 2005-2007

600

1 100

1 600

2 100

2 600

2005* 2006 2007

Incomes of motivation funds(000 PLN)

Expenditures of motivationfunds (000 PLN)

* Incomes of motivation funds were increased by part of incomes of liquidated special funds

36

are set up on the basis of legal act,

incomes come from public means,

expenditures are devoted to strictly defined tasks,

can act as a legal entity or constitute separate bank account which is managed by authority indicated in the act of creation.

Appropriated funds (state and council) (I):

Off-budget

Off-budget

Appropriated funds (state and council) (II):

the base of financial policy is yearly financial plan,

expenditures general can be made within financial means, which embrace current incomes, including budget subsidies or local authority subsidies and other means obtained in previous periods,

can incur credits and debts, however it has to be stated in the act which creates appropriated fund.

38

Off-budget

Incomes and expenditures of state appropriated funds in

2005-2007

135 000 000

145 000 000

155 000 000

165 000 000

2005 2006 2007

Incomes of state appropriatedfunds (000 PLN)

Costs of state appropriated funds(000 PLN)

39

Off-budget

Incomes and expenditures of local authority appropriated funds

in 2005-2007

1 000 000

1 100 000

1 200 000

1 300 000

2005 2006 2007

Incomes of local authorityappropriated funds (000PLN)

Expenditures of localauthority appropriatedfunds (000 PLN)

Off-budget

Amount of appropriated funds, whose financial plans are being attached to State Budget:

22

23

24

25

26

27

28

2005 2006 2007

Amount