There is little direct discussion of Denmark's fiscal transparency practices in the most recent International Monetary Fund (IMF) publications, other than with regard to the country's fiscal statistics regime. Back in 2002, however, the IMF reported that Denmark's fiscal framework is transparent and sets clear quantitative fiscal targets. A 2004 IMF report praised Denmark's ongoing progress in public finance consolidation and public debt reduction, both of which contribute to fiscal transparency. While Denmark has no formal organic budget law to govern the budget process, a 2004 journal article by authors Blondel and Ruffner describe a well-developed, efficient, and effective budget process tailored to the country's unique tradition of coalition government. Fiscal reporting is comprehensive, although there are some areas where improvements could be made, particularly with regard to the frequency with which in-year reports are produced and the time lag in publishing the audited annual financial statement. Denmark has been a subscriber to the IMF's Special Data Dissemination Standard since June of 1996. The SDDS website discloses that Denmark publishes advance-release calendars and summary methodologies for all requisite fiscal data sets and meets or exceeds all SDDS specifications of coverage, timeliness, and periodicity for its fiscal data.

General Overview

Although the International Monetary Fund has not yet published a formal fiscal Report on the Observance of Standards and Codes for Denmark, in 2002 it did publish a "Special Issues" document dealing with the Danish fiscal framework. According to that report, "the fiscal framework in Denmark is transparent" (p. 2). The report cited Denmark's practice of setting "clear quantitative targets for the fiscal balance and the public debt ratio" (p. 2) as contributing to Denmark's fiscal transparency. A later IMF report, published in 2004, added a commendation of Denmark's sustained commitment to structural reform and sound fiscal policy, reiterating the positive findings of the 2002 report.

The IMF's 2006 Article IV Consultations report on Denmark was published in 2006. While more focused on actual fiscal policy, the report does touch upon transparency issues both in the main text and in its Statistical Issues Appendix. First, the report notes that Denmark's fiscal policy is formulated within the context of a medium-term framework that the IMF describes as "prudent" (p. 16). The framework gives strong emphasis on public-finance sustainability over the medium and long term. The IMF adds that government reforms were under way at the local level, where efficiencies of scale in the provision of services might be achieved the consolidation of local governments into larger entities and by "more clearly assigning responsibilities among different levels of government" (p. 17). In the area of fiscal and other official data, the IMF found that "the quality and timeliness of the economic database are very good and adequate for surveillance purposes" (p. 34). The IMF asserts, and the relevant official websites confirms, that Denmark produces a wide range of publications on the Danish fiscal policy process, methodologies, and sources.

J. Blondal and M. Ruffner, writing for the Organization for Economic Cooperation and Development's (OECD) Journal on Budgeting in 2004, provide a clear, detailed walk-through of the Danish budget process. They begin by noting that Denmark provides a unique environment for the budget process, given its history of coalition minority governments, the widespread support enjoyed by its medium-term economic and fiscal program, and the fact that as much as two-thirds of all public spending is conducted on the local and regional government level. The first characteristic provides a strong incentive to political parties to work toward consensus during the budget process. The second provides a powerful anchor for the formulation of fiscal policy. The third raises unique challenges for the coordination and management of fiscal policy matters.

According to Blondal and Ruffner, each incoming government enters into a coalition agreement at the start of its tenure and creates cabinet committees in which the various coalition members will participate in policy discussions and reach consensus. The coalition agreement contains some reference to budget policy, whether as a general statement of objectives or descending into a greater level of detailed discussion. At the very least, it will contain reference to most if not all of the government's planned policy initiatives. The cabinet committees "create a forum for the different coalition parties to be involved in decision making and to have 'ownership' of the decisions made" (p. 53). For budget policy, the Cabinet Economic Committee, chaired by the Minister of Finance (MoF) is of primary importance. Political parties that are not a part of the government coalition also participate in this consensus-seeking process through agreements reached during the parliamentary phase of the budget process. These agreements span several years. They not only set spending levels but also address substantive issues and may include reform proposals. The authors argue that "the agreements should... very much be seen as political tools to lend stability to budget policy" (p. 53).

In its 2008 announcement of the conclusion of the most recent Article IV Consultations mission, the IMF reported that Denmark has enjoyed remarkable achievements in fiscal policy over the past 20 years. Among the member states of the Organization for Economic Cooperation and Development, it was one of the first to fully develop and put in place a long-term fiscal sustainability framework. It has recently produced the latest such plan, covering the years 2010 to 2015, which takes into account the need for stronger work incentives and an increase in the nation's workforce, including reforms that would lead to a later official retirement age. Although the increased retirement age is slated to take place in 2019, the IMF suggests that it should begin in 2009 to address the looming fiscal problems posed by an aging population. Revenue producing measures may also be required. The IMF suggests implementing user fees, residential property tax indexing, and a cut back in the amount deductible for mortgage interest. However, the IMF notes that Danish officials are reluctant to increase taxes or to impose taxes on residential property.

Denmark has been a subscriber to the IMF's Special Data Dissemination Standard (SDDS) since 1996, and as of September 2003 it had succeeded in fulfilling all SDDS specifications. The SDDS website provides access to an Annual Observance Report on Denmark's performance vis-à-vis the SDDS standards for the year 2007, in which it is stated that "Denmark provided available information on the methodology, sources, and reconciliation of data categories in Data Quality Assessment Framework that would facilitate users to assess the quality of the data."

The Principles

Clarity of roles and responsibilities.

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The available information does not explicitly address Denmark's compliance with this principle. However, according to the 2002 IMF report, Denmark's fiscal framework is "transparent" (p. 2). It is predicated on a formal medium-term fiscal framework first introduced in the 1990s. According to Blondal and Ruffner's 2004 OECD report, there is no formal organic budget law that governs the budget process, but there are well established procedures that are followed by participants in the process. Each incoming government enters into a coalition agreement at the start of its tenure and creates cabinet committees in which the various coalition members will participate in policy discussions and reach consensus. The coalition agreement contains some reference to budget policy, whether as a general statement of objectives or descending into a greater level of detailed discussion. At the very least, it will contain reference to most if not all of the government's planned policy initiatives. The cabinet committees "create a forum for the different coalition parties to be involved in decision making and to have 'ownership' of the decisions made" (p. 53). For budget policy, the Cabinet Economic Committee, chaired by the Minister of Finance (MoF) is of primary importance. Political parties that are not a part of the government coalition also participate in this consensus-seeking process through agreements reached during the parliamentary phase of the budget process. These are multi-year agreements that deal with spending levels and may also address substantive issues and proposed reforms. The authors argue that "the agreements should... very much be seen as political tools to lend stability to budget policy" (p. 53).

At the time of their report, Blondal and Ruffner found Denmark's budget policy was anchored in the medium-term framework known as Denmark 2010, a widely supported fiscal strategy aimed at ensuring fiscal sustainability over the long term. It calls for maintaining budget surpluses of nearly 2% of GDP each year to 2010 and a concomitant reduction in the costs of debt servicing. Such a strategy depends on improved performance in the labor market. Because of the terms of the framework, Denmark also faces the challenge of keeping the growth of real public consumption down to 0.5% in the context of the tax freeze imposed by the current government. Denmark has the highest percentage of total general government expenditure allocated to the sub-national governments among the member states of the OECD - nearly two-thirds is handled at the local and regional level, including spending on healthcare and eldercare, childcare, education, pensions, and housing. The nature of such services means that local and regional governments are under significant public pressure to increase their spending. The sub-national governments contribute about 80% of the revenues to cover this spending, derived from their own taxes. The remaining 20% comes from national-government block grants.

Blondal and Ruffner note that such decentralization contributes to the difficulty of effective fiscal management. Coordination is achieved through the annual meetings of the Association of Regional Governments, the Association of Local Governments, and representatives of the national government, at which voluntary aggregate spending limits and sub-national tax rates are established. Until fairly recently, there was no mechanism by which the national government could address performance slippages, should spending exceed or tax revenues fall short of agreed-upon targets. This problem was being addressed through reform legislation being drafted at the time Blondal and Ruffner wrote their report. The authors note that Denmark does have "a special system in place to prevent unfunded mandates" (p. 55), laying the responsibility for meeting such mandates in the hands of the relevant ministry.

Open budget processes

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According to the 2004 report by Blondal and Ruffner, few elements of Danish budgeting are explicitly covered in law. Notably lacking is any organic budget law, for instance. Instead, the process is governed by the MoF's "Budget Guidelines Handbook." At the start of the calendar year, MoF's Agency for Governmental Management presents a draft memorandum of budget priorities to the Cabinet Economic Committee, based on the Denmark 2010 goals. This is a very high-level, non-detailed document and discloses the results of the negotiations that have taken place between the national government and its local and regional counterparts, along with some specific spending proposals that require special consideration by the Committee. After a series of Committee discussions, the Committee approves the memorandum in February. The MoF then informs the spending ministries of their individual spending limits and particular spending programs. These ministries spend the next two months working on their own budgets, guided by the information they have received from the MoF and, in late April, submit their budget proposals to the MoF. This is followed by a two-month period in which the MoF undertakes negations with both the spending ministries regarding their proposals and the sub-national governments regarding the size of their block grants. After these discussions, the MoF submits a draft budget to the Cabinet Economic Committee in June for its approval. In the month of August, any adjustments to the budget's underlying economic assumptions must be finalized, so that the budget is ready for presentation to parliament by the end of the month. During the finalization period, any unanticipated changes in the overall economic environment are taken into account. At every point in the process, the government must seek political consensus with other political parties to ensure parliamentary approval will be achieved at the end. When the final draft budget is presented, it includes documentation from each spending ministry justifying its particular portion of the overall budget. The MoF is responsible for verifying the information in each of these documents and for making certain that they present their information in a consistent manner. The final draft budget documents are prepared in two forms: the official draft version and a version that presents the same information in a form that uses less legalistic, layman's terminology.

Blondal and Ruffner conclude that although its budget process is not codified in law, but the budget timetable is set out in the Danish Constitution, and Denmark has been successful in managing its fiscal activities, having achieved consistent surpluses and paid down its debt for seven years in succession. They do caution, however, that "the Denmark 2010 program is based on significant improvements in the performance of the labor market" (p. 60) - an assumption that may not be born out by actual events. They suggest that the process could profit from greater formalization and for a strengthened system of communication and coordination across government levels and across coalition participants. The central role of the MoF in the budget process up to and including the final-draft stage, while nonetheless respecting the autonomy of the local and regional governments, is found to be key to the effectiveness and efficiency of the overall process.

The Danish budget process moves from the MoF to the parliament upon the submission of the final draft budget in August for approval. The parliament has unrestricted authority to make such modifications as it deems appropriate. According to Blondal and Ruffner, however, the parliament appears to make only modest changes relative to the overall budget. Parliament's role in the process is larger than is usually the case, because of the fact that Denmark usually has to work in the context of a coalition government. There is no majority-party dominance in the parliament, so consensus must be achieved. This places pressure on all sides to negotiate faithfully on the annual budget. To do this, the parliamentary phase of the process is carried out on two dimensions. On the formal dimension, parliamentary committees conduct their official review and analysis procedures. On the more informal dimension, there are cross-party negotiations in which coalition and non-coalition party members participate. During these negotiations, each party seeks political allies in support of their own favored proposals. Nevertheless, the available information does not explicitly address Denmark's compliance with this principle.

Public availability of information.

CP

According to the IMF's 2002 report, Denmark's fiscal framework is "transparent" and sets "clear quantitative targets for the fiscal balance and the public debt ratio" (p. 2). In their 2004 report, Blondal and Ruffner assert that the management and reporting aspects of Danish fiscal policy were historically carried out in the context of a full accrual system of accounting and budgeting, but that since the 1950s they have increasingly moved toward a modified cash basis. This trend seems to have begun to reverse, as the authors note that "during the period 2003-04, a pilot project is being conducted in several agencies to introduce full accrual accounting" and "it is envisaged that full accrual accounting will be implemented on a whole-of government basis starting in 2005" (p. 75). Every government agency has commercial bank accounts contracted through the MoF. The funds in these accounts are disbursed monthly to their relevant ministries or agencies in order to cover their appropriated operating expenditures. There are incentives in place to facilitate the management of large-agency expenditures. The government does not make public its apportionment schedule or its daily and monthly statements of receipts and outlays. It does publish a quarterly, comprehensive statement on public finances that includes this data, however. It also publishes an un-audited annual financial statement in April of every year for the just-ended fiscal year (the fiscal year is the same as the calendar year). An audited financial statement is published in June following the fiscal year's end. Blondal and Ruffner find that "the government's cash-management practices are exemplary, especially the incentive system applied for operating expenses" (p. 76). However, they note the paucity of Denmark's in-year reporting on implementation - done only three times per year. Although these reports are described as commendably comprehensive, the authors suggest that it should be done with greater frequency. They further note that the government should reduce by half the 6-month time lag currently exhibited in the production of the audited annual financial statements.

Blondal and Ruffner report that all of Denmark's government ministries and agencies participate in a tri-part performance management regime. There is a performance contract between agencies and the relevant ministry, an audited annual report that compares the contracted performance goals with actual outcomes (the audit is performed by the National Audit Office); and a pay-for-performance system according to which the salary of an agency's director-general is calculated. Performance guidelines are provided by the MoF, but individual ministries enjoy a great deal of latitude in establishing their own management policies, giving them a high degree of "ownership" in the setting and meeting of performance goals. While the authors find that the quality of performance contracts is good overall, they do see room for improvement, particularly insofar as they tend to focus on internal processes to a greater degree than they do on external outcomes, generally set less-than-challenging goals for themselves; and tend also to be insufficiently comprehensive in their efforts to describe outcomes that are difficult to quantify. The authors note that budget implementation and management is "predicated on a high degree of trust between the Ministry of finance and spending ministries, and in turn between spending ministries and their respective agencies" (p. 79). They specify two areas where specific improvements could strengthen the system, overall. First, they argue that there should be greater decentralization of pay and pay-related issues in the system. Second, they suggest that Denmark should more closely align its fiscal reporting practices to the OECD's Best Practices for Budget Transparency provisions, particularly with regard to in-year reporting and the timeliness of the audited annual financial statement.

Denmark has subscribed to the IMF's SDDS since 1996 and first succeeded in meeting all SDDS specifications in September 2000. Its economic data coverage is comprehensive and it posts a broad range of high-quality publications relating to fiscal policy, planning, and execution on the MoF website. The SDDS website discloses that Denmark publishes advance-release calendars on all requisite datasets. Central and general government data are disseminated simultaneously to all interested parties.

Independent assurances of integrity.

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The IMF's SDDS website discloses that Denmark provides summary methodologies for all its required datasets, including its fiscal sector data. Fiscal data sources are identified in a variety of publications, and there are sources that provide a discussion of methods used for cross-checking data and other relevant information. This information is publicly available on the MoF website, and is mentioned on the SDDS website. The 2004 journal article by Blondal and Ruffner notes that the MoF's annual financial statements are subject to audit by the National Audit Office, and that these reports are made public. The authors do suggest, however, that the time lag in releasing these reports should be substantially reduced to meet the standard set by the OECD's Best Practices for Budget Transparency. Beyond this information, however, there is little publicly available information that directly addresses Denmark's compliance with this principle.