I have previously criticized the assumption made by some that medium-term (MT) budgeting necessarily requires that ministries be given fixed MT ceilings – that is, ceilings which represent commitments from government on the level of funding each ministry will receive in the next, say, three years. A system of indicative ceilings is, I have argued, preferable in many countries. There is an important point to add to this debate: namely, that there can sometimes be serious tension between fixed medium-term ministry expenditure ceilings and the aggregate fiscal policy or fiscal rules which guide budget policy. Read the rest of this entry »
Australia Reforms Accrual Budgeting System
April 14th, 2010When Australia adopted accrual budgeting in the late 1990s, it adopted a very peculiar system of parliamentary authorization of capital expenditure in the annual budget. This system had ideological roots – it was intended to mimic the way businesses operated. In practice, however, it was not only completely incomprehensible to non-experts (including parliamentarians), but also represented a major reduction in democratic parliamentary control over the budget. Australia has now, fortunately, decided that it will abandon this system and move back to a more conventional approach to authorizing capital expenditure. Read the rest of this entry »
Private Sector Performance Management Models Wrong for Public Sector
April 9th, 2010Strategic planning for businesses must necessarily be customer-focused, because winning and retaining customers is the key to business financial success. Government organizations are sometimes told that their strategic planning should be just as customer-focused. Concretely, they are told that identifying clearly who their customers are should be a first step in strategic planning, and that the primary focus of planning should be on how they can meet customer needs. This is bad advice. Read the rest of this entry »
Fiscal Consolidation: politics is the key
March 29th, 2010How best to implement fiscal consolidation? The technical aspects of the question are absorbing. But they are of secondary importance, because fiscal consolidation is first and foremost a matter of politics. Governments do not initiate – let alone successfully implement – serious fiscal consolidation unless they believe it to be a political winner. And the only way this happens is if the electorate becomes convinced that there is a fiscal crisis which threatens the society as a whole. Read the rest of this entry »
Targets don’t define Programs
March 26th, 2010The standard – and correct – approach to defining programs is by specifying the program objective and linking this to the type of service which the program provides. Thus a health treatment program might be defined by objectives of “minimizing death and disability via appropriate treatment of disease and injury”. I have recently seen a quite different approach at work in two countries, where programs are supposed to be defined instead in terms of performance targets. Read the rest of this entry »
The EU Paper Tiger
March 26th, 2010“We hope that it will reassure all the holders of Greek bonds that the eurozone will never let Greece fail” was EU President Van Rompuy’s “spin” on yesterday’s EU decision on support for Greece. But what actually did the EU decide? Well, it decided firstly that the IMF would take the running on Greece — which was always inevitable. And on the EU’s involvement in an IMF programme? Well, it decided that, if things got really serious, it might possibly think about contributing to the IMF programme. But the European Commission and the European Central Bank would have to give this the OK. And — wait for this — any EU country will be able to veto support!
What future for the UK’s medium-term budgeting system?
March 24th, 2010In bringing down its 2010-11 budget, the British government has been subject to strong criticism for failing to back its targets for medium-term fiscal consolidation with specifics on which areas of public spending will be cuts in order to achieve these targets. Critics say that the government should have conducted its triennial Spending Review – due this year – in order to flesh out these details. This raises a key question: what is the future of the UK’s system of fixed MT ministry budget ceilings? Read the rest of this entry »
Unit Costs in Performance Budgeting
March 24th, 2010It is often suggested that unit costs are the basic tool for performance budgeting. The proposition is that measuring the unit cost of public sector services (outputs) – or, according to some, activities – provides the best instrument for linking the funding provided to ministries to the results they are expected to achieve. In other words, unit costs are supposed to be used in budget preparation to calculate budget requirements as a function of the quantity of services to be delivered to the public. Monitoring budget execution then allegedly becomes as easy as seeing whether the planned quantities of outputs were actually delivered. This exaggerated notion of the role of unit costs as the link between funding and performance is surprisingly widespread. Read the rest of this entry »
Ministry Ceilings under Top-Down Budgeting
March 24th, 2010Countries are often advised to set firm ministry (or sectoral) budget ceilings right at the start of the budget preparation process, as an entirely “top down” process prior to any budget bids or other bottom-up input from spending ministries. This, they are told, should happen immediately following a government decision on the level of aggregate expenditure ceiling. This raises an important question: is such an early decision on ministry ceilings compatible with good expenditure prioritization? Read the rest of this entry »
“Fiscal Headroom”: A Flawed Approach to Expenditure Prioritization
March 24th, 2010What is the best methodology for prioritizing expenditure in a medium-term context? One view is that the focus should be on the “fiscal headroom” – also referred to in francophone countries as the “marge de maneouvre”. I’ve seen this approach up close in two countries recently. It is an approach which is not only flawed in principle, but particularly unsuited to the post-crisis fiscal circumstances of most countries. Read the rest of this entry »
