Budget reform: making it happen Owen Barder United Kingdom

Reform in the real world Budget problems in the real world Budget Reform and the MTEF Key steps in introducing the MTEF Lessons

South Africa is different Apartheid inequality distortion of public services Human capital & financial administration New quasi-federal structure Co-operative governance

Budget problems in the real world Unrealistic budgets unaffordable, undeliverable, deferred No link to behavior no buy in, cash controls, hidden budget, overspending, link to policy proposals Allocation doesn’t reflect priorities no choice, short termist, distorted, enclaves Spending inefficient low productivity, poor management, corruption, poor planning

Budget problems in the real world Unrealistic budgets unaffordable, undeliverable, deferred No link to behavior no buy in, cash controls, hidden budget, overspending, link to policy proposals Allocation doesn’t reflect priorities no choice, short termist, distorted, enclaves Spending inefficient low productivity, poor management, corruption, poor planning

Elements of budget reform Medium Term Expenditure Framework Budget Policy Statement New intergovernmental system Public Financial Management Act Improved financial management Wider public sector   Budget Reform White Paper

MTEF: rapid success First plan April 1997 MTEF published March 1998 Compare eg Malawi since 1994 Compare South Africa 1994-96

First MTEF 1994-1996 Spreadsheet model Sectoral analysis Cross-sectoral links Cabinet away-day Sank without trace

Why did it fail? No political buy-in No emphasis on choice No link to budgets No link to budget process Too technical

MTEF 1998 Persuaded Government 3-year spending plans all departments Treasury, Cabinet, Departments 3-year spending plans all departments Analysis to improve over time MTEF replaced budget process

Persuasion Three goals of budget MTEF delivers all three aggregate fiscal discipline allocative efficiency technical efficiency MTEF delivers all three especially the first two … Target the message

Persuading Cabinet Political control of the budget Better prioritization Choices at budget stage More certainty: better planning More delivery More cooperative Less central interference Cheaper borrowing More spending “State of the art”

Persuading Departments More cooperative Less central interference Choices at budget stage More certainty: better planning More money (borrowing costs; unspent funds) Better prioritization

MTEF 1998 Persuaded Government 3-year spending plans all departments Analysis to improve over time MTEF replaced budget process

Benefits of 3 year plans Better prioritisation Better planning Transparent and credible Financial discipline More spending & delivery Affordable policy development Immediate

Benefits of analysis Identify choices & quantify Link to outputs and outcomes Accountability Benchmarking Better outcomes Over time

MTEF 1998 Persuaded Government 3-year spending plans all departments Analysis to improve over time MTEF replaced budget process

Replacing the process Every department involved Competing for same resources 3 year horizon for everything Renaming eg committees MTEF to Cabinet, not Budget Increased financial discpline

Lessons Obtain political commitment Keep it simple Make it matter emphasise empowerment, choice, delivery involve in process Keep it simple 3 year plans for each department get out of the detail Make it matter replace budget process link to financial discipline plans as baselines

Did it succeed? Too early to tell © Zhou En Lai

Did it succeed? Political buy-in Reprioritisation Budgets matter Disciplined policy-making Better analysis Co-operative governance

How to do Budget Reform Obtain political commitment Keep it simple Make it matter After the break: how SA does the MTEF

The MTEF in practice

The MTEF in practice What is the MTEF? Affordable totals Putting the budget together Lessons

South Africa is different Quasi federal structure Cooperative Governance Good administrative capacity

} } What is the MTEF? Three year projections of: growth and inflation Available Funds } growth and inflation revenues, deficit and spending debt interest costs division between tiers of government spending plans by department statement of main outputs contingency reserve Spending allocations }

MTEF process MTEF process aimed at: Agreeing affordable totals Identifying policy options Building consensus

Affordable totals % GDP

Affordable spending % GDP R billion

Getting totals right Keep projections simple Make public fiscal commitments Decide totals before allocations

Building consensus Review Teams Treasury Ministers’ Committee Cabinet Membership Baselines Implications of baselines Policy options Affordable totals Menu of choices Recommendations Treasury Ministers’ Committee Recommended allocations Policy choices Cabinet MTEF

Review teams What? Health, Education, Welfare, Crime, Personnel, Infrastructure Who? Treasury, line departments, subnational government, consultants expenditure trends implications of baseline costed policy options benchmarking

Review teams Unique to South Africa Cooperative governance Better understanding Treasury of policy challenges Departments of financial implications Consensus building Ongoing work programmes

Ministerial Committee Powerful minority Identifies options Evaluates proposals Recommends to Cabinet

Cabinet Forum for competing policies Implications of plans Menu of policy options Collective agreement Most important decisions

Timetable Apr June July Aug Sept Oct Departments submit baselines MTEF Review Teams identify spending trends and policy options Other departments plans evaluated MinComBud discusses priorities Officials discuss budget proposals MinComBud hearings Treasury updates projections

Timetable Oct Nov Dec Jan Feb Mar Treasury summary of policy options Spending totals proposed Cabinet agrees totals published in MTBPS MinComBud discusses allocations Cabinet approves allocations Departments allocate funds Budget documents prepared Budget

Implementation lessons Include, but control Listen to departments Involve politicians throughout Avoid information overload Decide totals first Don’t over-prescribe Focus on priorities Promote transparency

Contact information Owen Barder email: owen@owen.org Department of Finance, South Africa Private Bag X115, 0001 Pretoria, South Africa website: http://www.finance.gov.za/

The End Owen Barder