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There is an emerging trend around the world for Parliamentary Budget Offices (PBOs) to be established at the subnational level. The Financial Accountability Office (FAO) in Ontario, Canada (est. 2013), and the Parliamentary Budget Office of New South Wales (est. 2010) are but two recent examples of successful PBOs at the subnational level, but the idea is being brought to fruition in other jurisdictions as well, such as in Victoria, which in 2016 passed a Parliamentary Budget Officer Bill to this effect.

Yet what is most interesting about this development is to realize that subnational PBOs are not a recent innovation, but in fact represent the origin of the PBO model. The first independent legislative fiscal institution was established in 1941 in the State of California (Legislative Analyst’s Office) and only later moved onto the federal level, when the United States adopted a Congressional Budget Office (CBO) in 1974.

However, it was not until many years of federal-level success at the American CBO that international jurisdictions began to take note. In the case of Canada, the federal PBO in Ottawa was founded in 2007 and was premised in part on the design of the American CBO. The Canadian PBO also established a mentorship role whereby it would regularly draw on the best practices of the American CBO. It was only after a rocky first few years of the federal level PBO that the Canadian province of Ontario also decided to institute a PBO for its budgeting and accountability needs.

By contrast, in Australia it was the state of New South Wales which adopted the model before the Commonwealth did so, and it kept the American CBO in mind when mulling the installation of the institution. The Commonwealth followed suit and now has a highly effective PBO, while other Australian states consider a similar budget office for their budget requirements, as in Victoria.

What makes subnational PBOs an intriguing area of research is that they are constructed very much with the local budgeting context in mind, even as they are influenced by international best practices.  This is to say that they can often diverge significantly in terms of their functions and design, so as to suit local needs more precisely.

For example, the NSW PBO is peculiar in that it is created at periodic intervals, prior to election seasons, and then regularly disbanded post-election. This periodicity in design is unusual compared to other PBOs, but it represents an appropriate consideration of a cost-benefit analysis that suits the NSW context. An intermittent office may reduce costs. Furthermore, so long as there are robust knowledge-retention practices and streamlined budget analysis procedures within the institution (which there are), then recreating the institution at periodic intervals does not necessarily hamper the effectiveness of the office.

The NSW PBO is also different in that its mandate is focused on producing costings of election promises for the opposition party. In this sense, it addresses a very specific budgetary need in NSW, as opposed to the wider remit that is given to other subnational PBOs. The Californian LAO, for example, performs several functions including budget analysis, economic forecasting, producing reports on special budget topics, exercising “budget control” (reviewing administration requests to make ex-post changes to the enacted budget), and then election costing.

Furthermore, in some ways, the effectiveness of subnational PBOs can surpass that of national-level PBOs. This may be simply because of the greater intensity of political recrimination that national-level PBOs face. For example, the federal Canadian PBO is stifled because it is still not an ‘independent’ officer of Parliament, and whereas there is currently debate on making it a nominally independent office, the proposed measures still greatly hamper the functional independence of the office. This is but one of the many difficulties that the Canadian PBO faces.

By contrast, the PBO of NSW has many factors that work in its favour. For example, it has good internal staff relations, strong peer-review process, able leadership, and complementary staff skillsets. It also has an ample operating budget. In fact, its $2.5 million operating budget is comparable to the budget for the PBO of Canada, even as its remit is far more specific and the size of the budget it must analyze is far smaller. This is supplemented by robust technological support, such as with its Total Record Information Management system (TRIM).

The NSW PBO also has positive professional relationships with parliamentarians, both from the opposition and government. It also has other advantages including clear reporting relationship with the Public Accounts Committee, and statutory independence – both of which are left wanting in the Canadian PBO’s context.

What is heartening to see is that new PBOs are attuned to international best practices and are in line with recent research on improving PBO effectiveness. For example, Victoria’s Bill to introduce the PBO makes specific reference (Clause 1,b) to the “advisory” and “costings” roles of a PBO, which accords with a recent typology on the roles of PBOs as having both an “advisory role” and a “costings role”.

As such, whereas there is usually much more interest paid to national-level PBOs, there is much promise in the performance of subnational PBOs going forward. Furthermore, as a previous Austaxpolicy entry has noted, there is now even scope for discussion of supranational budget offices as well. Future research can yield new insights by delving into the ways in which national, subnational, and supranational budget offices address fiscal problems in contrasting ways.

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