OECD Good Practices for Performance Budgeting

Executive summary

Performance budgeting is defined by the OECD as the systematic use of performance information to inform budget decisions, either as a direct input to budget allocation decisions or as contextual information to inform budget planning, and to instil greater transparency and accountability throughout the budget process, by providing information to legislators and the public on the purposes of spending and the results achieved.

Performance budgeting has been around since the 1960s, but was adopted more widely by OECD countries from the 1990s. Over the past decade there has been a rapid increase in the adoption of performance budgeting by OECD countries so that all but 4 countries reported having some form of performance budgeting in 2018.

Performance budgeting takes a wide variety of forms. The OECD classifies these forms as presentational, performance informed, managerial and direct. In this order, each form represents a progressively stronger link between performance measurement and budgetary decision making. The 2018 survey results showed that countries were more or less equally divided between the first three approaches. None reported using “direct” performance budgeting, which directly links budget allocations to performance measures. This highlights the inherent limitations of such a technocratic approach, given the political nature of the budget, as well as the many conceptual and practical problems in relating resource allocations and outcomes in the public sector.

Performance budgeting reforms have often proved disappointing compared to initial expectations. Despite this nearly all countries that initially adopted performance budgeting have persisted in their efforts, progressively modifying their approaches based on experience. The purpose of this paper is to distil the lessons learned, identify good practice principles and provide specific examples of good practices from OECD countries. This is based mainly on the work of the OECD Senior Budget Officials Network on Performance and Results, which has been researching and sharing experience on performance budgeting since 2004.

Summary of Good Practices

1. The rationale and objectives of performance budgeting are clearly documented and reflect the interests of key stakeholders.

• The rationale, objectives and approach to performance budgeting are set out in a strategic document such as an organic budget law or public financial management reform programme.

• The interests and priorities of multiple stakeholders in the budget cycle are reflected in the objectives and design of the performance budgeting system.

• Performance budgeting is championed by political leaders, with support from senior officials.

• The introduction of performance budgeting is supported by regulations and guidelines.

2. Performance budgeting aligns expenditure with the strategic goals and priorities of the government.

• Budget proposals are systematically linked to relevant development plans, government programme commitments and other statements of strategic direction and priority.

• Multi-year budget frameworks provide realistic and reliable fiscal parameters for the preparation of performance budgets.

• The achievement of complex objectives, requiring inter-ministerial collaboration, is supported by the central government’s co-ordination of activities and budgets.

3. The performance budgeting system incorporates flexibility to handle the varied nature of government activities and the complex relationships between spending and outcomes.

• The type and volume of performance information required varies based on the nature of the programme.

• Government uses a mix of performance measures, reflecting the multi-dimensional nature of performance in the public sector.

• Programme structures are aligned with the administrative responsibilities and service delivery functions of ministries and agencies.

• Expenditure classification and control frameworks are revised to facilitate programme management and promote accountability for results.

4. Government invests in human resources, data and other infrastructure needed to support performance budgeting.

• The Central Budget Authority builds capacity, internally and within line ministries, to manage and operate the performance budgeting system.

• The CBA regularly reviews and adjusts the operation of the performance budgeting system to improve its performance.

• Performance measurement systems are progressively improved to provide quality data on a reliable basis.

• Performance data is governed and managed as a strategic asset, with the objective of ensuring that the data is discoverable, interoperable, standardised and accessible in timely manner.

5. Performance budgeting facilitates systematic oversight by the legislature and civil society, reinforcing the government’s performance orientation and accountability.

• The annual budget and expenditure reports presented to the legislature contain information about performance targets and the level of achievement.

• The supreme audit institution carries out performance audits, including tests of the accuracy and reliability of reported performance.

• Parliament, supported by the SAI, scrutinises performance-based budgets and financial reports, holding ministers and senior public managers accountable in the event of poor performance or misrepresentation.

• Budget and expenditure data is published in machine-readable and accessible formats

6. Performance budgeting complements other tools designed to improve performance orientation, including programme evaluation and spending reviews.

• Ex ante appraisal of new spending programmes is used to strengthen programme design including key performance indicators, and to facilitate processes of monitoring and ex post evaluation.

• Ex post evaluations of major spending programmes are carried out on a rolling basis and the findings are systematically fed back into the budget preparation process.

• Spending reviews are used in conjunction with performance budgeting to review the justification for spending and to identify budgetary savings that can be redirected to support priority goals.

7. Incentives around the performance budgeting system encourage performance-oriented behaviour and learning.

• The centre of government promotes a management culture that focuses on performance.

• Performance measurement encourages comparison and competition between similar entities as a means of improving effectiveness and efficiency in service provision.

• Identified individuals and teams are responsible and accountable for the achievement of performance goals.

• Managers organise structured internal discussions to review financial and operational performance regularly through the year.

• Responses to programme under-performance emphasise learning and problem solving, rather than individual financial rewards and penalties.