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7/30/2019 The Australians Mid-Term Expenditure Framework (MTEF). Its Features and Its Underlying Supporting Institutions/Systems
1/23
THE AUSTRALIAN MTEF
ITS FEATURES AND ITS UNDERLYING SUPPORTINGINSTITUTIONS/SYSTEMS
Presented by Pat McMahon
Budget Advisor,
Australian Department of Finance and Deregulation
7/30/2019 The Australians Mid-Term Expenditure Framework (MTEF). Its Features and Its Underlying Supporting Institutions/Systems
2/23
Aims of the next two sessions are to:
1. Gain a better understanding what an MTEF isand the differences to the traditional approach;
2. Draw out the key institutions and systemsnecessary to support an MTEF; and
3. Examine practical examples of how an MTEFcould be applied in some pilot agencies.
7/30/2019 The Australians Mid-Term Expenditure Framework (MTEF). Its Features and Its Underlying Supporting Institutions/Systems
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Three Features of an MTEF
1. Budgeting for more than one year - The forward years
estimates represent a continuation of government policies;
2. The only adjustments allowed being i) price or cost changes
beyond the control of managers, ii) government decisions, and
iii) demand variations in demand driven programs; and
3. MTEF does not mean that appropriations are for multiple
years. In Australia appropriations are for one year only.
7/30/2019 The Australians Mid-Term Expenditure Framework (MTEF). Its Features and Its Underlying Supporting Institutions/Systems
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Benefits of a True MTEF (A multi-year Budget)
MTEF not
linked toBudget
MTEF linked
to Budget
More useful to Cabinet forstrategic allocation decisions
x
More accuracy in the estimatesand more reliable fiscal settings
x
More certainty for line ministriesto plan
x
Less work in building budgets (nomore zero budgeting)
x
A "True" MTEF x
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Feature 1. Budgeting for more than one year -2008-09 Budget
7/30/2019 The Australians Mid-Term Expenditure Framework (MTEF). Its Features and Its Underlying Supporting Institutions/Systems
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Feature 2. Forward Estimates are linked to theBudget (no zero based budgeting each year)
Reconciliation of 2007 -08 Budget, 2007 -08 MYEFO, 2007 PEFO and
2008-09 Budget underlying cash balance estimates
a. Excludes the public debt net interest effect of policy measures.b. Excludes expected Future Fund earnings.
7/30/2019 The Australians Mid-Term Expenditure Framework (MTEF). Its Features and Its Underlying Supporting Institutions/Systems
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Some examples of other variations (fromBudget Paper No.1 2008-09)
a $318 million reduction in estimated expenses forParenting Payment reflecting an increase in the number of
people no longer eligible for the payment due to higherreported incomes
a $178 million reduction in estimated expenses forPharmaceuticals and Pharmaceutical Services driven by a
lower than expected growth in usage of a range of drugs onthe Pharmaceutical Benefits Scheme
a $128 million reduction in estimated expenses for FamilyTax Benefit driven by a decrease in customer numbers dueto higher reported incomes
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Feature 3. Multi-year budgeting but annualappropriations!
7/30/2019 The Australians Mid-Term Expenditure Framework (MTEF). Its Features and Its Underlying Supporting Institutions/Systems
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Feature 3. Multi-year Budget andAnnual Appropriations under anMTEF
Continuing Policy New Policy Process
MTEF Current (already implemented)
Long Term Development Plan20yrs
Medium Term Development
Plan/Strategic Plan
5 yrs
Medium Term Development Plan- to
be implemented
Government New Policy/Ministry New
Policy
Changes to Continuing Policy from
PBB
T
O
A
C
H
IE
V
E
4
Y
E
BUDGET
Review of Continuing Policy using PBB
Activity Program Output Outcome
MTEF Revised New State Budget Plan5 Years
Continuing Policy
over 5 years
New Policy over 5
years
Total over 5 years
Continuing Policy New Policy Process
MTEF Current (already implemented)
Governments Agenda
/Strategic Plan
4 yrs
Governments Agenda/Planyet tobeimplemented
Government New Policy/Ministry NewPolicy
Changes to Continuing Policy from
PBB
T
O
A
C
H
IE
V
EReview of Continuing Policy using PBB
Activity Program Output Outcome
ONE YEARs APPROPRIATION
Continuing Policy
In Budget year
New Policy in
Budget year
TotalAppropriation
R
A
N
E
W
7/30/2019 The Australians Mid-Term Expenditure Framework (MTEF). Its Features and Its Underlying Supporting Institutions/Systems
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Five institutional Building Blocksunderlying the Australian MTEF
A. Cabinet process that records decisions on a multi-year basis;
B. Parameters Economic (e.g. prices) and program specificadjustments for factors beyond the control of governments;
C. Defining programs and operating cost frameworks (runningcosts vs non running costs) (relates strongly to the usefulness
of PBB and aligns MTEF and PBB);
D. Costing system requiring Department of Finance agreement; and
E. Authoritative Financial Management Information System.
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Building Block A. Example of aBudget Decision by Government
Humanitarian migration program additional 500 places for Iraqis in 2008-09
Expense ($m) 2007-08 2008-09 2009-10 2010-11 2011-12
Department of Education, Employment
and Workplace Relations- 3.9 4.3 4.2 4.3
Department of Immigration and
Citizenship- 3.8 2.8 0.6 0.1
Department of Families, Housing,
Community Services and Indigenous
Affairs
- 1.4 2.2 2.2 2.3
Department of the Treasury - 0.8 0.8 0.8 0.9
Department of Health and Ageing - 0.4 0.9 0.9 0.9
Medicare Australia - .. .. .. ..
Total - 10.3 11.0 8.8 8.5
Related revenue ($m)
Australian Taxation Office - 1.0 1.1 1.2 1.3
Australian Customs Service - .. .. .. ..
Total - 1.0 1.1 1.2 1.3SOURCE: BUDGET PAPER NO.22008-09
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Building Block B. Parameters foreconomic and program specificvariables
Parameters are the economic or program specific
variables over which managers & governmentshave no control which influence the price or costof an output.
Arrangements are required to generate and apply theparameter forecasts to forward estimates
It is very important that such adjustments occur in theForward Estimates otherwise the funding provided will notbe sufficient to allow the delivery of programs as intended bythe Government
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Examples of some economicparameters from 2008-09 BudgetPapers
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Examples that highlight some program specificparameters (from 2008-09 Budget Papers)
a $207 million increase in estimated expenses for Medicare
Services reflecting increases in demand for a range of medicalservices including services provided by general practitioners,
pathology services and diagnostic imaging services and
a $240 million increase in estimated expenses for interest rate
subsidies available under Exceptional Circumstances assistance,primarily due to a higher than expected take-up by eligible
farmers.
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Generating the forecasts ofeconomic parameters & programspecific variablesEconomic parameters
Economic parameters are based on the forecasts of theJoint Economic Forecasting Group.
The economic parameters are updated at regularintervals, usually three or four times a year.
Program specific parameters Models agreed between the Department of Finance and
the line ministries are usually used togenerate theforward estimates of complex and large programs.
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Building Block D. Accurate & independentcostings
The Government requires that agencies must agree
their costings with the Department of Finance. Note: Department of Finance agreeing to the costs does
not mean it supports the policy merits of the new
policy proposal.
By fully analysing the costings, the Department ofFinance often improves its understanding of the
policy and its merit.
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Building Block E. A central budgeting systemto control variations to the forward estimates
The authoritative record of estimates is the central budgetingsystem managed by the Department of Finance.
Changes cannot be made without authority i.e.
Government decisions;
Economic parameters; Program specific parameters; and Other (rarely used, but could include changes due to accounting
standards etc)
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Summary of what is an MTEF and how it differsto the traditional models
Estimates of revenues and expenditures ofpolicies
agreed by the Government for future years
linked to the Budget (i.e. no more zero based
budgeting). Variations can only be for a few reasons, i.e.
generally: Government decisions
Parameter adjustments
MTEF can be readily linked to a multi-year national plan
7/30/2019 The Australians Mid-Term Expenditure Framework (MTEF). Its Features and Its Underlying Supporting Institutions/Systems
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Graphical Representation of aBudget process under an MTEF inIndonesia
Continuing Policy New Policy Process
MTEF Current (already implemented)
Long Term Development Plan20yrs
Medium Term DevelopmentPlan/Strategic P lan
5 yrs
Long Term Development Plan to beimplemented
Medium Term Development Plan- tobe implemented
Government New Policy/Ministry NewPolicy
Changes to Continuing Policy fromPBB
TO
ACHIEVE
NationalVision
PRESIDENTS
VISION
Review of Continuing Policy using PBB
Activity Program Output Outcome
MTEF Revised New State Budget Plan 5 Years
Continuing Policyover 5 years
New Policy over 5years
Total over 5 years
Continuing Policy New Policy Process
MTEF Current (already implemented)
Long Term Development Plan20yrs
Medium Term DevelopmentPlan/Strategic P lan
5 yrs
Long Term Development Plan to beimplemented
Medium Term Development Plan- tobe implemented
Government New Policy/Ministry NewPolicy
Changes to Continuing Policy fromPBB
TO
ACHIEVE
NationalVision
PRESIDENTS
VISION
Review of Continuing Policy using PBB
Activity Program Output Outcome
MTEF Revised New State Budget Plan 5 Years
Continuing Policyover 5 years
New Policy over 5years
Total over 5 years
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Hypothetical example ofcontinuing and new policy Family PlanningFive year National Plan
The National Plan states an aspirational target for Family Planning
Services to cover 25 million families.
Existing 4 year Budget Plan
Previous decisions allocated funds to cover only 10 million families.
Fiscal space allows for new spending on priorities not yet implemented
Government calls for new policy submissions within limits available.New Policy in the Budget
Government allocates funds for an additional 5 million families. The
new forward estimates provide funding for 15 million families.
Appropriation for Family Planning assistance to 15 million families.
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NUMBER OF FAMILIES
2009 2010 2011 2012 2013
Planning Target 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000
MTEF - Existing Policy 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
New Policy (Addition) 0 5,000,000 5,000,000 5,000,000 5,000,000
MTEF
0
5,000,000
10,000,000
15,000,000
20,000,000
2009 2010 2011 2012 2013
NumberofFam
ilie
MTEF - Existing Policy Revised MTEF
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Any Questions? Discussion!