Performance Budgeting: Current issues and ambitions

Ronnie Downes

Deputy Head, Budgeting and Public Expenditures OECD

European Commission Joint Research Centre

Ispra, 15 October 2015

Performance Budgeting – Simple in Theory…

€ ₩ $

…Difficult in Practice

1 1.5 2 2.5 3 3.5 4 4.5 5

Pay cut for head of programme/organisationProgramme transferred to other…

Negative consequences for leaders' evaluationsProgramme eliminated

More staff assigned to programme/organisationNew leadership brought in

Budget freezesBudget increases

More training provided to staff assignedBudget decreases

More intense monitoring in the futurePoor performance made public

No consequences

2007 2011

What happens when performance objectives are not met?

Some approaches to Performance Budgeting

• PRESENTATIONAL APPROACH – Show outputs, performance indicators separately from the budget

document – Easy – but effective?

• PERFORMANCE-INFORMED BUDGETING – Include performance metrics within the budget document – Involves re-structuring of budget document – more engaging?

• PERFORMANCE-BASED BUDGETING – More direct linkage between results and resources; contractual

models – Involves extensive re-working of budget lines – is it worth it?

• also: MANAGERIAL PERFORMANCE APPROACH – Focus on managerial impacts and changes in organisational behaviour – Less emphasis on link to budget allocation

• Transparency • Accountability

– Government (achieving strategic goals?) – Organisational (delivering our targets?) – Managerial (delivering my targets?)

• Austerity – Inform difficult government decisions, cuts

• Efficiency – Allocative (where resources have best effect) – Operational (value-for-money, “more with less”)

• Culture-shift (focus on results and delivery)

Performance information is used for a variety of purposes

Variation across OECD countries

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0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Kore

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exic

oCa

nada

Switz

erla

ndN

ethe

rland

sSl

oven

iaTu

rkey

Swed

enEs

toni

aSl

ovak

…N

ew…

Chile

Finl

and

Fran

ceIre

land

Aust

ralia

Uni

ted…

Denm

ark

Nor

way

Japa

nU

nite

d…Lu

xem

bour

gPo

land

Italy

Gre

ece

Belg

ium

Aust

riaSp

ain

Hung

ary

Czec

h…G

erm

any

Port

ugal

OECD average

Index of performance budgeting practices at the central level of government (2011)

Some perennial problems

• Quality, relevance and objectivity of performance information

• What’s the proper response to Poor Performance? – More resources, or fewer?

• “Gaming” of performance targets – An issue where the target corresponds weakly to the public

service objective – “Outcomes” are better targets than “outputs” – but harder

• Engagement by politicians, public and bureaucrats • Any real impact on policy-making and accountability?

Principle: quality of spending affects performance

Slovak Republic

Czech Republic Estonia

Israel

Poland

Korea

Portugal New Zealand

Canada Germany

Spain

France

Italy

Singapore

Finland

Japan

Slovenia Ireland Iceland

Netherlands

Sweden

Belgium

United Kingdom

Australia Denmark

United States

Austria

Norway

Switzerland

Luxembourg

Viet Nam

Jordan

Peru

Thailand Malaysia

Uruguay

Turkey

Colombia

Tunisia

Mexico Montenegro

Brazil

Bulgaria

Chile

Croatia

Lithuania Latvia

Hungary

Shanghai-China

R² = 0.01

R² = 0.37

300

350

400

450

500

550

600

650

0 20 000 40 000 60 000 80 000 100 000 120 000 140 000 160 000 180 000 200 000

Mat

hem

atic

s pe

rfor

man

ce (s

core

poi

nts)

Average cumulative spending per student from the age of 6 to 15 (USD, PPPs)

Student performance and average spending per student

Source: PISA 2012 Results: What makes schools successful? Resources, policies and practices, Volume IV, Figure IV.1.8.

Recent OECD-wide reforms: improving engagement

• Performance data should not be an internal, bureaucratic concern

• It could – and should – excite the interest of parliamentarians and the public – Quality of debate, clearer political messages – Emphasise continuum of policy-making:

resources, activities, outputs, impacts – Grounded in government-wide plans, strategies

European “pioneers” – case of the Netherlands

• Link to fixed multi-year spending ceilings • 2001: Detailed performance targets, monitoring, reporting

– Key Objectives agreed as part of coalition agreement • Experience of recent years: “information overload”

• Too much data – administrative burden • Too “industrial-scale”, “mechanistic”, “technocratic” • Not used by parliamentarians or by public • Not useful in identifying savings quickly

• 2011, 2013: Accountable Budget Reform – more streamlined approach – Differentiated, selective use of performance information – Interpretative “Policy Conclusion Statement” for each programme

Streamlining of performance indicators in France

46%

19%

35% Efficiency for the citizen

Quality of service

Efficiency for the taxpayer

Between 2014 and 2015 : -17% objectives, -19% indicators

US approach: Agency Priority Goals

• GPRA Modernization Act 2010 – Inspired in part by UK experience: PSAs

• Emphasis is primarily MANAGERIAL not BUDGETING – Identification of Agency Priority Goals and Goal-Leaders – Move to quarterly reporting – Government-wide Performance Improvement Council and

dedicated website

• Successful in creating internal ‘ownership’ and commitment to performance targets

Wellbeing indicators – “the Rule of Three?”

1. Economic indicators – Competitiveness – Potential growth

2. Social / Inclusive indicators – Poverty, inequality, relative income – Health, Education – Cultural life

3. Sustainability indicators – Environment – Human and physical capital – Fiscal and Societal Resilience

Examples: France, NZ, OECD

Lessons learned about good and bad practice?

a) use ready-made performance data from policy cycle b) clear programme logic linking inputs, outputs, outcomes c) seamless link to government-wide strategy and goals d) avoid information overload – the “vital few” indicators e) Include national and international benchmarks f) organisational, managerial accountability for results

– Establish routines of behaviour within organisations

g) audited and auditable performance targets h) citizen- and CSO-accessible data

Current Work by the OECD

• Develop a broader conception of “performance” – Whole-of-government concept – Centre of Government – leadership and coordination – HR: accountability of organisations and senior executives – Open government aspects: societal accountability

• Analysis of “what works” in OECD countries

– 2015/16 Survey of Budgeting Practices and Government Performance – Consistency, cooperation with EU Budgeting for Results initiative

• BUT: important to ask the right questions!

– To be discussed: OECD SBO Performance & Results Network, November 26-27, Paris

Budgeting within fiscal objectives

OECD Recommendation on Budgetary Governance

Quality, integrity &

independent audit

Performance, Evaluation &

VFM

Comprehensive budget

accounting

Effective budget

execution

Alignment with medium-term strategic plans and priorities

Performance, evaluation &

VFM

Transparency, openness & accessibility

Participative, Inclusive

& Realistic Debate

Fiscal Risks & Sustainability

Capital budgeting framework