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 central government co-ordination of activities and budgets.
OECD Good Practices for Performance Budgeting
Good Practice 2: Performance budgeting aligns expenditure with the strategic goals and priorities of the government.
Links to strategic plans
A common motivation for introducing a performance budgeting system is to strengthen the alignment between the budget and the government’s policy priorities. Policy priorities may be captured in multiple, though not always consistent, documents, including national development plans or policies and strategies relating to specific sectors and in election pledges.
Figure 3 shows that although a majority of OECD countries have a clear set of national outcome goals, many do not. Links to key national indicators and statistical reporting systems are also not systematic in most OECD countries. In practice, strategic planning and budgeting often exist in separate silos, in which national strategic plans are developed without reference to resource constraints and budgets are developed with little reference to strategic policy objectives. Priorities are frequently unclear, plans overlap or are inconsistent, and performance indicators and targets are poorly formulated or non-existent.
Figure 4. Elements of national performance frameworks in place?
Note: Data for Israel and the United States are not available.
Source: OECD (2018), OECD Performance Budgeting Survey.
The introduction of performance budgeting provides an occasion to improve the quality of planning, and develop budget plans that link strategic planning goals to resources processes in the medium term. Austria (Box 4) provides a good practice example of how performance indicators in the budget process can be systematically linked to strategic policy goals.
Box 4. Austria’s Linkages between Strategy and Budget
The performance budgeting system in Austria requires that the outcome objectives of the budget chapters align with international strategies (e.g. EU 2020), the Federal Government’s Programme and sectoral strategies (e.g. Strategy for Research, Technology and Innovation). In the annual budget, each outcome objective is described in detail. Line ministries must give reasons why they have chosen a certain objective and, where possible describe links between the objective and overarching strategies. For example, in the budget chapter 20 “Labour market” there are several objectives that aim to reduce specific forms of unemployment. The objectives and the indicators to measure performance are, linked to the national targets of the EU 2020 strategy.
During budget preparation, the Federal Performance Management Office (FPMO) in the Federal Ministry for Civil Service and Sport provides quality assurance of the proposed objectives and indicators, including checking the alignment of objectives with national and sectoral strategies. If the objectives and indicators do not fulfil the quality criteria, FPMO will make recommendations to the line ministries to amend the draft during the drafting phase. In addition evaluation results are published by the FPMO after the ex post evaluation phase of the performance information.
Source: Austrian Federal Chancellery (2012)
The CBA normally takes the lead role in ensuring that ministries link their budget proposals to national and sector strategies. Without a measure of top down, central strategic direction, performance budgeting is more likely to be used to justify the status quo or to promote new spending, rather than resulting in reallocation of resources to meet government’s strategic policy priorities.
Medium-term Expenditure Frameworks (MTEFs)
A medium-term expenditure framework (MTEF) is a structured approach to integrating fiscal policy and budgeting over a multi-year horizon that links fiscal forecasting, fiscal objectives or rules and planning of multi-year budget estimates. In contrast to national performance frameworks, MTEFs are used extensively, with 88% of OECD countries reporting that they used MTEFs.
MTEFs can improve the effectiveness of public spending by aligning public expenditure with national priorities and giving government agencies greater certainty of resource availability over a multi-year period, promoting more effective forward planning and resourcing of policies that require an extended time horizon for implementation, such as large capital projects, new programmes, and organisational restructuring. Programme-based expenditure ceilings and organisational ceilings are used in about half of OECD countries that have MTEFs.
The strength of these frameworks varies greatly across OECD member countries. They are reflected by the degree to which they are stipulated in legislation, decided by the executive or the legislative, and subsequently monitored by the legislative or independent bodies. Most often, expenditure ceilings are set for total aggregate expenditures. However, some countries (Austria, Germany, Italy, Korea, the Netherlands, and New Zealand) have additional ceilings in place by programme, sector, and/or organisation. In order for MTEFs to be effective, monitoring and enforcement mechanisms should be in place whereby the executive reports to the legislature or an independent fiscal institution on compliance. The development of an effective MTEF process, incorporating ceilings at programme level, may therefore be seen as the first stage of the performance budgeting process
Co-ordination of complex and cross cutting programmes
A common issue in performance budgeting is that some of the government’s most important strategic policy objectives relate to complex or “wicked” issues. These are by nature hard to address and may often require coordinated interventions by several agencies. For example, reducing the rate of death from road accidents might require actions in areas ranging from road design and construction, policing, vehicle standards and inspection, to public education and awareness etc. Rather than transferring all relevant responsibilities to one agency, which is generally impractical, the normal solution is to set up multiple programmes in different agencies, each of which contributes towards the achievement of high-level outcomes. At the same time the organisational structure should not dictate the structure of programmes, and a performance focus may help to identify where some reorganisation is justified. To ensure that activities are effectively co-ordinated to deliver high-level outcomes requires inter-agency co‑ordination and monitoring. The United States offers an example of institutionalised mechanisms to promote co-ordination around cross-agency goals (see Box 5).
Box 5. United States – Co-ordination of cross–agency priority goals
The GPRA (Government Performance and Results Act) Modernization Act of 2010 (GPRAMA) requires the Office of Management and Budget (OMB) to co-ordinate with agencies to develop cross-agency priority (CAP) goals, which are 4-year outcome-oriented goals covering a number of complex or high-risk management and mission issues.
Examples of CAP goals and goal statements
OMB and the Performance Improvement Council (PIC) have introduced a goal governance structure that includes agency leaders, and holds regular senior-level reviews on CAP goal progress. They also provide ongoing assistance to CAP goal teams, such as by helping teams develop milestones and performance measures. OMB and the PIC offer guidance to assist CAP goal teams in managing the goals and in meeting GPRAMA reporting requirements. CAP goal teams reported to the US Government Accountability Office (GAO) that the CAP goal designation increased leadership attention and improved interagency collaboration on these issues.
Source: US Government Accountability Office GAO-15-509