The Hague, The Netherlands November 2004 Budget reform in OECD countries -Common themes-

Economic Growth Political Commitment to Fiscal Discipline Institutional Arrangements for Budgeting Successful Fiscal Consolidation

Medium-Term Budget Frameworks Prudent Economic Assumptions Top-Down Budgeting Techniques Budget Transparency Relaxed Input Controls Focus on Results Accruals Institutional Arrangements

Setting of fiscal objectives Operationalizing fiscal objectives Enhances credibility Enables managers to plan better Key features Level of detail Time-span Living document (reconcile changes) Caution: economic assumptions Medium-Term Frameworks

The Most Significant Fiscal Risk Good Working Methods Full Disclosure Sensitivity Analysis Comparison With Private Forecasters Independent Board Prudency Factors Canada The Netherlands Economic Assumptions

Pre-Set Spending Limit for Each Ministry Reflects Political Prioritization Pre-Set Limits Hamper Auto Increases Better Decision-Making Ownership of Actions Information Asymmetry Easier to Reallocate Reduces Game-Playing Top-Down Budget Process

Significant Advances in late 80s/early 90s –Things are really as bad as we told you. Three Elements –Release of Budget Data –Effective Role for the Legislature –Effective Role for Civil Society OECD Best Practices Budget Transparency

Deregulation in the Public Sector Level of Detail of Budget Appropriations –Salary, travel, etc. Decentralization of HRM Function Common Service Provisions –Office accommodations, etc. Heads of ministry/agency in best position to manage resources effectively & efficiently Relaxing Input Controls

Quid Pro Quo for Increased Flexibility Very difficult in practice Some more easily measured than others Outcomes versus outputs What gets measured, gets managed Information Overload Buy-in from ministers/parliamentarians Reliability and Consistency Targets Focus on Results

Very contentious issue Financial reporting versus budgeting Selected transactions only Treatment of Unique Assets and Liabilities Heritage, Military, Infrastructure Assets Social Insurance Programs Valuation Methodology Accounting Standards-Setting Accruals

All OECD Member countries are moving in this same direction Conclusion

The OECD Journal on Budgeting