DRAFT
AUSTRALIA’S EXPERIENCE IN UTILISING PERFORMANCE INFORMATION IN BUDGET AND MANAGEMENT PROCESSES
Report for the 3rd Annual Meeting of the OECD Senior Budget Officials Network on Performance and Results[1]
Mathew Fox
Assistant Secretary
Budget Coordination Branch
Budget Group
Department of Finance and Administration
PART 1: DESCRIPTION OF PERFORMANCE SYSTEM
Performance information is an important aspect of the Australian Government’s public sector financial and management framework.
Australia’s current budgeting and management arrangements focus on outputs and outcomes, and have evolved from the programme management and budgeting reforms of the early 1980s.
Australia’s budgeting and management framework is comprehensive and applies to all public sector agencies. It has a number of goals:
· Improving the quality of services;
· Making the operations of government more efficient;
· Increasing the chances that policies which are chosen and implemented will be effective;
· Enhancing the transparency of government operations; and
· Making savings in expenditure;
These objectives are consistent with the Government’s fiscal policy objectives set out in the Charter of Budget Honesty Act 1998 to guide the conduct of fiscal policy and help maintain sustainable public finances.
Background
Australia’s current arrangements arose from the budgetary reforms associated with the National Commission of Audit 1996, an independent review commissioned by the incoming Australian Government.
That review considered aspects of the management and financial activities of the Australian Government and how they were recorded. The Commission made many recommendations, but it essentially recommended that:
· Government management skills and government finances operate on a more business-like footing;
· The transparency of government finances be further improved; and
· The culture and operations of the Australian Public Service reflect a more business-like approach.
Between 1996 and 1999 legislative and administrative frameworks were introduced in response to the National Commission of Audit:
· The Audit Act 1901 was replaced in 1997 by new financial legislation for Australian Government departments and agencies, and for Australian Government authorities and companies. The legislation comprised the Financial Management and Accountability Act 1997 (FMA Act) and the Commonwealth Authorities and Companies Act 1997 (CAC Act), as well as the Auditor-General Act 1997.
· Financial management moved to a principles-based framework, with clear lines of accountability.
· The Charter of Budget Honesty Act 1998 (the Charter) was introduced. The Charter provides a framework for a more transparent conduct of fiscal policy. Its requirements include:
- Governments to disclose their fiscal strategy and to base this on principles of sound fiscal management. The principles are identified in the Charter.
- Reporting on the fiscal strategy at Budget time (including a statement of risks), half-year, and end-of-year. Prior to an election, a fiscal outlook statement is also required.
- Specific guidelines governing the costing of election commitments by Government and Opposition, and the release of information.
In addition to the legislative changes, other key reforms implemented in 1999-2000 included the move to accrual budgeting (including accrual appropriations); an outcomes and outputs resource management and performance framework; and increased flexibility and responsibility for agency chief executives (also reflected in the Public Service Act 1999).
While benefits from the reforms of the mid-late 1990s have been realised, the Australian Government has recognised the need for regular review and assessment of the reforms.
This was most recently undertaken in 2002, when the Australian Government endorsed the recommendations of the Budget Estimates and Framework Review in November 2002. This included confirmation of accrual budgeting and Finance’s right to amend agency financial estimates to ensure that the quality and timeliness of the whole-of-government estimates is of the required standard
In retrospect, the changes initiated in 1999-2000 were a significant challenge for the Government, Parliament, central and line-agency budget, management and technical staff and information technology systems. In some cases these challenges are yet to be met.
Institutional Framework
Under the devolved framework, performance management is generally the responsibility of individual Ministers and their departments and agencies, although outcomes are developed and agreed in consultation with the Minster for Finance and Administration.
The Department of Finance and Administration (Finance) is responsible for providing guidance on performance management policies relating to budget funding and requirements for government statutory authorities and companies. For budget matters, Finance issues guidelines to agencies, which recommend the level of performance reporting which is to be provided in agencies’ supporting information at budget.
In addition, while Finance has no formal responsibility for programme performance management, as a central Budget agency, Finance is responsible for providing Government with advice on whole-of-government expenditure priorities. In this context, Finance provides advice to Cabinet and Ministers on the performance of agencies and programmes, including when assessing new policy proposals in the annual budget process.
With respect to programme reviews, Finance currently develops policies on the review of programmes; however, individual departments and agencies are responsible for developing evaluation strategies. Finance also sets criteria (including terms of reference) for such reviews and recommends reviews of programmes on a targeted basis to Government.
Major initiatives and whole-of-government initiatives may require cross-portfolio agreement about evaluation and review strategies; this may include the departments and agencies involved in implementing the policies as well as Finance and/or the Department of the Prime Minister and Cabinet.
In relation to reporting in annual reports (which are signed the head of the agency) the Australian Parliament’s Joint Committee of Public Accounts and Audit (JCPAA) has issued requirements about reporting performance information in annual reports, which must be adhered to by all FMA Act agencies. By contrast, CAC agencies are required to comply with Australia’s corporations law.
PART 2: MEASUREMENT AND ASSESSMENT OF RESULTS
The Australian Government’s framework places a strong emphasis on outcomes and outputs as the foundation for performance information. Outputs are the goods and services produced by the individual department or agency on behalf of Government for external organisations or individuals. Outcomes are defined as the Government’s objectives for each portfolio (that is, the results, impacts or consequences of actions by the Australian Government on the Australian community). Outcomes are the results or impacts that the Government actually wants to achieve.
Departments and agencies are largely responsible for measuring and assessing the performance of outcomes and outputs. Within departments and agencies, there is likely to be strategic planning at the outcomes level as well as the organisation level. Most agencies will also develop longer-term plans that stretch for three to five years and review changes on an annual basis. Chief executives may consult with the relevant Minister on strategic policy matters but there is no specific requirement to do so.
At Budget and in annual reports, agencies are required to report at the outcome level and annual report requirements also require that agencies report, at a minimum, on the organisational basis as well.
At present there is little use of performance targets during budget decision making and the performance of agencies against performance targets is not formally reviewed during the budget process. A further challenge is that the nature of Commonwealth expenditure is not always amenable to the outcomes and outputs framework, for example the Commonwealth has less direct involvement with the delivery of health and education outcomes than many other countries do.
Under the Auditor-General Act 1997, the Australian National Audit Office (ANAO) conducts financial and performance audits of agencies and programmes, however, the ANAO does not audit Budget material.
Finance, in cooperation with agencies, will review this year, outcomes for all general government sector agencies. The aim will be to ensure that outcomes information is consistent with the policy framework and appropriate to the needs of Government and Parliament.
PART 3: INTEGRATING AND USING PERFORMANCE INFORMATION IN THE BUDGET PROCESS
The influence of performance information on decision-making and resource allocation in the budget process is mixed.
Portfolio Budget Submissions and Annual Reports prepared by departments and agencies provide a comprehensive report to the Government, Parliament and public on resourcing and performance by outcome and output. These provide public information on performance targets at the beginning of the year and a report against these at the end of the year. However, this information is not well integrated into the annual budget process.
At present, there is no mechanism, and no incentives, to ensure that performance information is taken into account on a standard basis when the Government is making budget decisions. There are separate initiatives that are helping to move in this direction, recently with revisions to the format of new policy proposals as well as current work to assess review arrangements and examining options for reform.
The format of new policy proposals was reviewed and revised by Finance and the Department of Prime Minister and Cabinet in late 2004. These changes require departments and agencies to identify the key benefits, risks and milestones for each proposal, and other related implementation issues, to inform Cabinet’s consideration of the proposal. These changes provide the basis for the further development of detailed implementation plans for certain new policies to manage the implementation process, track progress and inform evaluation.
Reviews are a central feature of the Australian budget process and are an area where performance information can be used to significantly inform budget decision-making. They encompass a range of activities:
· A process for automatic review of programmes that have been designated as lapsing by the Cabinet;
· A ‘targeted reviews’ process intended to focus on government priority areas, including addressing longterm fiscal pressures identified in the Intergenerational Report 200203; and
· Specific reviews commissioned by the Cabinet to address particular issues in the context of new policy decisions or development of new policy.
The lapsing programme review process is the most commonly used review type. These reviews are designed to enable regular review of expenditures that have been the subject of new policy proposals.
Renewal of funding of programmes designated as lapsing by the Cabinet is subject to a programme review every four years. The process was refined in the 2005-06 Budget to encompass two streams:
· Major reviewswith terms of reference agreed by Ministers to evaluate a programme/measure’s appropriateness, effectiveness and efficiency, and conducted by the line agency in consultation with the three central departments; and
· Departmental reportsfocusing on an evaluation of a programme/measure’s effectiveness, and prepared by the line agency in consultation with Finance.
However, there are limitations with lapsing programme reviews:
· They cover only a small and inconsistent proportion of total programme expenditure;
· They tend to cover specific measures rather than whole programmes, and they therefore do not provide for a coherent review of the overall programme covering the reviewed measure;
· They have tended to become mechanistic and have produced little change to the programmes and even less in the way of savings to the budget as, in the main, spending portfolio Ministers recommend programmes be continued largely unchanged or expanded; and
· They require significant resources to conduct, and these may be better used in alternative and more effective review processes.
The targeted reviews process was agreed by Cabinet in early 2004 and encompassed two streams:
· Longterm reviews that can take up to two years; and
· Short-term reviews that aim to report in the following budget.
While a small number of proposals for review have been put forward under this process since its introduction in 2004, these have not clearly distinguished between reviews that address budget pressures relating to demographic change and reviews addressing other types of issues.
PART 4: REPORTING OF PERFORMANCE INFORMATION
Departments and agencies are required to make performance information available to Government, Parliament and the public, but at present this information is not well connected with the budget decision making phase of the budget process.
Budget papers (such as Portfolio Budget Statements) and Annual Reports provide the most common source of information to Government, Parliament and the public.
There have been several reports over the last five years from Parliamentary committees, the Australian National Audit Office and Finance that have identified some areas needing improvement in current practice, particularly in the specification and measurement of outcomes.
The most commonly cited complaint is that the Portfolio Budget Statements (which contain information explaining the budget at the department/agency level) are difficult to understand and/or do not provide information at a sufficient level of detail.
In addition, the ANAO concluded in its audit of Annual Performance Reporting that,
“in order to provide accountability and transparency to parliamentarians and other stakeholders, agencies’ annual reporting frameworks need to be improved, particularly in relation to:
· the specification of agencies influence on, and contribution to, shared outcomes;
· Performance measures relating to quality and effectiveness/impact;
· The efficiency of agency operations and the cost effectiveness of outputs delivered; and
· Targets or other basis for comparison.” [2]
The Senate Finance and Public Administration Legislation Committee also reviewed the format of Portfolio Budget Statements on three occasions in 1997, 1999 and 2000. The Government addressed the recommendations of each report at the time - most of the amendments related to the provision of additional information. In its conclusions to the November2000 report (Chapter 5), the Committee noted that, while Portfolio Budget Statements contain a ‘wealth of useful information’, the Committee looked forward to the documents eventually providing ‘a simple, straightforward, user-friendly, yet detailed guide to the estimates’.
The recommendations of Joint Committee of Public Accounts and Audit (JCPAA) Report388, Review of the Accrual Budget Documentation (June 2002) also contained recommendations about Outcome statements and performance information for departments and agencies. The Government accepted and implemented most, but not all of the JCPAA’s recommendations.
Despite the availability of this information, Cabinet and Ministers tend to use other information, and in particular, information on new policy proposals and reviews contained in Cabinet Submissions and Portfolio Budget Submissions when making decisions. While often related to publicly available material, this information is not typically made public, and is of variable quality and usefulness. In addition, Ministers also rely on advice from Finance, specific reviews, either prepared by an interdepartmental committee established specifically for that purpose, or external reviews (for example, by the Productivity Commission).