D EPARTMENT OF THE T REASURY Results Based Budgeting in Australia Presentation by Richard Murray, Executive Director - Fiscal and Corporate, Department

DEPARTMENT OF THE TREASURY

Results Based Budgeting in Australia

Presentation by

Richard Murray,Executive Director - Fiscal and Corporate,

Department of the Treasury


Outline• Overview of the Fiscal Framework

– Charter of Budget Honesty

– Medium Term Fiscal strategy

– Accrual Budgeting

• The Outcomes and Outputs Framework– Outcomes, Outputs and Administered Programs

– Case Study: Education

• What have we learned?– Programs versus Outcomes

– Measuring performance against Outcomes

– The need for central oversight

– Evaluation


The Fiscal Framework


Charter of Budget Honesty

• Guides rather than mandates the conduct of fiscal policy. Requires the Government to:– outline its medium term fiscal strategy

– publish financial statements consistent with Australian and international accounting standards

– specify fiscal policy actions that are temporary in nature, and the process for their reversal

– publish an Intergenerational Report every 5 years


Medium-term Fiscal Strategy

• Strategy since 1996/97 is for Budget balance on average over the cycle

• Supplementary objectives are:– maintain surpluses while economic growth prospects remain

sound

– no increase in the tax burden from 1996/97 levels

– halve net debt – achieved in 2000-01

– improve the Commonwealth’s net worth position over the medium to longer term


Improvement in Net debt

-5

0

5

10

15

20

1982-83 1986-87 1990-91 1994-95 1998-99 2002-03 2006-07

-5

0

5

10

15

20

Pro

ject

ions

Est

imat

es

Out

com

es

Per cent of GDP Per cent of GDP


OECD comparison of net debt

0

10

20

30

40

50

60

70

80

90

Germany Total OECD EuropeanUnion

Japan United States Australia

0

10

20

30

40

50

60

70

80

90

Decade from 1995 to 2004

Per cent of GDP Per cent of GDP


Accrual Budgets• Provides a more comprehensive picture of

government operations– Improves focus on fiscal sustainability (the balance sheet)

and intergenerational equity

• compares assets and liabilities (rather than just inflows and outflows of cash)

– for the Budget and forward estimates

– for individual agencies as well as whole of government

– Imposes more business-like discipline on agencies

– Ensures more focus on net worth


The Outcomes and Outputs Framework


Outcomes, Outputs and Administered Programs

• Outcomes are defined by Finance as:

‘The impact sought or expected by government in a given policy arena.’

• The focus is on change and consequences: what effect can government have on the community, economy and/or national interest?



• Outputs have been defined by Finance as:

‘The actual deliverables – goods and services – agencies produce to generate the desired

outcomes specified by government.’

• Customers include members of the public, industries or sectors, ministers, members of Parliament, other agencies or even in some instances, interests (eg the national interest).



• Administered Programs are defined by Finance as:

‘Those resources administered by the agency on behalf of the government (such as transfer payments to the States, grants and benefits) to contribute to a specified outcome.’

• They are identified separately from outputs because they involve different accountability requirements.


A Model of the Framework

Government Policy Platform and Priorities

Outcome A Outcome B Outcome C Outcome D Outcome E

Agency responsible for

Outcomes A and B

Agency responsible for

Outcomes C, D and E

Outputs and

Administered

Items for

Outcome B

Outputs and Administered

Items for Outcome E


Case Study: Education

‘Individuals achieve high quality

foundation skills and learning outcomes from schools and other providers.’

‘Individuals achieve high quality

foundation skills and learning outcomes from schools and other providers.’

‘Individuals achieve relevant skills and learning outcomes from post school education and

training.’

‘Individuals achieve relevant skills and learning outcomes from post school education and

training.’

‘Australia has a strong science, research and

innovation capacity and is engaged

internationally on science, education and training to advance our social development and

economic growth.’

‘Australia has a strong science, research and

innovation capacity and is engaged

internationally on science, education and training to advance our social development and

economic growth.’Output 1.1: Funding for schools

Output 1.2: Assistance to individuals including those with special needs

Output 1.3: Assistance for quality teaching and learning

Output 1.4: Assistance for transition through and from school

Output 2.1: Funding for vocational education and training

Output 2.2:New apprenticeships

Output 2.3: Assistance for skills and career development

Output 2.4: Funding for higher education

Output 2.5:Assistance to post school students including those with special needs

Output 3.1:Research infrastructure

Output 3.2: Assistance for science collaboration and innovation

Output 3.3: Support for the Australian education and training export industry and international relationships

Outcome 1 Outcome 2 Outcome 3



Focus on the end result, not the means of achieving it

Focus on the end result, not the means of achieving it

Outcomes should:Outcome 1: ‘Individuals achieve high quality foundation

skills and learning outcomes from schools and other providers.’

Very Good

Outcome 1: ‘Individuals achieve high quality foundation


Very Good

Outcome 3: ‘Australia has a strong science, research and

innovation capacity and is engaged internationally on science,

education and training to advance our social development and

economic growth.’

Fair / Poor




economic growth.’

Fair / Poor



Be succinctBe succinct



Very Good



Very Good




economic growth.’

Fair




economic growth.’

Fair



Be specific to the area being addressed

Be specific to the area being addressed



Very Good



Very Good




economic growth.’

Fair




economic growth.’

Fair



Be stated in a way that allows the target group to be identified

Be stated in a way that allows the target group to be identified

Outcomes should:



Very Good



Very Good




economic growth.’

Fair




economic growth.’

Fair



Enable the formulation of

effective indicators

Enable the formulation of

effective indicators

Outcomes should:



Good



Good




economic growth.’

Poor




economic growth.’

Poor



Be free of value-laden, generalised or

aspirational language

Be free of value-laden, generalised or

aspirational language

Outcomes should:



Very Good



Very Good




economic growth.’

Good / Fair




economic growth.’

Good / Fair



Be amenable to extension across

agency boundaries

Be amenable to extension across

agency boundaries

Outcomes should:



Good



Good




economic growth.’

Good




economic growth.’

Good



Be able to be related to Budget

documentation

Be able to be related to Budget

documentation

Outcomes should:



Very Good



Very Good




economic growth.’

Fair




economic growth.’

Fair



For Outputs it should be possible to:• define outputs in terms of what is produced;• measure both departmental outputs and

administered programs in terms of price, quantity and quality (PQQ); and

• relate outputs to an outcome– if this cannot be done the agency should cease to

produce the output or identify an additional outcome that the agency should achieve.



Output 1.1: Funding for schools

Output 1.2: Assistance to individuals including those with special needs

Output 1.3: Assistance for quality teaching and learning

Output 1.4: Assistance for transition through and from school

Output 2.1: Funding for vocational education and training

Output 2.2:New apprenticeships

Output 2.3: Assistance for skills and career development

Output 2.4: Funding for higher education

Output 2.5:Assistance to post school student including those with special needs

Output 3.1:Research infrastructure

Output 3.2: Assistance for science collaboration and innovation

Output 3.3: Support for the Australian education and training export industry and international relationships

Output Groups

Defines what is being provided, price and quantity are measurable and Outputs relate well to Outcomes.


Case Study: EducationTargets and performance indicators• Mean scores of Australian students in reading, mathematical and scientific

literacy compared with OECD average for 2000 (set to 500)

528

533

528

525 526 527 528 529 530 531 532 533 534

Reading literacy

Mathematical literacy

Scientific literacy


Case Study: EducationGraduate starting salaries as a proportion of Average Weekly Earnings

81.6

84.2

85.8

82.7

59.9

60.8

60.2

60.3

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

1999

2000

2001

2002

per cent

Bachelor Degree VET


Case Study: EducationOutcome 3 Effectiveness indicator: Patents

• Graph 2.3.3 Number of patents issued to Australian residents in Australia

1,419

1,295

1,418

1,763

0 500 1,000 1,500 2,000

1998/99

1999/00

2000/01

2001/02


What have we learned?


Programs versus Outcomes

• Ministers often make policy decisions based

on programs

• Budget documentation tends to provide

information on Outcomes

• There has been a move towards providing

more administered program information to

Government


Measuring performance against Outcomes

• Many outcomes are too broad. For example

‘ The Defence of Australia’

– In this case the Government has moved to define 7 sub outcomes for

reporting purposes• Outcome 1: Command of Operations in Defence of Australia

and its interests• Outcome 2: Navy Capability• Outcome 3: Army Capability• Outcome 4: Air force Capability• Outcome 5: Strategic Policy• Outcome 6: Intelligence• Outcome 7: Superannuation and Housing Support Services for

Current and Retired Personnel


The need for central oversight• A devolved management model and relative

financial autonomy has led to a lack of central knowledge on financial information

– Leads to a lack of scrutiny of agency performance by central agencies

– Directly affects the ability of central agencies to advise on Budget Strategy

• The Government has acted to provide the Department of Finance with additional resources and mandated ‘program’ and ‘cash’ reporting


Evaluation and Audit

• Evaluation of performance information is

essential to measuring the achievement of

Outcomes– Senate Estimates Committees scrutinise

performance information ex-ante

– The Audit Office scrutinise performance information ex-post

• Are Chief Executives held accountable for

Outcomes?


Questions?

Documents

D EPARTMENT OF THE T REASURY Results Based Budgeting in Australia Presentation by Richard Murray, Executive Director - Fiscal and Corporate, Department