Australian Performance Based Budgeting (PBB) – an outline of the steps taken over several years

7/30/2019 Australian Performance Based Budgeting (PBB) an outline of the steps taken over several years

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AUSTRALIAN PBB REFORMSanoutline of the steps taken over severalyears

Presented by Pat McMahon

Budget Advisor,

Australian Department of Finance and Deregulation


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Aims of the next two sessions:

Gain a better understanding of the steps

Australia took in its PBB reforms (1st Session);

Examine some practical examples of how PBB

could be applied in Indonesia (2nd Session); and

This afternoon we will address MTEF and thenstart addressing the practicalities involved in

moving to a mature MTEF and PBB


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Graphic of fivestages taken in implementing &improving

Performance Based Budgeting in Australia

1985

1. Program budgets Accrual-based outcome budgets

5. New Financial Management & Audit Acts

5. Charter of Budget Honesty Act

2005200019951990

3. Operating Cost Flexibility

4. Program Evaluation Plans

2. Financial Management Improvement Program

4. StrategicReviewInitiative


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Stage 3: Introduce operating cost flexibilitiesrunning cost reforms (from the late 1980s)

Greater operating cost flexibility for chief executives has beenthe most important part of PBB reforms.

It was from small beginnings, gradually broadening Runningcost budgets & new laws to provide greater flexibility, i.e.:

Rolling Property Operating, Repairs and Maintenance,Legal and Minor new capital expenditures into

Running Cost Budgets (early 1990s); Amending laws: New financial management and audit acts

to give greater powers to CEOs of Departments (mid 1990s);

Replacing Running Costs with Departmental (end of1990s upon the introduction of accruals budgeting).


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Stage 3. Appropriations split by running costs& non-running costs from 1988-89


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Stage 3. Other flexibilities and returns

Allowing carry forward of unspent running costs other than salary

to the next year & to bring forward expenditure (e.g. to 2%)

Expecting agencies to make efficiencies and return an efficiency

dividend to Government (e.g. 1 % a year).


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Stage 3. The latest evolution - toDepartmental and Administered


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Stage 4. Ever changing review and evaluationframeworks

First phasePortfolio Evaluation Plans (PEPs)

Evaluation in 1995 after 7-8 years showed a number of problems:

Many program objectives ill defined - often stated processes notoutcomes being sought by the government

Portfolio Evaluation Plans increasingly became an irrelevant process tobe endured by agencies but not used by agencies or Cabinet

Second phase

Outcomes & Outputs Framework from late 1990s Greater focus on outcomes

Greater focus on relevance to Agencies for management

Third phase Strategic Reviews commissioned by Cabinet from mid 2000s


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Stage 5. Requirements for accountability &performance increased

Requirements for performance & accountability has

increased throughout the period since mid 1980sincluding:

New laws increasing accountability of agency chief executives

for efficient, effective and ethical use of resources

Charter of Budget Honesty Act increasing the accountability of

Governments

Audit committees established in each agency


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Stage 5. Who now uses performanceinformation & results of evaluations?2. Parliament


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Stage 5. User Guide Statement of aPortfolio Budget Statement to theParliament

The purpose of the 2008-09 Portfolio Budget Statements (PB Statements) is to

inform Senators and Members of Parliament of the proposed allocation of resources

to Government outcomes by agencies within the portfolio. Agencies receiveresources from the annual appropriations acts, special appropriations (including

standing appropriations and special accounts), and revenue from other sources.

A key role of the PB Statements is to facilitate the understanding of proposed annual

appropriations in Appropriation Bills No. 1 and No. 2 2008-09 (or Appropriation Bill

[Parliamentary Departments] No. 1 2008-09 for the parliamentary departments). In

this sense the PB Statements are Budget related papers and are declared by theAppropriation Acts to be relevant documents to the interpretation of the Acts

according to section 15AB of the Acts Interpretation Act 1901.

The PB Statements provide information, explanation and justification to enable

Parliament to understand the purpose of each outcome proposed in the Bills.


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Who now uses performance information &evaluations? 3. Strategic Reviews by Cabinet

Under the Australian system Cabinet is not the

main user of performance information The use of performance information and evaluations by

Cabinet in the Budget process is limited to strategic issues

Cabinet can, and does, ask for strategic reviews

Department of Finance will use performance information to supportsavings proposals in the Budget process where there is evidence that

programs are performing badly


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The Role of the Australian Dept of Finance -leader of financial management reform

Innovation and reform in management was strongly encouraged

Introduction of MTEF & PBBFollowed by continuous improvement& incentives to perform:

Being prepared to accept a balance between the questioning role

and letting the managers manage this was not easy for a

Finance department but it was necessary to get performance.

Allowing carry forward of unspent administrative funds other thansalary to the next year & to bring forward expenditure (e.g. to 2%)

Expecting agencies to make efficiencies and return an efficiency

dividend to Government (e.g. 1 % a year).


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What worked well in Australia and why?

What has gone well?

1. MTEF involving firm forward estimates/ Running costs and

devolution of responsibility Followed by accrual reporting & then accrual budgeting

Why has it gone well?

1. The adoption of firm forward estimates linked to the budget was a

source of greater predictability to Governments & line managers it gave the capacity to better plan & manage

Predictability created the climate and expectation for performance

2. Finance provided leadership: It drove reform from mid 1980s on.


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Three possible areas for the IndonesianMinistry of Finance to focus on

Step 1: adopt a budgeting system with firm Forward Year Estimates split intowell defined programs and further split into

running costs, with well defined efficiency and effectiveness indicators; and non running costs with well defined effectiveness indicators

Step 2: provide financial management and performance training for lineministries

Step 3: create incentives to let the managers manage

Step 4: create a system to measure performance/evaluations

Documents

Australian Performance Based Budgeting (PBB) – an outline of the steps taken over several years