B. Article VIII, its content, the competency it confers and its functionality

Article VIII is made up of three parts.

“1. The Parliamentary Assembly shall each year, on the proposal of the Presidency, adopt a budget covering the expenditures required to carry out the responsibilities of Institutions of Bosnia-Herzegovina and the international obligations of Bosnia and Herzegovina”

Most of this is self-explanatory. A constitutional procedure for setting the budget is set out, with it originating in draft form from the BiH Presidency. A key factor to note is that is refers only to “a budget covering expenditures […]”. No reference whatsoever is made to determining the amount of revenues available at the BiH level. Further reference is made to this below.

“2. If no such budget is adopted in due time, the budget for the previous year shall be used on a provisional basis”

This provision allows for provisional funding to be provided on a legal basis to the BiH institutions, mirroring the previous year’s budget. It was not unusual for the BiH budget to be passed late. Indeed, the complexity of BiH politics lends itself to this. The tax and fiscal reform process, which will be later referred to, improved this to a considerable extent. The 2002 budget was not finally passed until June 2002. The 2006 budget was adopted in January 2006.

The ability to adopt, on a provisional basis, the previous year’s budget did however have a significant impact upon BiH’s State Institution reform processes. In a State where all of its institutions have been established, rolling forward the previous year’s expenditure plans for a few months may not have notable consequences. However, if new institutions were planned, as they had not been included in the prior year budget, these could not (apart from extracting minimal finances from reserves) be legally financed.

“3. The Federation shall provide two-thirds, and the Republika Srpska one- third, of the revenues required by the budget, except insofar as revenues are raised as specified by the Parliamentary Assembly”

Until the indirect tax reform process was well underway, the lion’s share of BiH- level funding was made up of contributions from the Entities, as is specified above, with two thirds of this Entity contribution coming from the FBiH and one third coming from RS.

This Entity contribution was made after determining the amount of revenues that BiH raised itself “ […] as specified by the Parliamentary Assembly”. The Entity Constitutions, as noted above, conferred competencies for fiscal, most of the revenue and tax raising powers at the Entity level.³⁸⁸⁴

Revenues available to the BiH level include the ID card (CIPS) revenues, which had a one time surge when they were initially issued, issuance of BiH passports (also a one time surge and then upon renewals), telecoms fees, fees levied by Embassies, etc. These clearly are not significant, do not allow for fiscal policy setting and beyond renewals of passports and ID cards and the like, are relatively unpredictable.

It is acknowledged that Article III.1(c) of the BiH Constitution stipulates that Customs Policy is one of the responsibilities of the Institutions of Bosnia and Herzegovina. This only involved the setting of customs tariffs and rates; the separate Entity (and Brčko District) Customs Administrations administered and collected customs duties, which were paid directly into the Entity or District Treasuries.

Article VIII.3 did not require the Brčko District to contribute to the BiH budget. This clearly arose as Annex 4 came into existence in 1995, almost five years before the Brčko District Final Award. As Brčko became (relatively) more prosperous, arguably benefitting and exploiting its almost “city state” fiscal status, this lead to principally the RS but at times the Federation accusing it of haemorrhaging its own revenue sources; arguably creating a “double whammy” effect on the Entities and BiH Budgets. More revenues were being “diverted” into Brčko and consequently less was available for the Entities’ own budgets and for transfers to BiH.

Concern was frequently expressed by the International Financial Institutions (IFI), particularly the IMF, that this ran the risk of the budget being set without any fiscal responsibility or regard to where the revenues would be derived from.

However, while it is beyond the scope of this analysis, the two-thirds and one-third contributions from the Entities were never seen as an unlimited cash reserve. The political parties and ethnic groups that comprise the BiH Parliament are made up of those that serve in the Entity parliaments and many politicians were aware that an increased BiH budget would mean less (subject to the transfer payment being made, triggering a funding crisis) funding available at the Entity level.

This also caused several clashes between those in the International Community who were working on the development and expansion of Institutions at the BiH level and the IFIs who at times erred on the side of the status quo.