1. Performance Budgeting Global Network of Parliamentary Budget Officers (GN-PBO) Assembly Ivor Beazley, Washington DC, June 8 th, 2016 0

2. Table of Contents What is performance budgeting? How are indicators and evaluation used to assess performance and outcomes? How can performance budgeting be implemented? Does a PBO have a role in performance budgeting? Can PBOs leverage performance budgeting?  

3. WHAT IS PERFORMANCE BUDGETING? A budgeting system that links budget appropriations to policy goals and performance indicators. Typical characteristics are: The budget presented to parliament includes analysis on the basis of programs, with related results and performance indicators Some countries have transitioned to making appropriations on the basis of programs (which ones?) Annual reports on program expenditure and performance are presented to the legislature as part of annual financial statements.”Programs and their results may be independently evaluated by the National Audit Office (and other) and reports presented to parliament 2

4. A BRIEF HISTORY Efforts to introduce program budgeting began in the United States (U.S.) in the 1960s, The idea of linking budget allocations and management to results, both within and outside the annual budget process, has gradually gained momentum. In the 1990s Australia, New Zealand, the United Kingdom (UK), and the Netherlands set off a second wave of performance-oriented budget reforms, which were heavily influenced by new public management theory (Robinson and Brumby 2005). The past 10 years have seen many more countries, often middle- and lower-income, either adopt performance budgeting or commit to the idea. Meanwhile, early adopters like the US, Australia, and the Netherlands have begun to overhaul their approaches. 3

5. PERFORMANCE BUDGETING IN CONTEXT Performance budgeting should be seen as one component of a performance management system in government. Other key components are: Results oriented strategic planning and medium term budgeting Performance oriented human resource management in the public sector Increased accountability for performance e.g. performance contracts for senior executives, commitment to defined service standards (e.g. citizens charter, agency performance agreements) Independent processes for evaluation and audit of program effectiveness and performance Performance budgeting as an isolated initiative is unlikely to drive general shift in civil service culture towards performance 4

6. HOW CAN PERFORMANCE BUDGETING BE IMPLEMENTED? Most commonly PB reforms have been led by the central budget ministry In a few cases the Prime Ministers Office has led the introduction of performance based management reforms (e.g. UK) or provided active support Legislatures have sometimes played a significant role in initiating and supporting PB. For example, the major PB reforms (LOLF, 2001) in France were initiated in response to the National Assembly’s complaints that they did not know what were the results of the spending they approved. Introduction of PB has been a slow and difficult process in most countries. France spent five years designing the reform prior to implementation. Most countries that have introduced PB are still adapting and refining their approaches, often to be less ambitious. 5

7. WHAT ARE TYPICAL IMPLEMENTATION CHALLENGES? What government and parliament expects PB to achieve is often unclear. Strong centralized governments typically expect PB to make the budget more responsive to national goals and policy priorities. Other countries see the objective as devolving responsibility to managers, providing flexibility to allocate resources and innovate Governments often underestimate the administrative and analytical capacity needed to operate a PB system successfully. Many countries may lack the capacity for the type of ambitious approach they adopt. Countries typically produce too many metrics, leading to information overload. The complexity of programs and indicators must be tightly controlled. There are significant conceptual and technical problems in linking budget resources to results :Too much emphasis on performance can motivate gaming behavior. Manipulation of performance data is rare, but when it comes to light it can create severe trust and legitimacy problems for governments Changing public employee attitudes is difficult. It takes persistent efforts, often over a decade or more to introduce a performance-oriented culture, supported by general public service reforms. 6

8. WHAT ARE THE PROS AND CONS OF PB FOR THE LEGISLATURE? PROS Greater transparency and accountability of the Executive for the results of public spending Increased opportunity to examine the effectiveness of government policies and programs, e.g. through performance audits carried out by the SAI and program evaluations CONS Loss of focus/data on budget inputs and individual projects (pork barrel) Data overload Reputational risks for Government from program failure and meddling with results 7

9. DOES A PBO HAVE A ROLE IN PERFORMANCE BUDGETING? PBO can play several important roles in relation to PB. Where PB has not yet been introduced the PBO can: Help Legislators to understand the pros and cons of PB and the relationship to broader performance reforms Help legislators to critically evaluate PB reform proposals (including changes to the organic budget law) Where PB has been introduced the PBO can help PB become more effective by: Helping legislators to critically analyze program budgets, performance indicators and results ( annual program performance reports) Helping legislators to direct the work of the SAI to provide increased scrutiny and insights into public sector policies, programs and performance 8

10. LEVERAGING PERFORMANCE BUDGETING PB is a potentially powerful tool for promoting greater transparency and accountability of the Executive to the legislature, and for driving performance improvements in the public sector. How would this work? PBO’s could assist parliamentary committees to: Scrutinize budget proposals presented in a program format, including choice of performance indicators and results. Scrutinize annual reports on program expenditures and results, including explanations for why results were or were not achieved Scrutinize reports from the SAI on program expenditures and performance Alert committee members to poor performance etc. for follow up action (hearings, SAI review etc.) 9