1. Interrogating baselines: estimates, ceilings and ‘deregulation’
4th Annual CABRI Seminar
13, 14 and 15 December
Accra, Ghana
Ian Hawkesworth, OECD

2. AGENDA Medium term budget frameworks Top down budgeting
Relaxing input controls
Performance input

3. Medium-term budget frameworks
Clear fiscal policy objectives
Integrated medium term macroeconomic framework and fiscal forecast
Expenditure and income estimates for ministries and agencies for two to four years beyond budget year
The first year estimate becomes the budget year the following year
Hard budget ceilings for ministries and agencies
It takes time to reallocate
Risks locking in expenditures
A separate track for MTBF and annual budget
New MTBF prepared each year – living document
Reconciling the two
Generally 3 years beyond the budget
Enhances credibility
Enables managers to plan better
Risk locking in expenditures

4. Yes, at the aggregate level 10 33.3% Yes, at the ministry level 5
Does the annual budget documentation contain multi-year expenditure estimates? No 2
6.7%
Yes, at the aggregate level 10
33.3%
Yes, at the ministry level 5
16.7%
Yes, at line item level 6
20.0%
Other 7
23.3%
In OECD countries, only two countries, Finland and Greece, do not submit multi year expenditure estimates to the legislature. Ten countries submit estimates at the aggregate level – i.e. the most general, all of government, level; five countries submit estimates at the ministry level and six countries submit estimates at the line item level. Seven countries answered “other”.
The basis for the extrapolation: In 20 OECD countries, two thirds of the total, the estimates are based on the current legislation; in 17 countries the estimates are adjusted for the official macroeconomic forecasts, in 15 countries expenditures are adjusted for demographic changes. Notably in 14 countries the estimates are based on anticipated legislative changes (i.e. not yet in law). The number of years covered in the multi-year estimates is between three and five years including the upcoming budget year. 13 countries’ estimates cover three years and 11 countries’ estimates cover four years. In 24 countries the estimates are updated every year, in United Kingdom it is done every second year and in the Australia, Canada and the USA it is done twice a year.
OTHER:The other category contains further details for individual countries, some of which could perhaps be included under the headings. Some examples:
In Australia there are multi year estimates at the level of Ministry and agency outcomes agreed between Ministries, agencies and the Department of Finance and Administration.
In Belgium the multi year estimates are structured according to the economic classification of expenditures in the budget
In SOUTH KOREA the National Fiscal Management Plan submitted to the Legislature yearly includes mid-term fiscal projections.
In ICELAND the projections are at the functional level within each ministry

5. Top-Down Budgeting Techniques
One of the most successful reforms in Member Countries
Transition is generally difficult (trust is a prerequisite)
Benefits
Budget reflects political prioritization
Reduces game-playing
Internal reallocations
Information Asymmetry
“Ownership” of Actions

6. Top Down Budgeting
Does the CBA impose limits (ceilings) for each ministry’s initial spending request?
No = 4

7. A successful case: Sweden
Mid-1990s: Introduction of fiscal targets
1997: introduction of top-down budgeting preparation and medium-term fiscal framework approval
involves all central government administration levels 5/6 times a year
Close monitoring of ceiling-restricted expenditures
Which include all appropriations in the budget, except old-age pensions
Lesson learned
To be effective, a Medium-term framework has to be integrated into all aspects of the budget process

8. Relaxing input controls
“Deregulation” in the Public Sector
Merging line-items in budgets
Reforming central management controls
Ministries and agencies organizational model
Heads of ministry/agency in best position to manage resources
Strong pre-conditions required: functioning input system in place, robust system of internal controls and audit, Professional civil service

9. Do agencies receive lump sum appropriations?
No, specified below the agency level 9
30.0%
Yes, a lump sum for operating expenditures, (with a sub-limit on wages: 1 without: 4) 5
16.7%
Yes, a lump sum covering both operating and capital expenditures,
(with a sub-limit on wages: 6; without 1) 7
23.3%
Other
In general for “other”: It depends on type of agency. Some do, some don’t.
For example,
In Canada most organisations receive appropriations below the agency level. However, most Crown corporations (independent organisations such as Post, Railway, Public Broadcasting Corporation) and a lot of smaller agencies have only one appropriation.
In the Netherlands some agencies receive a lump sum appropriation to cover operating expenditure. A lot of agencies are financed based on their output (price*quantity).
In Portugal It depends on the juridical status of agencies. However, the general rule is a lump sum appropriation with 2 different sub-limits for operating and capital expenditures.
In the USA Cabinet and major agencies do not receive lump-sum appropriations, but some small agencies do receive lump-sum appropriations.

10. Agencies able to keep any efficiency gains?No
BELGIUM, CANADA, GREECE, ITALY, JAPAN, PORTUGAL, SWITZERLAND, TURKEY 8
Yes
CZECH REPUBLIC, FRANCE, GREAT BRITAIN, ICELAND, LUXEMBOURG 5
Yes, with restrictions
AUSTRALIA, AUSTRIA, DENMARK, FINLAND, GERMANY, HUNGARY, MEXICO, NETHERLAND(*), NEW ZEALAND, NORWAY, POLAND, SLOVAK REPUBLIC(*), SPAIN, SOUTH KOREA, SWEDEN, USA 16
Q65
Netherlands: Maximum of 5 per cent of average turnover last 3 years.
Slovak Republic: Yes, with restrictions - the limit on wages and capital expenditures should be approved by Ministry of Finance SR.

11. Financial management tools Flexibility
End-year flexibility (carry-over)
Q.54 - Can ministers carry-over unused funds or appropriations from one year to another?
23 OECD countries allow carry-over of appropriations of operating expenditure, mostly with restrictions (21).
19 OECD countries allow transfers/subsidies (17 with restrictions, 2 without), while in 11 others, carrying over transfers/subsidies is not allowed. This is linked to the type of the expenditure since most transfers/subsidies ate “entitlement’” fixed in separate legislation and for which the agency only executes the payment.
All Westminster systems and all the 4 Eastern European countries, and all parliamentary systems (except Greece) allow carry-over of operating expenditure and investment spending.
Nordic countries more often need Legislature approval (except Sweden), or Finance Minister approval (except Norway). Westminster systems

12. Performance and Results
“Quid Pro Quo” for Increased Flexibility
New form of accountability, but generally lagging
Key Issues
Some activities more easily measured than others
Outcomes versus outputs
“What gets measured, gets managed” (comprehensiveness)
What impact on annual budget allocations?
Information Overload
Lack of interest by ministers and parliamentarians
Reliability and Consistency
Targets
Widespread trend : 75% of OECD countries include non-finance performance data in budget documentation
Long-term trend: 40% of countries working on outputs for over 10 years
Constantly evolving: 35% of countries introduced a new initiative in past year
The road from incremental towards results-based budgeting: long and difficult

13. If performance targets are not met, how likely is it that the program is eliminated?
Almost never 0-20% 14
Rarely 21-40% 6
Sometimes 41-60% 3
Often 61-80%
Almost always %
Total 23

14. For more information www.oecd.org/gov/budget/database
Journal of Budgeting