INTERNATIONAL MONETARY FUND
Fiscal Affairs Department
ITALY
BUDGET SYSTEM REFORMS
Teresa Ter-Minassian, James Daniel, Annalisa Fedelino, Marc Robinson,
Justin Tyson, and Michael Keating
May 2007
Contents
Page
Abbreviations and Acronyms ....................................................................................................3
Executive Summary ...................................................................................................................5
I. Introduction ............................................................................................................................8
II. The Main Constraints on Transparent and Effective Spending Decisions..........................10
III. Lessons of Selected International Experience of Budget Reforms....................................16
A. Improving Expenditure Prioritization .....................................................................18
B. Delivering Better Services ......................................................................................27
C. Enhancing Accountability for Performance............................................................30
IV. A short-to-medium term budget reform strategy for Italy.................................................32
A. Current Reform Plans and Steps to Date ................................................................32
B. Main Components of a Further Reform Strategy....................................................38
Tables
1. Mandatory Spending by Economic Classification, 2007.....................................................11
2. Reserve and Special Funds ..................................................................................................15
3. The Relation between Goals and Tools for Budget Reform................................................17
4. Spending by Ministries Selected for the Spending Review.................................................35
5. Possible Outline of a Spending Review Process in Italy .....................................................42
Boxes
1. Italy Budget Process: Main Documents.................................................................................9
2. Top-down policy priorities ..................................................................................................11
3. The basic budget appropriation units...................................................................................12
4. Reprioritization in the U.K. and Australia under the Spending Review Process ................16
5. Outcome and Output-Based Programs.................................................................................19
6. Main Differences between Program Classification and Functional Classification of
Expenditures ........................................................................................................................20
7. Program and Ministry Structure in the French System: An Example .................................21
8. UK Departmental Spending Review: Sequence of Activity................................................23
9. Public Service Agreements in the United Kingdom ............................................................29
10. Initial steps with spending review in Italy .........................................................................36
Annexes
I. Program Costing ...................................................................................................................48
II. Selected Performance Indicators – New York City, U.K., Australia..................................52
III. Australia: Reconciliation of Expense Estimates ................................................................51
I.
3
ABBREVIATIONS AND ACRONYMS
BOI
CIPE
COFOG
DPEF
EMU
ESA 95
EU
GFS
ISTAT
MEF
RGS
RPP
SIOPE
Banca d’Italia
Comitato Interministeriale per la Programmazione Economica
Classification of the Functions of Government
Documento di Programmazione Economica e Finanziaria
European Monetary Union
European System of Accounts
European Union
Government Finance Statistics
Istituto Nazionale di Statistica
Ministero dell’Economia e delle Finanze
Ragioneria Generale dello Stato
Relazione Previsionale e Programmatica
Sistema Informativo per le Operazioni degli Enti Pubblici
4
PREFACE
In response to a request from the Italian authorities, a mission from the Fiscal Affairs
Department (FAD) of the International Monetary Fund visited Rome during March 21–
April 3, 2007 to advise on reforms of the budget system to support better spending
prioritization and efficiency. The staff team comprised Mrs. Ter-Minassian (head),
Messrs. Robinson and Tyson, and Ms. Fedelino (all FAD), and Mr. Keating (expert,
Australia). Mr. Daniel (EUR) joined the mission for the last few days. In addition, Messrs.
Dufty and Hughes (UK Treasury) participated in a workshop on international experience
organized on March 29, and in other meetings during March 28-April 01, 2007.
The mission met with Minister Padoa Schioppa, Undersecretary for Economy and Finance
Sartor, other representatives from the Ministry of Economy and Finance, the newly formed
Technical Commission for Public Finance, an inter-ministerial working group on education,
the Audit Court, the Bank of Italy, the Department of the Government Program, the
Department of Public Function, the ministries of Education, Justice, Transport,
Infrastructure, Interior, and the parliamentary Budgetary Committees of the Senate and the
Chamber of Deputies with their respective Technical Offices. The mission would like to
express its gratitude for the excellent cooperation it received from all government officials,
and the hospitality provided by the Ministry of Economy and Finance.
5
EXECUTIVE SUMMARY
There is a growing recognition among Italian policy makers, and in the society at large,
of the need to substantially improve the effectiveness and cost efficiency of public
spending programs. This is needed to create fiscal space to attend to new spending
priorities, while further reducing the general government deficit and debt and moderating the
already relatively high tax burden; and to increase the transparency of allocation of budgetary
resources, and the value citizens receive from their taxes through public goods and services.
However, the current budget system poses significant obstacles to the achievement of
these objectives. This report reviews the main weaknesses of the system, and outlines, also
in the light of relevant international experience, a number of possible steps—several of which
build on initiatives already begun by the Italian authorities—to tackle them.
Weaknesses of the current budget system
The main weaknesses of the current budget system can be summarized as follows (Chapter
II):
•
An “incrementalist” approach to budget formulation, with the bulk of public
spending extrapolated from year to year with marginal changes, without a proper reexamination of the relative value of spending programs; and with limited reflection of
the government’s priorities into budgetary choices.
•
An excessively fragmented structure of the voted budget, with some 1,500 line
items which bear no clear relation to the objectives of public spending.
•
The lack of a meaningful medium-term orientation in the budget process, with
existing forward projections not representing true baselines for subsequent budgets.
•
A budget approval process in Parliament which allows a proliferation of microoriented amendments (about 12,000 presented during the discussion of the 2007
budget).
•
A plethora of ex-ante controls on budget execution, constraining budget managers’
flexibility in using inputs and fostering a focus on legal compliance, rather than on
efficiency in the delivery of public services
•
A relatively weak information base on the cost of different spending programs,
and on their effectiveness in terms of relevant outcomes; and, relatedly
•
Little focus by policy makers on the budget outturn, especially in terms of the
results of public spending programs and their cost; and weak accountability for
performance.
6
Ongoing and planned reforms
The Italian authorities have already taken a number of steps aimed to address some of
the weaknesses outlined above. More specifically, they have:
•
initiated the preparation of a program classification for the budget;
•
begun a spending review for selected ministries;
•
started strengthening capacities both in the Ministry of Economy and Finance
(MEF) and in Parliament to evaluate spending;
•
made significant progress in strengthening the information base on the execution
of the cash budget, including at the subnational level;
•
begun a restructuring of ministries, to better align organizational structures and
manpower allocation with policy priorities; and
•
signed a memorandum of understanding with the social partners, to open a
dialogue on the human resource implications of these reforms.
These steps clearly go in the right direction, but will need to be carried forward, in some
cases expanded, and complemented by additional actions.
The way forward
Drawing lessons from international experience (Chapter III), this report suggests a package
of reforms (Chapter IV).
•
On reforming the budget structure, progress should be made in developing a sound
program-based budget classification, with full involvement of spending ministries and
the MEF in defining programs; and the accounting system should be modernized to
measure accurately programs’ costs. It would be prudent to introduce the new
program structure in the 2008 budget on a pilot basis, and to make it fully operational
in the 2009 budget.
•
On spending reviews, these should: (i) become an integral part of the Italian budget
system; (ii) generate information to be reflected in improved baseline budget
estimates; and (iii) point to any needed revision of spending legislation. Line
ministries should receive appropriate incentives to cooperate fully, for example by
being allowed to keep part of the savings identified in the spending review. The
Education and Transport ministries, which are more advanced in preparations, should
complete their reviews in time for the 2008 budget; other ministries, including some
already identified, should follow in 2008. A review cutting across ministries should
also be given consideration.
7
•
On reforms of the budget preparation process, a number of steps could be taken to
improve the content and transparency of current documentation, including a
substantial recasting of the rolling three-year budget estimates to reflect the cost of
delivering policy objectives embedded in existing legislation. The budget
documentation should also provide a consolidated picture of how the baseline budget
and the proposed legge finanziaria map into the final budget estimates, by program.
•
On reforms of the budget approval process, once the spending programs are
defined and properly costed, the Parliament should appropriate the budget on a
program basis. The much reduced number of spending programs (compared to the
1,500 line items currently included in the budget) would allow to focus parliamentary
discussions on strategic policy priorities and their trade-offs with current policies.
•
On reforms of budget execution, monitoring, and reporting, ex-ante controls
during budget execution should be drastically streamlined, so as to allow managers to
allocate funds within each program. Performance indicators for programs should be
developed, based on existing and new information (such as users’ surveys), to
strengthen ex-post monitoring and budget managers’ accountability for results.
This package of reforms will need to be supported by a well-structured communication
strategy. This should highlight how the different stakeholders (parliament, the MEF, the
spending ministries, civil servants, and society at large) can benefit from these reforms; and
establish milestones for implementation that are sufficiently ambitious to deliver visible
results in the relatively near term, but not unrealistic so as to make them unachievable.
For their success, reforms will also need to be appropriately sequenced. In this regard,
international experience suggests that: (i) the development of a well-structured program
classification should be the first step; (ii) appropriations by programs should take place only
after reliable cost estimates of programs have been developed and reflected in the accounting
system; and (iii) the development of reliable indicators of performance and review of
relevant programs should precede the introduction of performance targets.
In addition to possible political resistance, additional stumbling blocks stand in the way
of reform implementation. There may be a need to modernize the legal system—while the
current reforms are predicated on an “unchanged legal framework”, it is possible that the
1978 accounting law may need to be amended. Implementing these reforms will also have
significant human resource implications, including a need for increased geographic and
functional mobility of civil servants. Finally, these reforms will only affect the central
government, which accounts for about 40 percent of total spending; hence, addressing the
quality of spending in a meaningful way will require complementary reforms in the complex
system of intergovernmental relations—an area where some progress is being attempted.
I. INTRODUCTION
There is an increasing recognition in Italy that the quality of public spending needs to
be improved. On one hand, the country faces a number of fiscal challenges that include
continuing steadily on the path of fiscal consolidation and public debt reduction while halting
unsustainable increases in the (already relatively high) tax burden; and creating the fiscal
space for meeting rising spending needs (such as the costs of an ageing population, and the
need to revamp deteriorating infrastructure and boost research) that loom ahead. On the other
hand, enhancing Italy’s productivity will be essential for raising its growth potential and
addressing competitiveness shortfalls vis-à-vis important trade partners. It is in this context
that the issue of spending better—that is, leveraging available resources to deliver improved
public goods and services, and/or generating savings to be channeled to new priority
initiatives—has gained prominence in the political debate.
Aware of these challenges, the government is preparing to undertake a number of
structural reforms. In a document approved by the Council of Ministers on January 25,
2007, the Minister of Economy and Finance noted that, among other shortcomings, the
current budget process has not allowed a proper allocation of scarce resources, supported by
the definition of spending priorities and monitoring of achievable results. 1 To this end, the
government has initiated several reforms, such as an assessment of public spending in
selected ministries through spending reviews; the introduction of a program-based budget
classification; and support to parliament in its efforts to reform the parliamentary budget
approval procedures. These initiatives, to be supported by a new public finance commission
(Commissione Tecnica per la Finanza Pubblica), are seen as initial steps to enhance public
spending’s effectiveness and efficiency.
Significantly improving the quality of spending will require overcoming a number of
weaknesses. This report provides a diagnostic of these shortcomings (Section II); distills
lessons from international experience with relevant reforms (Section III); and outlines a
recommended reform strategy for Italy over the short to medium term (Section IV). The
report addresses only selected aspects of the budget process in Italy. A comprehensive
analysis of the Italian public financial management system would go beyond the scope of this
report; in any case, the detailed workings of the system are well documented elsewhere. 2 For
comprehensiveness, Box 1 highlights the main steps and documentation of the current budget
process, as a quick reference for the discussion in the rest of the report.
1
“Orientamento del Ministero dell’Economia e delle Finanze in materia di struttura del bilancio e di valutazione
della spesa.”
2
See, for example, Vegas, G., D. Da Empoli, and P. De Ioanna, Il bilancio dello Stato. La finanza pubblica tra
governo e parlamento, Le Guide Il Sole 24 Ore (Milan: 2005 edition).
9
Box 1. Italy Budget Process: Main Documents
Timing
Document
June-July
DPEF
Documento di Programmazione
Economico-Finanziaria
September
Relazione Previsionale e
Programmatica (RPP)
(Sezione I and II)
SeptemberDecember
January
Note Preliminari al Bilancio di
Previsione (per Ministeri)
Disposizioni per la Formazione
del Bilancio Annuale e
Pluriennale dello Stato (Legge
finanziaria)
Bilancio di Previsione dello Stato
per l’Anno Finanziario e Bilancio
Pluriennale per il Triennio
Provvedimenti collegati
Bilancio per Capitoli
Purpose
Officially starting the budget cycle for the following year, it contains a
medium-term plan for the budget and prospects for the economy. It is
presented separately to both houses of parliament, and requires a
resolution. The deficit limit approved in the resolution is binding for the
finance law, unless an adjustment note to the DPEF (nota di variazione) is
presented by the government jointly with the RPP (see below).
It provides a draft fiscal program with estimates and description of new
proposed policies; and includes draft finance law and supporting
documents from each ministry. It needs to be presented to parliament by
end-September. It contains two sections.
Sezione 1: international and domestic medium-term prospects
Sezione II: technical details on the baseline budget projections (bilancio a
legislazione vigente) and impact of finance law
Ministries submit detailed budget proposals by UPBs (the basic budget
classification unit, see Box 3).
The Finance law (finanziaria) puts into law new budget proposals.
It needs to be approved before the end of the year (typically approved in
mid/late December)
The Budget law (legge di bilancio) authorizes all revenue and spending
consistent with existing law. It needs to be approved before the end of the
year (typically approved in mid/late December)
These are legislative measures associated with the finance law, to be
approved by mid-November.
This ministerial decree informs line ministries of their budget broken
down by chapters.
This is the state budget (accrual by cost centers).
Bilancio dello Stato per Centri di
Costo
Rendiconto Generale della
It provides an annual statement of budgetary outturns.
Amministrazione dello Stato
Disposizioni per l’Assestamento
This is the revised/adjusted budget for previous year.
June
del Bilancio dello Stato e dei
Typically presented to parliament in June, it may remain open for a few
Bilanci delle Amministrazioni
months.
Autonome
Relazione sul Rendiconto
This is the report by Auditor General (Corte dei Conti) on the budget
Generale dello Stato
outcome for the preceding year.
Source: MEF website; and “Italy: Report on the Observance of Standards and Codes—Fiscal Transparency
Module” (International Monetary Fund, October 2002)
http://www.imf.org/external/pubs/cat/longres.cfm?sk=16137.0
10
The primary focus of this report is on central government spending. This is also the
coverage of the Italian budget law (legge di bilancio, Box 1), which relates to the state level
(central ministries and autonomous agencies). As this accounts (net of intergovernmental
transfers) for only about 40 percent of general government’s spending, it is evident that
addressing the quality of spending in a meaningful way will require complementary reforms
in the complex system of intergovernmental fiscal relations—an area that has remained
undefined years after a major constitutional reform assigned new responsibilities to
subnational governments. While these issues are not covered in this report, it is nonetheless
important to acknowledge their relevance, as reflected in a new legislative proposal recently
put forward by the government.
II. THE MAIN CONSTRAINTS ON TRANSPARENT AND EFFECTIVE SPENDING DECISIONS
The current system for formulating and managing public spending decisions in Italy is
affected by a number of shortcomings, spanning budget formulation, execution, and
reporting. These are briefly reviewed in this chapter. 3
Spending decisions do not appear to reflect fully and clearly the government’s policy
priorities. In principle, line ministries are supposed to reflect the priorities outlined in the
government program in their budget proposals (Box 2); in practice, the current budget
structure (see below) and the legal requirements associated with spending decisions do not
facilitate the budget prioritization process. 4 As outlined in the 2002 Report on the
Observance of Fiscal Standards and Codes (ROSC) Fiscal Transparency Module, the
budget preparation process mainly reflects the impact of past legislation on spending, and
therefore has come to have an incremental focus. The budget that emerges tends to have a
strong focus on legal compliance, rather than on strategy, driven by the so-called current
(pre-existing) legislation (legislazione vigente).
3
For a more detailed diagnostic, see “Italy: Report on the Observance of Standards and Codes (ROSC)—Fiscal
Transparency Module (IMF, 2002). See also Monticelli, Carlo (2006) “La Trasparenza dei Conti Pubblici in
Italia: Alcune Proposte” (mimeo).
4
Article 81 (clause 4) of the Constitution establishes that “any other [than the budget] law involving new or
increased expenditures must specify the resources to meet these expenditures.” This requirement has been
interpreted as an obligation to establish all spending by law and indicate the source of its funding,
11
Box 2. Top-down policy priorities
The Prime Minister’s office plays a significant role in setting out the policy priorities so that they reflect
the government’s agenda. The Dipartimento per il Programma di Governo, which reports to the President of
the Council of Ministers, is charged with setting out the strategic goals and objectives of the government. This
process, which is done in consultation with the various ministries and supported by the Comitato Tecnico
Scientifico per il Controllo Strategico nelle Amministrazioni dello Stato, produces a document outlining the
government’s strategic objectives (the government’s program for 2007 is available at
http://www.governo.it/Presidenza/controllo_strategico/direttive.html).
These objectives are expressed as a combination of outputs, desirable outcomes, and standards to be
achieved. Currently they are not explicitly assigned to specific ministries. The Prime Minister’s office is also
working alongside ISTAT (the national statistics agency) to identify a set of initial indicators to track
performance, but acknowledges that the culture and systems of performance measurement are still quite
underdeveloped.
Source: Mission’s meeting with Dipartimento del Programma di Governo.
Pre-existing legislation is not systematically reviewed in the resource allocation process
to ensure alignment with the government’s policy objectives. The process of determining
the non-discretionary elements of existing legislation is undertaken by the General
Accounting Office (Ragioneria Generale dello Stato, RGS); this process has come to include
the vast majority of expenditure, estimated by RGS itself at around 92 percent for the 2007
budget (Table 1), thus leaving little space for new initiatives within a given budget envelope.
Table 1. Mandatory Spending by Economic Classification, 2007
Mandatory spending 1/
In billions of
As share of total
euros
spending
Current spending
Of which:
Salaries
Goods and services
Capital spending
Total
Total
spending
368.0
92.1
399.4
71.2
5.6
84.9
65.6
83.9
8.6
25.7
92.0
28.0
393.7
92.1
427.4
Source: Table 1, 2007 Budget Law proposal (October 1, 2007, Act of Chamber of Deputies 1747);
and RGS glossary (available under the RGS website).
1/ Includes "legislative factors" (fattori legislativi , i.e. spending that is "absolutely rigid", as
quantified by the supporting legislation); and mandatory spending (spese obbligatorie, i.e.
spending that cannot be eluded or postponed, assigned to specific chapters, by ministry).
12
The current budget classification, which is not structured around programs, does not
allow analysis and implementation of allocation decisions in line with policy priorities.
The budget is appropriated on the basis of UPBs (unità previsionali di base), which in turn
are composed of chapters that provide information of a functional and economic nature
(capitoli). The content and size of the UPBs vary significantly, with little resemblance to
standard functional budget classification categories (Box 3).
Box 3. The Current Budget Classification
The basic unit of budget classification is the chapter (capitolo). Each chapter is mapped into standard
economic and COFOG functional classification, and has a four digit code: the first number indicates whether
it is for current payments (numbers 1 to 6); capital payments (numbers 7 and 8); or for payments with respect
to financial transactions (number 9). A chapter may be prorated across as many as ten functions (at the third
level), but must map to one economic object. For example, chapter 2643 (goods and services of the Ministry
of Economy and Finance) maps into 10 different functions (on the basis of 10 coefficients; the largest share,
equal to 37 percent, is attributed to function 1.1.2.3: budget policies). Given that most spending requires a
legal basis, chapters are also mapped to the substantive laws which give rise to them. These are listed in a
document (nomenclatore degli atti), which quotes all the laws relating to each chapter. For example, chapter
2643 is associated with 14 pieces of legislation, ranging from a 1929 royal decree to the 2004 finanziaria.
Chapters are grouped into Unità Previsionali di Base (UPBs), which provide the minimum level of
parliamentary appropriation. The Ciampi reform (Law 94/1997) introduced UPBs to reduce considerably
the number of budget items from some 6,000 chapters to about 1,000 units. Each UPB was assigned to a
specific manager, but without functional or programmatic purpose. There is a general prohibition on
transferring budgetary appropriations between UPBs, except for the office of the prime minister. In the 2007
budget, there were about 1,500 UPBs and some 4,500 chapters.
UPBs may vary significantly in size. For example, in the 2007 budget, UPB 4.2.1.18 (fiscal federalism)
amounts to some €45 billion; UPB 4.1.1.0 (administrative spending, funzionamento) to which the above
mentioned chapter 2643 belongs, amounts to €120 million; while UPB 4.2.3.25 (management of port
workers) amounts only to some €870,000.
Source: “Italy: ROSC Fiscal Transparency Module” (2002); and various MEF documents available at
http://www.rgs.mef.gov.it/VERSIONE-I/Norme-e-do/Bilancio-e/Disegno-di/index.asp
The budget is structured around a three-year framework, yet budget discussions focus
narrowly on a one-year horizon. This is due to a number of factors:
•
A sound system of forward estimates is not implemented. Estimates for outer years
are not binding or sufficiently robust to give certainty to both the MEF and line
ministries about “baseline” spending in the bilancio a legislazione vigente (budget
law, Box 1)—this is a critical shortcoming in a system, like the Italian one, where
most spending is driven by pre-existing legislation.
•
While information on the macroeconomic framework underlying the budget
projections and the main aggregate revenue/spending is generally available, it is not
13
immediately clear, nor transparently reported, how the various macroeconomic
assumptions translate into budget projections—with the concomitant risk that, as
macroeconomic projections change, budget forecasts are re-opened. 5
•
There is no top-down medium-term overall expenditure ceiling that would guide the
budget preparation process. 6
The non-binding nature of estimates in the outer years has led to haggling between the
MEF and line ministries in the budget preparation stage over the appropriate costing of
existing legislation. Line ministries do not have confidence that any savings identified
within the baseline can be kept and directed to new policies—hence, they do not face the
right incentives for properly costing their spending but rather tend to overstate the projected
cost of delivering existing policies in an incrementalist approach to budget planning.
Moreover, there is as no systematic review of current expenditure and legislation, nor an
explicit requirement for an up-front identification of fiscal space for new initiatives.
The lack of a strategic approach in the budget preparation process carries over to the
parliamentary budget discussions. As resource allocation discussions at the executive level
focus on small and detail-oriented inputs, rather than on programs and results, so do
parliamentary discussions, where elected members juggle multiple amendments with
reportedly limited awareness of their policy impact. The budget baseline (tendenziale) per se
receives almost no scrutiny by parliament, to the point that there are no proposed
amendments to it—a further proof that its construction is not transparent or well understood.
Indeed, the excessive number of UPBs (even if they corresponded to well-defined objectives)
prevents coherent choices and decisions by parliament; and the cumbersome approval
process for the financial law (finanziaria, which contains new spending proposals) has led to
an ever increasing number of proposed amendments to the law (which topped 12,000 in
2006). This has often culminated in last-minute omnibus financial laws where strategic
priorities are not (and cannot) be identified, and where UPBs may be used as vehicles to cater
to particular interests.
As a result, the relationship between the initial budget estimates and the subsequently
voted appropriations is not transparent. There is no reconciliation of how UPBs have
5
The macroeconomic framework is available in the beginning of the budget process (as highlighted in the
Relazione Previsionale e Programmatica); however, details of the underlying model are unavailable and no
updates to the overall macro or fiscal framework are formally issued at the end of the budget process, regardless
of changes in the targeted deficit ratios. For some information on modeling techniques currently applied, see
Dipartimento del Tesoro. I Documenti Programmatici: Ruolo, Strutture, Processi e Strumenti del MEF, 2006.
6
The Document of Economic and Financial Programming (DPEF), presented by end-June, includes only a
nominal deficit target that is binding for the budget documents submitted to parliament at end-September.
14
varied from the initial baseline projections to the final voted allocations—a process that
would nonetheless prove formidable in the current system of 1,500 UPBs.
The current system for allocating and managing resources is not conducive to a culture
of managerial responsibility. Pre-existing legislation tends to be interpreted as binding the
content of specific chapters; and during the fiscal year, the RGS exerts a function of ex-ante
control to ensure compliance with the law. All these factors combined—the perceived nondiscretionary nature of most expenditure, the focus on legal compliance rather than
outcomes, and the rigidities imposed by ex-ante controls—do not foster a culture where
managers feel responsible for budget outcomes. In addition, as additional spending can be
financed via special funds during the year (Table 2), managers do not face hard budget
constraints.
Operational flexibility is also hindered by the rules on reallocation of funds across
budget chapters. Article 2 clause 4.5 (2.4 quinquies) of the 1978 Accounting Law allows
managers (through a ministerial decree) to reallocate between budget chapters in the same
UBP; however, this flexibility only applies to those UPBs that are classified as discretionary.
The only exception is capital expenditures under certain conditions. A notable example of a
non-discretionary input in the Italian context is staff, thus depriving managers of important
trade-offs in the cost-effective delivery of public services. In practice, this limits reallocations
to a small portion of total expenditure (as shown in Table 1). Virements across UPBs need
approval from the RGS and supplementary approval from parliament.
Consequently, there is currently little accountability for the cost-effective use of
resources. The process for approving and controlling the use of resources, together with the
lack of routine performance information, breaks the link between managerial actions and
attainment of the policy objectives established at the beginning of the budget cycle, thus
making it hard to create incentives for accountability. Line ministries feel that spending is
driven by, and controlled from, the MEF; while the MEF believes that line ministries should
have greater ownership of their budgets and better prioritize within their budget envelopes.
The budget outturn is audited by the Audit Court to ensure legal compliance with the
approved budget, but this is done primarily on the basis of financial information.
Limited use is made of non-financial information to measure performance; in any case, this
would be a hard task given the absence of clear performance expectations at the formulation
and approval stages of the budget. According to the parliamentary Budget Committees,
reports by the Audit Court do not receive much attention from legislators, nor do they play a
significant role in the resource allocation decisions for the following year.
15
Table 2. Reserve and Special Funds
Name
Legislative
basis
Ministry
Purpose
Fund for mandatory spending
(fondo di riserva per le spese obbligatorie e
d’ordine)
Fund for carry-over of unspent capital
allocations
(fondo speciale per la riassegnazione dei
residui perenti delle spese in c. capitale)
Fund for unforeseen spending
(fondo di riserva per le spese impreviste)
Accounting Law
468/1978
article 7
Accounting Law
468/1978
article 8
MEF
Elenco 1 Budget Law
To increase allocations of chapters related
to mandatory spending (listed by
ministry/chapter in Elenco 1).
To release funds previously authorized but
not yet spent for projects.
Accounting Law
468/1978
article 9
MEF
Elenco 4 Budget Law
Fund for cash authorizations
(fondo di riserva per le autorizzazioni di
cassa)
Fund for authorization of current spending
from permanent law
(fondo di riserva per le autorizzazioni di
spesa delle legge permanenti di natura
corrente)
Special funds
(fondi speciali)
Accounting Law
468/1978
article 9-bis
Accounting Law
468/1978
article 9-ter
MEF
Accounting Law
468/1978
article 11
Various reserve funds
Various laws
(typically,
finanziaria laws)
Accounting Law
468/1978
article 12
MEF
Elenco 5&6 Budget Law
(and tabella A and B
finanziaria)
Relevant ministries
Funds to integrate budget allocations
(assegnazioni/integrazioni di bilancio)
MEF
MEF
MEF
Elenco 2&3 Budget Law
To increase allocations for spending
chapters, without impinging on future
budgets on a continuous basis.
To increase cash allocations to chapters
with insufficient funds, in line with the
“objectives of public finance.”
To provide additional funds for UPBs that
face funding shortfalls, consistent with
“objectives of public finance”
To fund financial impact of legislative
changes to be introduced after the budget
is approved (finanziaria lists them, their
cost, and the relevant ministries).
Purpose established in the law creating
these funds; for example, fund for good
and services.
These funds are not included in the budget;
they provide an ex post channel to address
shortfalls in budgetary appropriations for
specified purposes (tax refunds; debt
service, etc.)
Access rules
Decree of Minister of Economy,
to be registered by Audit Court.
Decree of Minister of Economy,
to be registered by Audit Court.
Decree of President of the
Republic; proposed by Economy
Minister and to be registered by
the Audit Court.
Decree of Minister of Economy,
to be communicated to Audit
Court.
Decree of the Minister of
Economy; proposed by relevant
minister and to be communicated
to the relevant parliamentary
commissions.
Can be accessed after the relevant
laws are approved. Funds expire if
not used.
Decree of President; proposed by
Economy Minister. The
rendiconto lists, ex post, the
decrees that effected such
integrations and their reasons.
Source: Law 268/1978; Vegas, G., D. Da Empoli, and P. De Ioanna (2005); and various budget documents.
Note: Amounts of these funds cannot be immediately traced in the budget documents. According to RGS and other government officials met by the
mission, the amounts allocated to theses funds are not significant, and have become less relevant over time. Some funds are actually “emptied” during
the parliamentary budget discussions, as resources originally allocated to some of these reserve funds are “siphoned off” to other budgetary uses.
16
III. LESSONS OF SELECTED INTERNATIONAL EXPERIENCE OF BUDGET REFORMS
Over recent decades, many countries have implemented major reforms of their budgeting
systems, as part of wider strategies of public sector reform with broadly three overarching
goals: (i) delivering the government’s policy priorities; (ii) improving the efficiency and
effectiveness of public services; and (iii) enhancing accountability for the use of taxpayers’
money. More specifically:
•
A key focus of international budget reforms has been the improvement of
expenditure prioritization to deliver the government’s policy priorities.
Budgeting systems should be capable of allocating limited public funds to the
services that deliver greatest perceived benefit to the community. The social payoffs
of these prioritization reforms have been clearly demonstrated. (Box 4).
•
Better prioritization is important, but it is only part of what is required to
improve the efficiency and effectiveness of services. Prioritization per se does little
to improve efficiency—that is, to lower the cost at which services are delivered. And
while better prioritization is a significant part of improving service effectiveness,
improved program design and management are equally relevant. An important
element in the reform agenda for improving the efficiency and effectiveness of public
spending has been the improvement of performance information, particularly through
performance measures and evaluation.
•
The provision of performance information to the public and to Parliament is
shown to play a significant role in holding the government to account for the
results achieved by its policies.
Box 4. Reprioritization in the United Kingdom and Australia under
the Spending Review Process
Under the Spending Review (SR) system initiated in 1998, the United Kingdom has demonstrated a striking
capacity to achieve major shifts in expenditure, creating scope to fund important new expenditure priorities by
cutting low priority/ineffective programs. Over the decade since the first SR, there has been a deliberate and
large shift in priorities toward frontline public services in three key sectors: health, education and transport. As
a result, the share of these three priority services in total public expenditure increased from 28 percent in 199798 to 34 percent by 2007-08. By contrast, the share of social security spending has fallen from 30 percent to
27 percent over this period due in part to the success of the Government’s welfare-to-work program.
The Expenditure Review Committee (ERC) system which has operated in Australia for more than twenty years
demonstrated a capacity, during two episodes of fiscal consolidation in the mid-1980s and mid-1990s
respectively, to target expenditure cuts at low-priority programs, and thereby avoid recourse to clumsy and
indiscriminate “across-the-board” cuts. This not only softened the pain of expenditure cuts, but also made fiscal
consolidation more sustainable
17
There are a number of key tools that have been experimented with for achieving these
goals. For simplicity, the tools described here are mapped into the three goals above: (i) tools
for improving expenditure prioritization; (ii) tools for delivering better services; and (iii)
tools for enhancing accountability. This grouping should not be rigidly interpreted, as in most
cases these tools are useful in the attainment of more than one overarching goal. Table 3
shows the relationship between goals and tools for achieving them.
Table 3.The Relation between Goals and Tools for Budget Reform
Improving
expenditure
prioritization
Delivering
better services
Enhancing
accountability
for performance
Program budgeting
X
X
X
Spending reviews
X
X
X
Medium-term focus/
sound forward estimates
X
Budget process for
prioritization
X
GOALS
TOOLS
X
Performance indicators
X
X
Evaluation
X
X
Performance targets
X
X
Results-based funding
X
Input flexibility
X
X
Performance information to
parliament
X
Performance
auditing
X
18
A. Improving Expenditure Prioritization
Tool 1: Program Budgeting
For expenditure prioritization purposes, the program classification of expenditure is
particularly valuable. It is for this reason that the French have, following in the footsteps of
many other countries, introduced a program classification to replace their previous budget
classification (by chapters which were largely input-based). This was a cornerstone of the
budgeting reforms undertaken following the Loi Organique relative aux lois des finance
(LOLF) of 2001. The Italian government has decided to adopt a similar approach to program
budgeting, in which overarching missions are designated, and a number of programs are then
identified within each mission. 7
Programs should be the basis of budgeting, and not solely an instrument of
transparency. While one of the purposes of programs is to report, after the event, the
purposes for which government used public money, programs can do much more than that.
They can be used as the basis of budget preparation by the government, with agency
budget requirements being estimated and evaluated on a program-by-program basis. They
can also be the basis on which the parliament appropriates money to ministries in the
budget law, as is done in a large number of countries including France. As part of this,
“forward estimates”—discussed below—can be formulated on a program basis.
To be of maximum use for priority-setting, programs should generally be outcome and
output-based. That is, they should represent groups of services (“outputs”) which are
unified first and foremost by the fact that they share (one or more) common intended
outcomes.
7
For example, the 34 missions employed in France in 2005 included “health”, “security” and “justice.” As an
example of the program structure, the justice mission comprised 5 programs including “judicial justice,” “prison
administration,” and “judicial protection of youth.”
19
Box 5. Outcome and Output-Based Programs
Outcomes are impacts of government services on individuals, social structures and/or the physical
environment. Examples are the protection of natural flora and fauna; the acquisition of knowledge (literacy,
numeracy etc) by students; and reduced crime. Thus a Nature Conservation program is an outcome-based
program which groups all outputs designed to protect natural flora and fauna. Similarly, a Higher Education
program would group a range of services with aim to achieve (amongst other things) knowledge outcomes. This
example of a Higher Education program illustrates a further point which applies to many programs in a welldesigned classification system: although shared outcome(s) are the first criterion upon which the program is
based, the program is further defined (and distinguished from related programs such as Primary Education) by
the nature of its client group (students who have completed and advanced beyond secondary education).
The reason why programs should in general be outcome-based is that in this way they will best capture
the key expenditure prioritization choices which most concern the government at the highest level of
budget decision-making. Concretely, what ministers and the finance ministry should be most concerned about
in setting expenditure priorities is “guns or butter” type choices: how much should be spent on defense versus
education, how much on preventative health versus health treatment services, etc.
Some of the lessons for international experience for good program design are:
•
Programs may not correspond exactly with a functional classification of outlays (see
Box 6). 8
•
The objective of each program should be clearly and briefly stated, as should the
program’s strategy for delivering this objective.
•
Strategic planning, at the government-wide or agency-specific level, should be
harmonized with program planning. In particular, the objectives and strategies
articulated with respect to a ministry’s programs should be part of its strategic plan.
•
Programs should be agreed by the Finance Ministry and relevant line ministry,
rather than decided unilaterally by the latter. The best approach is for the line
ministry to develop a proposed structure, and for this to be reviewed by, and
coordinated with, the Finance Ministry.
8
There is a limited number of exceptions to this proposition, the principal being “administration” programs.
20
Box 6. Main Differences between Program Classification and Functional Classification
of Expenditures
Both the functional classification (COFOG) and a program classification have the overall objective of
classifying expenditures according to the purpose for which the expenditure is incurred. Beyond that
common objective, however, the two classification systems have different purposes.
The objective of a program classification is operational, i.e. to allocate resources on the basis of
government policy priorities, so as to focus budget managers on the achievement of policy goals. In a
program classification, transfer of responsibility for a program from one ministry to another would see
the classification of expenditure transferred as well, so as to ensure accountability for program delivery.
The objective of COFOG, on the other hand, is statistical, i.e. to provide a consistent basis for
reporting expenditure that does not vary over time or between countries. COFOG is therefore
independent of the structure of government. Expenditure on a particular program will always be
classified in COFOG in the same way, irrespective of whether administrative responsibility for the
program is shifted from one ministry to another. This is a strength of a reporting system such as
COFOG.
An important practical difference between the two classification systems is in the aggregation
principle (i.e. the rule or basis for grouping expenditures together). In COFOG, the second and third
levels combine activities that have quite different characteristics from a management perspective. For
instance, lower secondary education (the third level in COFOG) includes the provision of education in
schools, second-chance secondary education for adults, inspection of schools, and grants or other support
provided to students to attend schools.1 Typically, different institutional units within an Education
Ministry would be involved in delivering some of these services, and performance would be measured
differently.
The management perspective should be kept in mind when designing programs if the objective is to
facilitate greater flexibility and accountability. When defining programs, the first question that should
be asked is: do these services have a common specific policy objective?
________________________________
1
See http://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=4&Lg=1&Co=09.2.1
•
Programs should generally not cross the boundaries of ministries, because each
ministry needs to receive a clearly defined budget. (In the new French system, some
missions cross ministries, but all ministries receive program appropriations which are
theirs alone. See Box 7.)
•
Following the introduction of programs, the organizational structures of
ministries should be reviewed, to make them more results-focused and align
them more closely with the program structure. It is generally a mistake to base
programs structure on pre-existing organizational structures as this is often defined
around processes or functions, and not the purpose of the programs.
21
Box 7. Program and Ministry Structure in the French System: An Example
Mission
Solidarity and
Integration
Program
Policies for
Social
Inclusion
Program
Welcome and
Integration of
Foreigners
Program
Equality
Between
Men and
Women
Ministry of Employment,
Social Cohesion and Housing
Program
Handicap and
Dependence
Program
Sickness
Protection
Program
Implementation &
Support of
Health and
Social Policy
Program
Actions for
Vulnerable
Families
Ministry of Health and Solidarity
•
Budgeting by programs requires that accounting systems be enhanced, to
provide reasonably accurate program costings. Program budgeting requires that
expenditure on inputs be allocated to programs. As discussed in Annex 1, cost
allocation is a demanding challenge, particularly with respect to “indirect” costs.
•
Because of the complexity of indirect cost allocation, it is reasonable in the early
years of a program budgeting system to have “administrative” programs in each
ministry covering overhead costs (such as ministry-wide support services),
notwithstanding that such programs violate the principle that programs should be
outcome and output based. The objective should, however, be to gradually reduce and
then finally eliminate such programs, as improvements in the capacity of accounting
systems to allocate indirect costs to programs improve. (See Annex 1).
Tool 2: Spending Reviews
The basic purpose of a spending review is to improve the quality of public services. It
focuses on the objectives of government programs, their relevance to current government
priorities, the outcomes being achieved and at what cost. Because of its in-depth probing, a
22
spending review is an important source of information to improve the prioritization of public
expenditures and resource allocation.
Spending reviews are normally based on programs, and it is difficult to carry them out if
information is not available on a program basis. In some cases, however, activities such as
the provision of information and technology services across government ministries may be
the subject of a spending review. Major spending reviews may also cut across a number of
departments and involve a group of programs that impinge on a policy outcome such as
improving the transfer of disadvantaged people from welfare to work. 9 In addition, it is also
important that tax expenditures be included in the range of spending reviews, and this is
normally best done in conjunction with a review of those spending programs that service a
broadly similar purpose. 10
Spending reviews are necessarily about changing programs and thus require that
choices are made. Where spending reviews have proved most useful, such choices have not
been confined to only a small amount of “discretionary” expenditure, as that limits what can
be achieved by spending reviews. Indeed, countries have been prepared to review entitlement
programs, such as pensions, to improve, for example, their effectiveness in encouraging
people to move from welfare to work or to postpone their retirement.
All spending ministries are typically expected to develop an agenda of spending reviews
and undertake some review activity regularly. These spending ministries are best placed
to identify the areas with the best potential for efficiency gains within their programs.
Spending reviews are, however, most effective if they target those programs where
there is reason to believe that cost effectiveness can be substantially increased and
significant savings realized (for the criteria to identify priorities for a spending review, see
Box 8). Some of the most significant spending reviews consider cross-cutting issues—such
as child poverty or how to improve assistance to disabled people to return to work—that
cover a range of programs in more than one ministry. Such reviews necessarily involve staff
from the relevant spending ministries, but are often led by someone from a central agency to
ensure proper coordination; for example, from the Prime Minister’s office.
9
These cross-cutting reviews can also encourage closer cooperation between ministries on common policy
problems and can identify duplication of functions
10
For example, a review of income support to families might cover the tax expenditures along with the
government outlays for this purpose.
23
Box 8. UK Departmental Spending Review: Sequence of Activity
Analysis of Expenditure by Program/Objective
Breakdown of expenditure by program with analysis of historic cost profile, current expenditure and forecast
trends.
Identifying Areas of Highest Priority/Return
Identify areas of high priority programs based on,
e.g.:
• the relationship with Government priorities
and objectives;
•
high economic or social returns to additional
expenditure;
•
substantial baseline pressures on forward
expenditure; or
•
the impact of exogenous pressures.
Identify scope for improving value for money in
programs or processes where, e.g.:
• objectives have lapsed or been achieved;
•
the link between spending and outcomes
is weak;
•
input or unit costs are high relative to
public, private or international
benchmarks; or
•
there is large performance variation across
delivery units.
Reprioritization of Expenditure
Revised forward estimate based on:
•
•
Revised performance framework including
resources that can released from low value
for money programs or areas of expenditure;
and
•
outcome objectives for new programs; and
•
performance targets, measurement and
monitoring arrangements.
additional expenditure required on high
priority programs or areas of expenditure.
Delivery Planning and Implementation
Agreed delivery plan setting out revised appropriation, policy reforms, legislative and administrative changes
and other actions required to refocus expenditure on objectives identified and remove obstacles to their
achievement.
Source: U.K Treasury’s contributions during the mission.
Often a spending review will extend beyond identifying the scope for improved
efficiency and will propose options for re-designing the program(s) to improve overall
cost effectiveness. The outcome of such a review will typically identify the scope for some
savings, but some or all of these savings may be used to improve the quality of those
programs, and in some cases spending reviews may result in well-formed proposals for
additional expenditures on high priority programs or areas of expenditure.
24
Establishing the right incentives is crucial to secure ministries’ participation in
spending reviews. In this regard, the prospect of being able to retain some or all of the
savings from a spending review, along with the scope to reallocate resources more effectively
and the development of firmer forward estimates of future program expenditures, are
important incentives for ministries to undertake spending reviews. The share of savings
retained by the program ministry typically depends upon the significance of the savings and
where the main ideas for achieving the savings originated—inside or outside the program
ministry.
The experience shows that spending reviews can lead to decisions—often taken in the
budget context—to seek parliament’s approval to change legislation. In particular, where
mandatory programs, such as entitlements, are subject to a spending review, that may well
lead to proposals that require changes in legislation. More generally, spending reviews will
lead to proposals to change legislation where there is a need to redesign a program to meet its
objectives more efficiently or effectively. In effect, legislation is then seen as the means for
delivering policy objectives rather than as a constraint that confines policy objectives, and the
means for achieving them, to preservation of the status quo.
The procedures and timing of spending reviews are flexible, with some broad common
features. In the United Kingdom, spending review occurs every three years, with two
Comprehensive Reviews across all spending ministries over the last decade. One important
outcome of the UK spending review is an agreed set of budget forward estimates for the next
three years. In other countries, there is a regular rolling agenda of spending reviews that
focus on particular programs or on particular policy issues. These reviews are usually
monitored by the Finance ministry, with its more direct involvement for the more significant
reviews. Although these reviews are less comprehensive than the approach in the U.K., the
sequence of activity is generally the same as shown for the U.K. in Box 7.
The activities of officials in both the spending ministries and especially in the budget
department change from a focus on haggling over funding for existing activities to
program analysis—which focuses mainly on program efficiency and effectiveness. The skill
set required is different from that of “traditional” budget analysts and managers. Also, the
relations between spending agencies and the budget department should reflect joint efforts to
improve program effectiveness rather than centering on an essentially adversarial role. The
budget department should be a source of advice to agencies in the development of
performance indicators and on best practice evaluation. Often in countries where spending
reviews are most advanced, the budget department is expected to keep a register of all
significant evaluations and advise the government on the planning of future evaluations that
the government might want to commission.
25
Tool 3: Strong Medium-Term Framework and Sound Forward Estimates
A strong medium-term focus for the budget is the basis for resource allocation, helps
maintain expenditure control over time, and assists in responding to new priorities. It
also helps with prioritization by forcing baseline changes to be linked to policy changes.
A robust system of forward estimates of the cost of existing policy—which does not need
to be renegotiated each year—is essential to achieve a medium-term budget focus.
Budget systems based on forward estimates work best where agencies accept that they are
properly funded, and that their estimates will be updated by an agreed set of rules for future
years to cover the cost of continuing existing policies. For example, this updating can involve
an agreed set of rules, so that it becomes a purely technical exercise by Finance ministry
officials, as in Australia. All changes in the estimates from one budget to the next are in
response to changes in budget parameters (such as the rate of inflation), and are subject to
agreed rules, or reflect changes in existing policy; it is possible to track these changes from
one budget to the next (Annex II). In the U.K., forward estimates are set for the three-year
period following a spending review, but there is scope to re-examine the base estimates of the
cost of existing policies at the time of the next spending review. 11
The important feature of a robust forward estimates system—however updated and
rolled forward—is that it removes annual haggling over the cost of existing policy and
allows agencies to plan with confidence. The budget process is then focused on policy
changes and how the effectiveness of programs can be improved. The incentives for spending
review are maximized as agencies can then identify the potential savings against firm
estimates of program costs. For some purposes projections of future government outlays can
be extended beyond the normal budget year plus three to consider the budgetary pressures
that may result from longer term challenges. For example, the response to climate change,
the future needs for the provision of infrastructure, and the fiscal implications of an ageing
population all require a longer time frame to inform current policy making.
Forward estimates of programs also provide the basis for ensuring that managers
confine their spending within the limits of those estimates. Any potential overspends are
then matched by savings found elsewhere or (to a limited extent) by shifting funds between
11
Most countries provide for some reserve funding in their budget to cover unforeseeable and unavoidable new
expenditures and forecasting errors. These reserves are, however, typically no more than 2 percent of total
outlays in the budget year, and rather more as they increase over the forward estimates period. Brazil, Spain,
and the U.K. all cap contingency reserves at 2 percent of spending; Australia, which imposes very tight
constraints over its budget estimates, has a contingency reserve in the budget year of only 0.7 percent.
26
years. 12 In addition, the experience has been that, where the Finance ministry only attempts to
control the total spending on a program, it is typically more successful than when it tries to
control many different program inputs. The reality is that managers will only take
responsibility for living within their budgets if they have the necessary flexibility and there is
limited central intervention.
Tool 4: Budget Process’ Focus on Priority Setting
International experience suggests that an effective budget process must be driven from
the top, especially in the initial stage when the broad strategic directions for the budget
must be set. This initial strategic guidance is essential if the budget is to truly reflect the
government’s principal priorities and if spending reviews are to realize their full potential.
The advice normally covers an assessment of the budgetary scope for spending, taking into
account any commitments on the size of government outlays and taxation and the fiscal
deficit and/or government debt. The strategic guidance might also extend to areas identified
for review and possibly targets for savings to be achieved, and/or an envelope for new
spending on a net basis after savings have been included. This advice on spending/savings
targets does not necessarily cover all spending ministries or even all activities/programs of
those ministries receiving such advice. The expectation is, however, that any changes in areas
not covered by the advice would be budget neutral, at least on a net basis when aggregated
across a ministry.
A budget process focusing on priority setting and incorporating a spending review
necessarily entails more policy choices and therefore calls for ministers’ stronger role.
In those countries which have the most advanced budgeting systems, the strategic guidance is
typically provided by the Prime Minister working in collaboration with the Finance Minister.
It may then be ratified by the full Council of Ministers. Subsequently, ministers will then
bring forward their budget submissions that reflect the initial guidance and cover all new
policy proposals to spend or to save, including the outcomes from the individual spending
reviews for relevant ministries. Ministers usually have the right to shift resources from one
program to another when preparing their budgets, as long as these transfers are agreed to be
cost-neutral. The full realization of this flexibility requires that staff are also transferable.
In a number of countries, a sub-committee of senior ministers undertakes the intense
process of examining budget submissions. This always includes the Finance Minister, and
12
In Australia, for example, program managers can carry over funds to the next year where there is
underspending, but they must borrow forward from next year’s forward estimates, when they over-spend in the
current year.
27
sometime the Prime Minister. 13 The decisions taken by this sub-committee may, in some
countries, need to be ratified by the full cabinet; in other countries, such sub-committees have
sufficient authority to determine the budget without reference to full cabinet. Less significant
decisions may be taken bilaterally by the Finance Minister and the relevant spending
minister.
B. Delivering Better Services
Tool 1: Performance Indicators
The evolution of public service performance management systems in countries such as
Australia, France, Netherlands, the U.K., and the U.S. has been toward the development of
high-quality performance indicators underpinned by robust measurement, monitoring and
accountability arrangements. Experience in these countries suggests that performance
indicators are most effective in driving behavior and improving outcomes when they are:
•
Focused primarily on outcomes and outputs, rather than inputs and processes.
•
Developed in consultation with frontline delivery agents and service users to
ensure that their definition, measurement, and delivery reflect their experience and
preferences and perverse incentives—such as the incentive to sacrifice the quality of
service in favor of increased quantity of service when the targets are set for the latter
but the former is not measured—are minimized.
•
Subject to effective quality assurance. Both internal control and the external auditor
have an important role to play in this respect. Explicit, publicly-available statements
of the methodology used for each indicator—as in the U.K.—represent another
valuable quality assurance measure.
For the purposes of external users and decision makers, a small number (3 to 5) of key
indicators per program should be identified. Managers within the agency will, of course,
use a larger set. Central agencies, including the Finance Ministry, should play a key role in
agreeing on these key indicators with line ministries, so as to ensure that they meet the needs
of central decision-makers. Some examples of performance indicators used in selected
countries are in Annex III.
Developing a set of performance measures for the whole government that is robust and
relevant enough for use in the budget process takes considerable time. Countries that are
13
For example, Australia, Canada, New Zealand, and sometimes the U.K.
28
leaders in this field took decades to build the sophisticated systems they have today. While
all ministries can be expected to develop some performance indicators from the outset, it
should be expected that these will be subject to revision in the light of experience. Also,
starting with a small number of measures and expanding the set gradually over time is the
only practical strategy.
The main function of government officials is the provision of information regarding
program performance. This includes identifying options to improve program performance
and to meet new priorities identified by ministers, and ensuring agreement on costings with
the Finance ministry before the budget submissions are finalized and lodged for ministerial
consideration. The Finance ministry provides alternative options for savings when those
proposed by spending ministries are found to be inadequate; it also keeps a running score
card of how the various decisions are affecting the total for budget outlays
Tool 2: Evaluation
As performance measures per se rarely provide conclusive evidence of performance,
program evaluation is also critical. Evaluations are analytic assessments typically
addressing the cost-effectiveness or appropriateness of expenditure policies. Countries like
Chile have had great success in integrating evaluations into their budgeting systems; there is
currently a new wave of international interest in evaluation, with many countries—such as,
for example, Canada and Australia—working on building useful evaluation systems.
International experience shows that evaluation needs to be in a form valuable to policymakers without being too resource-consuming. This means that most evaluations should
be carried out quickly, focus on drawing conclusions of specific value to managers and
budgeters, and should not set unrealistically high “scientific” standards of proof in drawing
these conclusions.
Tool 3: Performance targets
Quantitative statements on outputs and/or outcomes have been an important part of
performance management regimes in a number of countries. The most effective example
of the target-based approach is the UK Public Service Agreement (PSA) system, under which
performance targets have been set as part of the spending review process and have been
related to the level of funding provided (Box 9).
29
Box 9. Public Service Agreements in the United Kingdom
The centerpiece of performance management in the U.K. are Public Service Agreements (PSAs), agreed
between the Treasury and 18 departments. Introduced in the 1998 spending review (SR), the aim of PSAs was
to focus resources on improving outcomes for the public and strengthen accountability for cost effective service
delivery. Published alongside departments’ 3-year allocations, PSAs specify the department’s aim, 5 to 10
supporting objectives, and targets with respect to performance against those objectives. PSA targets, currently
110 in total, are defined primarily in terms of outcomes rather than the inputs or processes, to allow departments
the flexibility to find the most effective route to delivering the expected results. Examples include targets to
reduce mortality rates from cancer for under 75s by 20 percent by 2010 and to halve the number of children in
relative poverty by 2010, on the way to eradication by 2020.
Source: http://www.hm-treasury.gov.uk/spending_review/spend_sr04/psa/spend_sr04_psaindex.cfm
International experience indicates that targets need to be set carefully, in order to
minimize perverse effects and to avoid damaging rather than enhancing performance.
Arbitrary and inappropriate targets with no relation to the level of resources must be avoided.
The implementation of a targeting regime presupposes the existence of well-developed
performance measurement and costing.
Tool 4: Input Flexibility
Many countries have given ministries and managers greatly increased discretion to
choose the mix of inputs that will deliver services most efficiently, within the context of a
move to program-based budgeting and management. This involves the removal of a large
part of the detailed control of budgets by economic classification, internal organizational
unit, “chapters” and similar, which characterize traditional budgeting systems. Thus, in the
United Kingdom, many ministries are free to use the funding provided for each program in
any way they wish, subject to only two minimum restrictions: firstly, that the amount of
money provided for employing staff cannot be increased and, secondly, that money cannot be
shifted away from capital to current expenditure. In France, only the first of these restrictions
applies. More generally, greater freedom to let the managers manage has normally been
accompanied by tighter requirements to manage within their budgets.
Tool 5: Funding based directly on results
Many countries have had considerable success in improving the efficiency of service
delivery in sectors such as hospitals and universities, without loss of quality, through
the adoption of systems in which funding is based on the services delivered to the
community. The effectiveness of the output-based “diagnostic related group” funding
30
system for public hospitals has been particularly clearly demonstrated, and this has led to the
adoption of this system by a number of countries, including Portugal (1990), Australia (from
1993), Norway (1997), Singapore (1997), the United Kingdom (2004) and Germany
(2006). 14
C. Enhancing Accountability for Performance
Input flexibility needs to be accompanied by a strong managerial accountability for
results—that is, the results (outcomes and outputs) delivered by ministries—and staff within
ministries—are scrutinized and those concerned are held accountable for their performance.
This needs to be accompanied with a change in civil service remuneration arrangements and
other relevant employment conditions to create better incentives for performance. Increasing
managerial freedom over the choice of inputs also requires a robust regime of internal control
and external audit, and a culture of integrity in the civil service, so as to safeguard against
possible abuses.
Tool 1: Information to Parliament
The provision of performance information on a program basis allows Parliament to
play a significant role in holding the government to account for the results achieved by
its policies. The focus on programs and the provision of information that readily establishes
the cost of those programs and the results achieved enable parliament to assess the cost
effectiveness of each program, and thus to hold the government to account, as well as to
reflect such information in budgetary decisions. Ministries or associated groups of ministries
are typically oversighted by specific parliamentary committees that are able to enquire in
depth into their performance. Over time the findings from parliament’s interrogations of
spending ministers and other enquiries frequently inform future policy developments.
Parliament retains its role to approve the government’s budget proposals, but it also
has a major role in holding the government to account for the results achieved by the
spending proposals. In order to hold the government fully accountable for its budgetary
strategy, in a number of countries, either by convention and/or by law, there is an expectation
that the budget will emerge from parliament intact. The alternative is that the government is
defeated by a confidence vote. This requirement means that parliament, as in France, is
frequently not able to alter the total of spending from that proposed by the government, nor
its broad allocation among functions. In some other countries the budget bills that appropriate
14
See Chapter IV of Marc Robinson and Jim Brumby, Does Performance Budgeting Work? An Analytical
Review of the Empirical Literature, IMF Working Paper WP/05/210 (2005), available at
www.imf.org/external/pubs/ft/wp/2005/wp05210.pdf
31
funds for the normal functioning of the state cannot be amended. In any event, numerous
detailed amendments are normally prevented. However, in most countries all proposals that
require changes in legislation have to be agreed by parliament voting. There is normally also
a time limit imposed for parliament’s consideration of the budget
Tool 2: Performance Auditing
One important element in the results-oriented public management reforms which have taken
place around the world has been the enhancement of the mandates of supreme audit
institutions (SAIs). This has seen them transformed from bodies concerned only with
financial accountability into bodies with a crucial role to play in respect of accountability to
the parliament and the public for performance. There are two different types of
“performance auditing” that have emerged and that should be carefully distinguished. The
first is the auditing of performance indicators—the approach taken by the UK National Audit
Office, which reviews the adequacy of the systems generating performance indicators in
ministries, has particular advantages. The second is what is known as “systemic”
performance auditing—that is, reviews of the adequacy of management systems—staffing,
organizational structures, information systems and other components of internal control, to
enable the organization to operate effectively and efficiently, rather than on substantive
performance measurement. Australia is a country where systemic performance auditing has
been developed; performance audits carried out by the Australian National Audit Office
routinely include assessments of the performance management systems of the agencies under
review.
32
IV. A SHORT-TO-MEDIUM TERM BUDGET REFORM STRATEGY FOR ITALY
A. Current Reform Plans and Steps to Date
Recognizing the weaknesses in the existing budget system, the Italian authorities have
initiated a number of reforms. These include the introduction of a program-based budget
classification; support to parliament in its efforts to reform the budget approval procedures;
and an assessment of public spending in selected ministries through spending reviews.
Increasing the transparency of the budget: a new program classification
A new program budget classification is under preparation to improve transparency.
This effort, led by RGS in close coordination with spending ministries and the Department
for the Government Program, will facilitate a more transparent presentation of the budget.
The revised structure to be submitted to parliament (bilancio decisionale) will significantly
reduce the number of UPBs from the current some 1,500 (see Section II), to about 200, each
representing a specific program. In a model based on the French reforms, the intention is to
identify a number of broad missions aligned with the government’s strategic objectives, and
define a number of programs within each of these missions. Programs will be used as the unit
of budget appropriation. As a result, Parliament will be in a better position to focus on
strategic priorities and decide resource allocation accordingly. 15
The challenge will be, however, to ensure that improved transparency is accompanied
by greater operational flexibility for managers to deliver results (bilancio gestionale). A
number of crucial issues remained unresolved at the time of the mission:
•
Structure of programs: how these programs will be concretely defined so as to make
them as relevant as possible for government decisions about strategic expenditure
priorities, and more generally to ensure that the program budgeting system will work
well.
•
Structure of chapters: whether and how the current budget structure by chapters
(underlying the newly defined UPBs/programs) will be modified.
•
Flexibility within programs: whether the underlying structure by chapters will
translate into greater flexibility in the use of resources within the same program—as
15
The existing functional-based classification by missioni istituzionali is used solely for ex-post reporting
purposes (to allow international comparisons). It is based on some imputed “ratios” to map out the COFOG, but
with apparently little scrutiny or use, as it is not effectively integrated into the budget process.
33
about 90 percent of spending by chapters is currently considered mandatory (spesa
obbligatoria, as shown in Table 1). In other words, the newly redefined (and
significantly fewer) UPBs will aggregate more chapters than the older ones; this in
principle should increase the amount that can be reallocated within a specific
program. However, the fact that many chapters are encumbered by legislative
prescriptions may imply that, in practice, a significantly more flexible use of
resources within a program may not be feasible under current legislation.
•
Joint responsibility for programs: how programs spanning across different
administrative units and ministries will be defined and managed.
•
Cost accounting: whether the accounting system will be appropriately adapted to
capture the costs of running programs—this will be essential if programs are to be
used as the basis for budget appropriations, as currently proposed.
Similarly, auditing by the Audit Court will, at least for the moment, remain based on the
“old” classification.
Opening dialogue with Parliament on reform of budget approval process
The parliamentary budget commissions are working on a proposal to improve the
budget approval process. The main purpose of this reform is to allow a more focused
parliamentary discussion of the budget, by better defining the content of the DPEF to include
broad indications about possible provvedimenti collegati to identify strategic priorities;
limiting the content of the finanziaria to make it more homogenous and discernible; and
regulating the amendments that can be presented (for example, by requiring that amendments
proposed by the executive be subject to the approval of the council of ministers), so as to
contain their unruly proliferation. These proposals will require changes to the parliamentary
regulations, to be approved by the majority of parliament. It is therefore imperative that these
efforts be seen as serving the interest of the whole parliament—and not the government
coalition of the day—so as to make its decision-making process more effective and better
aligned with the policy priorities.
Reviewing and prioritizing central government expenditures
Within the tight margins of discretionary spending, the 2007 Finanziaria aimed to
challenge ministries to prioritize spending. Clause 507 effected proportional cuts (by
12 percent) in discretionary spending in identified chapters (accontonamenti lineari); 16 it then
16
These cuts amount to some €4.5 billion for 2007 (equivalent to 0.3 percent of GDP).
34
allowed these cuts to be redistributed across the affected chapters, by presenting proposals to
the RGS by end-March. The spirit of the exercise was to induce ministries to prioritize across
activities and choose strategically which ones should be “rewarded” by higher allocations, at
the expense of lower-priority ones for which the cuts would be deeper than originally
envisaged by the finanziaria. It was also meant to be an innovation from across-the-board
cuts seen in previous years. In meetings with the mission, representatives of selected
spending ministries noted that:
•
The March deadline for submissions was too tight, as a ministry may face “tough”
choices later in the year and may not be yet in a position to prioritize early on.
•
“Reallocating after cutting” was seen as a “zero-sum game”, where overall cuts
would eventually remain unchanged. This reduced incentives to find genuine savings.
•
At the same time, it seemed that the cuts were not seen as binding, as ministries could
still access special funds to counteract them—thereby negating the sense of
prioritization that clause 507 aimed to instill. 17
•
There was also a feeling that it may be politically easier, within each ministry, to
leave the cuts as originally formulated (and seen as being imposed) by the RGS.
Shifting their incidence around different responsibility centers (departments/offices)
may imply choices that are difficult to implement.
Therefore, this initial “seed” of spending review may not be as successful as it was intended
to be, especially in those ministries that are not yet well equipped to assess trade-offs and
strategic priorities.
The government also initiated pilot spending reviews in five ministries, which should
yield more lasting results. Clause 480 of 2007 Finanziaria called for a new program to
analyze and review government spending in order to improve its efficiency and effectiveness.
The pilot ministries, identified on the basis of their preparedness and/or strategic importance,
are: Education, Interior, Justice, Infrastructure, and Transport. Their portfolio represents less
than 20 percent of total central government spending (Table 4).
The review has two principal components:
•
17
Review programs and classify them according to: (i) programs to be discontinued;
(ii) programs where efficiency gains may be possible; (iii) programs for which greater
For example, the Ministry of Justice indicated that about €200 million cuts effected by clause 507 would be
“financed” by making recourse to a reserve fund, assigned to the Justice ministry by clause 1304 of the 2007
finanziaria (€200 million for each year during 2007-09), to finance purchases of goods and services.
35
resources would be necessary; and (iv) programs for which cooperation across
various spending centers would be desirable.
•
Establish a specific set of performance indicators (by September 30, 2007). These
indicators should be measurable and verifiable ex post (in terms of public service
delivery) and include a timeline. They would serve as benchmarks for subsequent
analysis and assessment. This process is to be linked to the work on identifying
missions, programs, and objectives for each ministry.18
Table 4. Spending by Ministries Selected for the Spending Review 1/
Spending 2/
In euro billions In percent of total
spending
"Spending Review" ministries:
Ministry of Education
Ministry of the Interior
Ministry of Justice
Ministry of Infrastructure
Ministry of Transport
Memorandum items
Ministry of Economy and Finance 2/
Ministry of Labor and Social Sec.
Total state spending 2/
82.7
42.2
24.7
7.8
4.1
3.9
18.2
9.3
5.4
1.7
0.9
0.9
252.9
56
455.3
55.5
12.3
100.0
Source: 2007 Budget Law (published on Official Gazette 28-12-2006 (Suppl. Ordinario N
1/ This represents only state spending, including transfers to local governments.
2/ Excludes Euro 189 billion for amortization, which is allocated to MEF; it assumed that
all "regolazioni debitorie" are done at the Ministry of Economy level.
As this is a new initiative, attempting to achieve tangible results in all five ministries in
the next few months may prove too ambitious. The Ministries of Education and Transport
seem more advanced in their preparation, and should be in a position to report on their
analysis by mid-year, in time for findings and recommendations to be reflected in the
preparation of the DPEF, or for the budget cycle starting in September (Box 10).
18
The Treasury Department of the MEF is also working on a set of performance indicators related to the
implementation of the Lisbon agenda, which are being coordinated with other EU member countries.
36
Box 10. Initial Steps with Spending Review in Italy
Five ministries were selected to participate in the initial round of spending reviews: Education, Interior,
Justice, Infrastructure, and Transport—which represent core state functions. In their meetings with the mission,
it became evident that all these ministries have:
•
proposed a structure of missions and programs, in cooperation with RGS, for the new budget
classification;
•
prepared a proposal for an administrative reorganization that would better align their functions with
the budget programs being identified; and
•
started work on identifying performance indicators.
The Ministry of Education has set up a working group that provides a good example of a spending review
process. The group was actually created before the spending review reforms were initiated; it includes staff
from the ministries of Economy, Education, and Economic Development, and the Bank of Italy. Its objective
was twofold: (i) explore ways to use education as a lever to boost productivity, and (ii) identify why, despite
spending ratios comparable to other OECD countries, educational attainment has fared poorly in the context of
international surveys. In line with best practice, the exercise attempts to trace links between inputs and
outcomes. The main input from the Ministry of Education budget is teachers’ salaries (accounting for some €38
billion out of a total of some €40 billion). However, although Italy’s teacher/student ratio is higher than in many
countries, teachers’ salaries are lower. The information base for this exercise is largely available, both
nationally and internationally, and is being further refined. The aim is to issue a white paper in early June
outlining possible scenarios and policy options (for example, projecting the number of teachers depending on
varying policy parameters such as class size, the number of taught subjects, and the like). This paper will inform
the DPEF strategy on education.
The Transport ministry is quite advanced in its restructuring plans. It had already prepared a proposal for
the 2007 budget along functional lines, which allowed the number of UPBs to be reduced (this was done in
conjunction with its separation from the ministry of infrastructure). The ministry is collecting a number of
performance indicators linked to its objectives; and has appointed an eminent transport expert as an adviser to
provide support to its internal control unit.
The other selected ministries—Justice, Interior, and Infrastructure—are at different stages in the
spending review process. They all have some performance information available that will provide a good basis
to build upon; and the preparation of the new program classification is forcing a rethinking of their overall
objectives and how to achieve them. As to the scope of the spending review, the Ministry of Interior noted that
more than half of its budget (equal to some €14 billion in 2007) represents transfers to local governments as
specified by law—these transfers are therefore viewed as not suitable to a spending review unless the law that
regulates them can be modified. Overall, these ministries displayed a clear willingness to gear up to participate
in the spending review exercise, for which they will be mainly responsible and which is seen as an opportunity
to gain more managerial flexibility, currently reported as lacking.
Source: Based on the mission’s meetings with these ministries.
The 2007 Finanziaria also foresees important, although initial, steps to strengthen the
institutional capacity to analyze and evaluate spending. More specifically:
37
•
A new public finance commission (Commissione Tecnica per la Finanza Pubblica,
CTFP), mainly comprising technical experts, was recently appointed. Its main tasks
include assessing issues related to, and preparing proposals on: implementation of
fiscal federalism reforms; coordination of budgetary reforms; providing support for
the spending reviews described above; and advising on the transparency and
reliability of fiscal accounts. While this broad mandate appears daunting for a 10member commission, many of its members have previously served on similar
commissions and can therefore draw upon a significant body of earlier studies and
proposals. It was also noted that, differently from previous commissions, the CTFP
will have specific operational responsibilities.
•
A research unit (Servizio Studi) at the RGS will provide operational support to the
CTFP (clause 476); and a council of five experts (comitato di consulenza) will be
established to provide strategic guidance and analytical support to the RGS.
•
Discussions are underway for the creation of a bicameral budget service for
Parliament, to better monitor public spending—an area where Parliament feels it has
not succeeded in exercising adequate scrutiny.
Aligning staff resources to strategic objectives
Ministries and central agencies are also preparing reorganization plans that would
better align their staffing structure to their respective strategic mission. These efforts
reflect provisions in the 2007 Finanziaria, which require: (i) rationalization and streamlining
of support and administrative services, so as to avoid duplication of tasks within services
(clause 404 and following); (ii) geographical reorganization (through the elimination of
provincial offices, where applicable, and their consolidation into regional-level offices). For
example, the MEF is planning to concentrate all its support services into the Department of
General Administration (DAG), which will significantly reduce support staff in the other
three departments (Treasury, RGS, and Taxes) and allow them to focus on their core
functions; and it will close 40 provincial offices, in a way that would not undermine services
provided by these offices and with careful consideration for negative implications for
existing staff. Similar plans are being developed in other ministries. 19
These efforts are part of a broader and deeper civil service reform at the central level.
A memorandum of understanding (signed on January 18, 2007 with the main union
representatives) acknowledges that there is a need to increase the quality of public services,
19
For example, the Ministry of Transport has well advanced restructuring plans, as noted above.
38
and necessary resources will come also from elimination of inefficiencies. There is also an
explicit recognition that the availability of performance indicators, as indicated above, will
allow increased accountability vis-à-vis users and promote transparency.
Improving the information base
Significant efforts in recent years to implement a computerized system for cash
transactions (SIOPE) are starting to bear fruit. 20 This system, which is based on a
standardized codification of all cash operations across government levels and agencies, will
allow real-time monitoring of cashflows—this is particularly relevant for capturing the
sizeable local governments’ spending activities—an area that has remained rather
impenetrable to date on a timely basis. Sustained progress on this project will require
continued cooperation across the parties involved; progressive extension to include all cash
operations (currently, central government revenue are not covered); and its access, in a
suitable format that does not undermine confidentiality, by outside agencies. The government
believes that SIOPE will represent a powerful monitoring tool for tracking spending. While a
significant step in the right direction, SIOPE will need to be complemented by additional
information bases, also covering all the prior steps of the spending process (commitments
and verifications) as outlined below.
B. Main Components of a Further Reform Strategy
The mission considers that a sustained budget reform effort over the medium term in
Italy should focus on improving budgetary resource allocation and the quality of public
services by:
•
strengthening the strategic decision content and role of the budget;
•
increasing transparency of both the policy priorities in budgetary resource
allocation, and the performance of spending programs;
•
strengthening the medium-term focus in the budget;
•
improving the system of controls, to focus on spending aggregates consistent with
macroeconomic objectives and fiscal sustainability, and with sectoral policy
priorities, rather than on inputs; and
20
The database is owned by RGS and managed by the Bank of Italy.
39
•
promoting, for spending managers, a culture of accountability for results, rather
than solely or primarily for legal compliance.
The reforms announced by the government are an important step towards a budgeting system
focused on the delivery of efficient and effective services to the Italian people. To be
successful, these measures will need to be implemented fully, which will require the
cooperation of the parliament and key elements of the civil service. They will also require a
series of complementary and supporting measures.
In the view of the mission a successful budget reform strategy in Italy would need to:
•
promote effective, sustained progress towards the medium-term objectives outlined
above;
•
include tangible gains for the main stake-holders:
¾ the government, in terms of strengthened fiscal discipline and credibility, and
simultaneously increased scope to fund new spending priorities;
¾ the Parliament, in terms of improved transparency of the budget, and scrutiny
over strategic policy choices;
¾ the Ministry of Finance (and RGS in particular), in terms of a more effective and
modern role in program formulation and management;
¾ the Audit Court (Corte dei Conti) in terms of more substantive and outcomefocused control over budget outturns;
¾ managers of spending programs in ministries, in terms of greater freedom in
optimizing the input mix, to deliver results; and
¾ society at large, in terms of increased budget transparency and improved quality
and timeliness of public services;
•
be implemented at a pace that is sufficiently ambitious to deliver visible results in
the relatively near term, but not unrealistic so as to make them unachievable and
breed political opposition, with clearly specified and monitorable milestones; and
•
identify main foreseeable legal, institutional, cultural, and human resource obstacles
to progress, and devise practical strategies to address them as effectively as possible.
What follows outlines the main elements of a reform package that could begin to address
these challenging desiderata.
40
Reforms of the Budget Structure
Rapid, but realistic, progress in the development of a sound program-based budget
classification should be a high priority, as this is a key vehicle for the articulation of policy
priorities, and their reflection in the allocation of budgetary resources.
Full involvement of spending ministries, as well as the MEF, in the definition of
programs (and sub-programs/activities) is crucial, since the line ministries are ultimately
responsible for the implementation of the relevant sectoral policies.
The authorities should ensure that accounting systems measure program costs with an
acceptable degree of accuracy. Since programs are to be the basis for budgeting and
management—rather than simply a mechanism for ex-post reporting—it is essential that
program costs are captured on a continuous basis. End-of-the-year estimates (the method
used for the present missioni istituzionali) will not suffice. It is not clear that management
accounting is currently in an advanced state of development across the central government,
so this may be a substantial task. It will be necessary:
•
firstly to implement any necessary enhancements of the functionality of the
accounting systems; and then
•
following the determination of the program structure, to map cost objects to the new
program structure.
The completion of the task of defining programs does not need to wait until the capacity
of the accounting system to handle programs is assured. However, budget
appropriation by parliament based on programs should await appropriate retooling of
the accounting system, for this reform to lead to meaningful results.
To make the implementation task more manageable in the short run, administration
programs should be designated in each ministry to cover overhead and other indirect
costs which are difficult to allocate to outcome-based programs. Over time, with the
development of improvement management accounting, these programs should be
phased out.
The breadth of these implementation tasks should not be underestimated. Even if the
accounting system is technically fully capable of recording program costs on a continuous
basis, the task of mapping cost objects to programs is a substantial one, and should in any
event only be carried out once there is confidence that the program classification which
has been developed is reasonably satisfactory. Regarding the development of the program
classification, it is the mission’s impression, based on its brief contacts with selected
41
spending ministries, that some are more advanced than others in the identification of
meaningful spending programs.
All these are indications for proceeding with caution with full-fledged implementation
of the budget classification reform, as steaming ahead without the necessary
preparations may be riskier than proceeding at a slower (but safer) pace.
Spending Reviews
A systematic process of periodic spending reviews should become an integral part of the
budget system in Italy. The primary purpose of such reviews would be to identify
programs to be redesigned to achieve savings, or eliminated; and programs to be expanded or
initiated. Spending reviews should cover all expenditure, including spese obbligatorie, as
well as tax expenditure. Spese obbligatorie should not be considered as untouchable—it is
the purpose of meaningful spending reviews to point to any needed revision of the legislation
underlying such spending programs, which is required if the programs concerned are
ineffective or of low priority. Table 5 includes a summary outline of a potential spending
review process.
The information generated by the spending reviews should feed into the budget preparation
process, including at the ministerial level, leading to decisions to change existing expenditure
policies and, consequently, to revisions of baseline budget estimates (see below), and into the
preparation of the legge finanziaria, as appropriate.
The active engagement of the relevant ministries is key to the effectiveness of spending
reviews. One important way of doing this is to give ministries an incentive to identify
options for savings by permitting them to retain, and reapply for higher-priority purpose, a
portion of any savings which they themselves identify from the elimination or cut back of
programs, or productivity-enhancing steps. Appropriate criteria governing such retention
should be defined in advance.
Spending reviews should also make a contribution to the task of identifying efficiency
gains. However, it should be recognized that it is in general more difficult for reviewers from
outside any given ministry to identify potential productivity-improving measures than it is for
those “at the coal face” within the ministry. For this reason, spending reviews are usually
better at identifying ineffective and low priority programs than they are at identifying
efficiency gains. This does not mean that spending reviews cannot play a useful role with
respect to efficiency. It does, however, make it essential that other pressures and incentives
are created for ministries and other government agencies to identify and act on opportunities
to redesign their business processes to improve productivity. One such incentive is the
savings retention mechanism referred to in the previous paragraph.
42
Table 5. Possible Outline of a Spending Review Process in Italy
Process
Comments
Setting overall fiscal objectives (DPEF)
Council of Ministers, Tesoro
Setting out government strategy and overall program
Program 1
Program 2
Policy tools
Policy tools
Law 1
Cost
Law 2
Cost
Law 3
Cost
etc.
Program 3
....
Council of Ministers, Line Ministries
MEF
New Program
Cost
Estimate for Bilancio
Review laws
What type of legislation?
Still relevant for program?
Consolidation possible?
Is it better suited to annual
appropriation in finanziaria?
Review costs
Are estimates robust?
Necessary for objective?
Savings identified by ministry?
If so, ministry can retain for
new spending programs
Legislative and Budgetary Agenda for Finanziaria
Council of Ministers, Line Ministries
MEF
SR process
Focus SR
on robust
bilancio est.
conducted by
ragioneria w/
line ministries;
checked by
committees in
Parliament
Total prog cost
Process
underway
Strategic document
presented to Parliament
to explain overall aim
of budget laws
(Bilancio + Finanziaria)
Cost
estimate for
new programs
Finanziaria
Spending reviews should include both reviews of individual ministries and “cross-cutting”
reviews focused on expenditure in an important area of services spanning a number of
ministries, or on generic management (including productivity-related) issues. Examples of
areas which have been the subject of such cross-cutting reviews in other countries have
included family assistance measures and aged-person related expenditure.
Given the time involved in carrying out effectively such reviews, and the current state of
preparation of the selected ministries, the mission would recommend to aim to conclude
initial reviews for at least two ministries (Education and Transport) in time for the 2008
budget; and for at least three other ministries (Interior, Justice and Infrastructure), and
possibly others, including the MEF, in time for the 2009 budget. Consideration should also
be given to undertaking in the course of 2008 one cross-cutting review, for example a review
of main types of tax expenditures.
Reforms of the Budget Preparation Process
43
Consideration should be given to whether processes for reviewing and agreeing on
expenditure priorities in the Council of Ministers might be further enhanced. The SR
process will result in more options for expenditure reallocations being presented to the
Government’s political leadership, and it is likely that the Council of Ministers will need to
devote time and energy to considering these options. It may then be useful to consider the
establishment of a small “priorities” or “expenditure review” committee of cabinet (or to
expand the role of a current committee, such as CIPE) to give such options detailed
consideration, and advise the Council of Ministers as a whole.
The mission would favor a strengthened role of the Documento di Programmazione
Economica e Finanziaria (DPEF) in setting the framework for budget discussions in the
Council of Ministers, and subsequently in Parliament. This could be achieved by including in
the DPEF both an aggregate spending ceiling, and quantified targets for major areas of
spending of the central government. This could promote better budget discipline, and would
likely facilitate an increased focus of policy makers on key budget priorities and trade-offs.
Once the fiscal federalism reform is completed, ceilings for broader spending aggregates of
the general government could be considered.
The Relazione Previsionale e Programmatica (RPP) would subsequently summarize the
results of the spending review and outline how the broad sectoral priorities are articulated
into budgetary allocations to individual spending programs. Issuing the two sections of the
RPP together would also contribute to enhanced transparency.
In the view of the mission, the three-year budget estimates (bilancio pluriennale a
legislazione vigente) should be substantially recast, to provide transparent, reliable, and
regularly updates estimates of the cost of delivering the policy objectives embedded in
existing legislation. An improved forward estimates system would project the costs of
maintaining existing spending programs using clearly specified and objectively determined
cost drivers (e.g. forecast price movements and projected changes in the program target
population). This would replace the current expenditure projection methodology, which is
too subjective, negotiable and which fails to fully distinguish policy changes (e.g., in respect
of staffing levels) from the costs of running programs on the basis of current policy. Such a
system would enable budget preparation to focus primarily on policy changes,
including spending priorities, rather than on haggling about the costs of delivering
current policy. This would then facilitate the identification of the legislative changes (to be
included in the legge finanziaria or the related legislation, provvedimenti collegati) needed to
shift budgetary resources from lower priority programs to higher priority or new ones.
To promote transparency with respect to the proposed allocation of resources between
competing objectives, within the context of legal system which requires that budget measures
be split between the baseline budget and the proposed legge finanziaria, it would be desirable
44
to include in the budget documentation provided to Parliament a consolidated picture
of the program allocation of expenditure, detailing how the baseline budget and the
proposed legge finanziaria map into the final budget estimates by program.
Reforms of the Budget Approval Process
An important element of the reform package would be to use the program classification as
basis for budget authorization by Parliament. The government’s plan to redefine UPBs as
programs is aimed to achieve this without requiring changes to the existing accounting law
(law 468/1978). Consideration by Parliament of a much reduced number of spending
programs (compared to the 1,500 or so UPBs currently included in the budget) would allow
the legislative to focus and deepen its discussion of the strategic policy priorities and tradeoffs, and of the adequacy of budget appropriations to meet such priorities.
It is, however, important that accounting system enhancements to handle program
budgeting (see below) take place prior to the appropriations being placed on a program
basis. This is because moving to appropriations by programs means that the budget has to be
executed on a program basis, and it will therefore necessary for both ministries and
Ragioneria to be able to monitor program costs on a continuous basis with a reasonable
degree of accuracy.
It may not be possible to do this in time for the 2008 budget. If this is the case, an option
would be to present to the parliament an illustrative program budget showing, with as
much accuracy as possible, what the budget submitted to them would look if it had been
presented in program terms.
It appears desirable to strengthen the role of the parliamentary Budget Committees in
the consideration of the budget, and in weeding out amendments catering to narrow
interests, as mandated by Article 11 of the accounting law. To facilitate careful design and
debate of the substantive legislation underpinning spending measures authorized by the legge
finanziaria (the so-called provvedimenti collegati), it would also seem appropriate to allow a
time-bound “window of opportunity” (say, three months after the budget approval) for fasttrack approval of such legislation, within the amounts established in the legge finanziaria
for the corresponding programs.
Reforms of budget execution, monitoring and control, and reporting
45
To promote needed flexibility in the management of budgetary resources, while at the same
time ensuring strengthened accountability of spending managers, a set of interrelated
reforms appears highly desirable.
To encourage productivity gains and realize the full benefits of a program-based budgeting
system, there should be over time a substantial reduction of ex-ante controls during
budget execution. This would involve both a review of the plethora of budget chapters, to
consolidate them as much as possible within the constraints of existing legislation, and
leaving to the responsibility of the program managers the allocation of funds within each
chapter (subject of course to strengthened ex-post accountability for legal compliance,
financial propriety and performance in term of results). Over time, the results of spending
reviews should be also reflected in the consolidation and simplification of the legislative
basis of spending programs.
The ultimate objective should be to provide a large degree of flexibility to program
managers in the use of the budgetary resources appropriated for each program, enabling
program managers to shift funds among the input line items included under the program (for
example, by trading the filling of a staff vacancy for contractual professional services or the
purchases of office equipment). In this respect, the approach taken in France and the U.K.
should serve as a model.
In line with international experience, it may be desirable to allow limited virements across
programs with approval of the Minister of Economy and Finance. Allowing small
reallocations between programs—say of up to 5 percent, as in France—is a means of
providing some flexibility to meet unexpected challenges during the financial year without
going back to parliament. At the same time, because only small reallocations would be
permitted, the essential right of parliament to determine spending priorities would be
preserved. Such a provision would also help keep required contingency reserves low. Such
virement provisions would not apply to entitlement programs (such as social security
benefits). This may require a change in the accounting law 468 of 1978.
Considerable effort should be directed towards the progressive development of output and
outcome indicators for spending programs. The choice of such indicators would benefit
from the inputs of spending ministries, the MEF, outside experts, and international
experiences. The indicators would utilize existing statistical information, as well as, in some
instance, new one (e.g., derived from users’ surveys). It would be preferable to focus initially
on a few indicators for selected programs, and to expand gradually their scope, as well as
revise the initial ones, as experience is gained with them.
The development of performance indicators should be monitored, and periodically
published, and an annual report on their evolution should become part of the annual budget
46
documentation. While international experience does not support mechanical linkages of
budget allocations to developments in such indicators, the latter should be taken into account
in budget decision-making.
The use of performance targets as a means of placing pressure on ministries—along the
lines of the UK Public Service Agreements system—is a desirable objective towards which
Italy should move. However, a prerequisite for such a reform is a somewhat more developed
system of performance measurement than Italy appears to have at the present time. In
addition to good indicators, target-setting requires considerable understanding of the
relationship between resources and results. Such understanding can often only come from the
conduct of a spending review of the program concerned. In the absence of such an
understanding, target-setting will inevitably be arbitrary, and it is worse to set arbitrary
targets than to set no targets at all. For these reasons, Italy should not rush to establish a PSAstyle performance targets regime.
Other elements of an improved monitoring and reporting system which would strengthen
performance accountability in Italy are:
•
The further development of SIOPE: The system should be extended to cover
revenues of the state budget, and to include the program classification, once it is
introduced in the budget. The information generated by the system should be
reflected in periodic summary reports to Parliament (e.g., in the quarterly Relazioni di
cassa). It should also complement (and at cruising speed it may replace) information
generated by other current systems (covering all stages of the expenditure process—
commitments and verifications—prior to payments), to allow a more timely and
accurate monitoring of the execution of spending programs by the spending ministries
and the RGS;
•
The development of the Audit Court’s role beyond financial compliance into the
field of “performance auditing”, both in respect of the auditing of performance
indicators and so-called “systemic” performance auditing (see Section III). This type
of performance auditing represents a very large change of role for a national audit
body. It is, nevertheless, a change which has taken place in many countries around the
world.
The reforms outlined above are predicated on the existing legislative framework—the
working assumption of the Italian authorities in carrying out current plans. However, were
the legislative framework to prove a stumbling block in the implementation of the needed
reforms, it would be eventually necessary to seek its modification, to align it with the
requirements of a modern budget process.
47
Finally, these reforms would have substantial human resource implications. In
particular, they would require: increased geographic and functional mobility of civil servants;
investment in retraining personnel to facilitate such mobility; and a range of actions to
strengthen the preparedness and capacity of line ministries to effectively manage spending
programs. At the same time, it would require investment into strengthening the capacity of
MEF (and in particular the RGS) to monitor and evaluate the performance of spending
programs, and to reflect this information in subsequent budget decisions. These are obviously
complex issues, which are beyond the mission’s remit and expertise. The mission is
encouraged by the fact that significant reflection on these and dialogue with relevant stakeholders have already been initiated by the Italian authorities.
48
ANNEX I. Program Costing
In a program budgeting system, ministries and managers within ministries are expected
to manage budgets in program terms. Parliament usually also approves budgets for
ministries expressed in programmatic terms. This means that, in order to comply with its
legal budget authorization, each ministry is required to control budget execution on a
program basis. In order to manage its budget on a program basis, the ministry must have
ongoing information on program expenditure, and this program cost information must have
an acceptable degree of accuracy. More precisely, managers must receive information on
program expenditure with at least the same frequency (whether that be weekly, daily or real
time) that, prior to the introduction of program budgeting, they used to receive information
on expenditure by input, organizational unit, and other costs objects. To have information on
program costing available on a continuing basis, it is necessary that program costing be built
into the accounting system employed by ministries. The requirements for program costing
are fundamentally different from those involved when the sole purpose is statistical or
financial reporting, where the relevant data might only need to be produced annually and it is
therefore feasible to use a process of manual adjustment of accounting data.
In order to build robust costing and cost control systems based upon the programs—
that is, upon the intended outcomes of expenditure—the accounting system must be
modified and extended to make it capable of allocating expenditure on input or other
cost objects to programs. 21
One aspect of the challenge of program costing concerns direct costs. In the context of
program costing, a direct cost is the cost of an input or other cost object which is wholly
devoted to the delivery of a particular program. For example, if the environment ministry has
a pollution control program and a nature conservation program, the costs of employment of
staff who inspect factories for compliance with pollution regulations is a direct cost which is
wholly attributable to the former program, while the costs of rangers whose job is to prevent
the hunting and poaching of protected species is a direct cost wholly attributable to the latter
program. Similarly, if a car is used exclusively by the factory inspectors, it is a direct cost
(whereas if it is shared between rangers and factory inspectors it is not). In order to deal with
direct costs, it is necessary that such costs are identified in the accounting system with the
program they serve. There is nothing technically complicated about this task of direct cost
attribution. However, the task of matching such direct costs to the relevant programs can
21
The question of accrual versus cash accounting is not considered here, and the term “expenditure” is therefore
used in a general sense, without any implication that the budgeting system is necessarily on a cash basis
(although this is usually the case).
49
involve considerable effort and can be expected to take some time. This is particularly true to
the extent that it is not possible to simply map the cost categories of the pre-existing
accounting system (i.e. by economic classification, organizational unit) to programs. To take
the environment ministry example, suppose the ministry has small regional offices which
(because they are small) are multi-functional and have within them some factory pollution
inspectors and some park rangers. The accounting system would no doubt record the staff
costs of each regional office, but to determine program costings it would be necessary to
code the salary costs of the different types of staff within the regional office to their
respective programs.
More technically difficult is the allocation of indirect costs. In the context of costing
programs, indirect costs refer to the costs of inputs or activities which contribute to more than
one program. The rent of an office building which is shared between two programs is an
obvious example of an indirect cost. To handle indirect costs, more is required than simply
identifying the expenditure of the input or other cost object within a program. It is also
necessary to allocate the expenditure on particular inputs or activities between two or more
programs. Thus, in the case of the office building, it is necessary to determine and record in
the accounting system the respective portions of the building’s rental costs which are
attributable to each of the programs concerned.
As stressed in the main report, in a well-designed and mature program budgeting system,
programs should be—in all but a handful of exceptional cases—defined in terms of
outcomes and outputs. That is, they should be defined as groups of services to the public (or
other clients external to the ministry) which are united by the fact that they aim to achieve a
common impact on society. The application of this principle has significant implications for
the magnitude of the indirect cost allocation task: it makes all “overhead” costs of the
ministry indirect costs which must be allocated between programs by the accounting system.
Overhead costs are the costs of ministry-wide support services and infrastructure (such as
human resources management, internal financial management, and the IT network) together
with other items such as the salaries of the chief executive and other top ministry-wide
managers. Such overhead costs contribute to all of the outcomes which the ministry aims to
achieve, and cannot be uniquely attributed to any particular outcome. If all programs are to
be outcome-based, it is therefore necessary to allocate overhead costs between programs. If,
for example, the environment ministry comprises the two programs identified above, it would
be necessary to determine what portion of the costs of the ministry human resources unit, IT
services etc was attributable respectively to the anti-pollution effort, and what portion to the
nature conservation effort.
Accountants use the term “allocation basis” to refer to the formula or principle used to
allocate a specific indirect cost between two or more programs. The allocation basis used
for each indirect cost should reflect that indirect cost’s contribution to each program, which
50
will often require the collection of relevant data (e.g. on the usage made of human resources
services—in respect of recruitment etc—made by different program areas). To allocate
indirect costs, the accounting system needs to be supplemented with a management
accounting module which pools together relevant indirect costs and then allocates them to
programs using an appropriate allocation basis. Relevant data to provide a proper allocation
basis also need to be routinely collected and used by this management accounting system. It
follows that the enhancements of the accounting system necessary to handle indirect
costs can be particularly demanding and time consuming. Moreover, the more
sophisticated and accurate the methodology used for costs allocation, the greater the costs
and human capital requirements of the management costing system. 22 It is therefore not
difficult to understand why the allocation of indirect costs is often done rather poorly after
the introduction of a program budgeting system, with indirect costs being allocated between
programs on a more or less arbitrary basis. The problem is that measures of program costs
derived from such arbitrary cost allocations are worse than useless—they are positively
misleading and will lead to worse, rather than better, decision-making.
For these reasons, many countries chose to make use of “administrative cost” or
“corporate services” programs grouping together ministry overhead costs, when they
first introduced program budgeting. Such a pragmatic approach makes it possible to move
to program budgeting without having immediately the capacity to allocate indirect costs.
Even when this approach is adopted, however, the task of adapting accounting systems to
handle the task of accurately allocating direct costs will remain something which will take
serious efforts and adequate time to achieve.
The use of administrative programs is legitimate—even desirable-- in the early stages of
program budgeting. However, this should be regarded only as a temporary solution. The
expressed intention should be to move over time to eliminating these programs and absorbing
overhead costs into outcomes-based programs. The appropriate timetable for this will
depend on a country’s financial and human resources; in the case of an OECD country
such as Italy, this task should be relatively rapid (less than, say, five years). It is also
important that administrative programs be only used for overhead costs, and do not end up as
a “recepient” for direct costs which have not been allocated to appropriate programs.
Experience indicates that there is a considerable danger that administrative programs will be
used for “placing on hold” costs so as to artificially reduce the apparent cost of some
outcome-based programs which might otherwise appear unduly high.
22
This is particularly relevant for governments considering the use of Activity-Based Costing (ABC), which
aims to develop a particularly accurate two-stage costing process. ABC is expensive and demanding of skilled
human resources—which helps to explain why, even in the richest countries, ABC tends to be used selectively
rather than across-the-board.
51
ANNEX II. Australia: Reconciliation of Expense Estimates
Estimates
2005-06
2006-07
$m
$m
2005-06 Budget fiscal balance
206,081
Changes between 2005-06 Budget and MYEFO 1/
1,525
Effects of policy decisions 2/
Effects of economic parameter variations
151
Unemployment benefits
243.0
Prices and wages
64
Interest and exchange rates
458.0
Total economic parameter variations
29
Public debt interest
Program specific parameter variations
-1,332
1
Slippage in 2005-06 budget decisions
277
Other variations
957
Total Variations
207,038
2005-06 MYEFO expenses
Changes between MYEFO and 2006-07 Budget 1/
2,032
Effect of policy decisions 2/
Effect of economic parameter variations
Unemployment benefits
-23
Prices and wages
-139
Interest and exchange rates
-4
Total economic parameter variations
-167
Public debt interest
-14
Program specific parameter variations
-1,458
Slippage in 2005-06 budget decisions
-2
-1,412
Other variations
Total Variations
-1,020
206,018
2006-07 Budget expenses
1/ MYEFO: Mid-year Economic and Fiscal Outlook.
2/ Excludes the public debt net interest effect of policy measures.
214,806
Projections
2007-08
2008-09
$m
$m
225,400
236,568
1,229
1099.0
1,115
281
1,221
93
1,595
37
-594
0
-214
2,052
216,858
312
1,141
64
1,516
89
-576
0
-264
1,863
227,263
355
971
97
1,423
145
-422
0
-985
1,275
237,843
4,271
172
-220
-172
-220
-55
-1,316
-4
195
2,871
219,730
4,836
132
62
90
284
-167
-1,648
-8
-3
3,293
230,556
5,254
165
-50
73
188
-190
-1,574
-39
-571
3,067
240,910
52
ANNEX III. Selected Performance Indicators – New York City, U.K., Australia
New York City: Preliminary Fiscal 2007 Mayor's Management Report
Description of Selected Police Indicators:
http://www.nyc.gov/html/ops/html/mmr/mmr_sub.shtml
Indicator name:
Description:
Source:
Indicator name:
Description:
Source:
Indicator name:
Description:
Major felony crime
Total number of major felony crimes within seven categories, corresponding to New
York State Penal Law: murder and non-negligent manslaughter, forcible rape,
robbery, felonious assault, burglary, grand larceny, and grand larceny auto. Figures
are also listed separately for each category of major felony. The Department's Fiscal
2002 felony crime data does not include the victims of the September 11, 2001
attacks on the World Trade Center.
NYPD CompStat Report.
Narcotics Arrests
Felony, misdemeanor and violation arrests effected citywide for the sale, possession
or use of narcotics or marijuana.
NYPD On Line Booking System.
Source:
Guns seized by arrest
The number of illegally possessed pistols, revolvers, shotguns, rifles or assault
weapons confiscated incidental to an arrest. Does not include air pistols, air rifles,
blank pistols, replicas, black powder firearms, toys, antiques or BB guns.
NYPD Office of Management Analysis and Planning.
Indicator name:
Description:
Source:
Traffic fatalities (motorists/passengers)
Motor vehicle operators or passengers killed in vehicle accidents.
NYPD Chief of Transportation.
Indicator name:
Traffic fatalities (bicyclists/pedestrians)
Description:
Bicyclists and pedestrians killed in vehicle accidents.
Source:
NYPD Chief of Transportation.
KCITYPOLICEDEPARTMENT
Indicator name: `
Total civilian complaints against members of the service
Description:
The number of complaints made by civilians against members of the Department,
investigated by the Civilian Complaint Review Board, for allegations of excessive
force, abuse of authority, discourtesy and offensive language.
Source:
Civilian Complaint Review Board.
Indicator name:
Description:
Source:
Average response time to all crimes in progress (minutes)
The average response time to all critical crimes (such as shots fired, robbery, assault
with a weapon), serious crimes (such as larceny from a person, assault not involving
a weapon, larceny of an auto) and noncritical crimes (those crimes not involving an
imminent threat of personal injury). Response time is measured from the receipt of a
call to the time officers arrive on the scene.
NYPD Office of Management Analysis and Planning – Resource Analysis
53
United Kingdom: Department for Education and Skills
Selected targets, indicators and technical notes from the 2004 Spending Review
http://www.hm-treasury.gov.uk/documents/public_spending_and_services/publicservice_performance/pss_perf_table.cfm
Indicator:
Levels of attainment in English and math by 11 year olds
Technical Note: The source data are the results of the National Curriculum end of Key Stage 2 assessment
tests, which pupils sit in May of each year.
Data on English and math indicators are first published as National Statistics in a Statistical
First Release of provisional national results in August/September. Final results – including all
late review outcomes and amendments requested by schools as part of the primary
performance tables checking exercise—are published in a Statistical First Release the
following June. Both provisional and final national results are unadjusted. i.e., overseas
pupils are included.
All pupils who will move onto the next Key Stage program of study in the next school year
are regarded as being in the final year of that Key Stage. All children in this final year of a
Key Stage must be assessed. The expected standard for a pupil at the end of Key Stage 2 is
Level 4.
Those pupils who attain Level 4 or 5 are counted towards achieving the level 4 target. These
are measured as a percentage against all pupils who returned valid Key Stage 2 test results
including those dis-applied from the National Curriculum under section 364/365 of the
Education Act 1996, those pupils working below the level of the tests, those pupils who were
absent from the tests and those who sat the test but failed to gain enough marks to register a
level.
The national and school results are rounded to the nearest whole number. Progress towards
the targets is therefore measured in integer steps. The rounding convention is: any fractions of
0.5 and above will be rounded up; anything less than 0.5 will be rounded down.
As part of achieving wider Government objectives on racial equality, DfES will monitor
progress in narrowing race equality disparities in educational attainment. Progress will be
reported annually in the Government’s Race Equality and Community Cohesion Strategy.
Indicator:
Levels of school attendance: “School absence” refers to the sum of authorized and
unauthorized absence, for which the 2003 national figure is 6.83 percent. The equivalent
figures for maintained primary and secondary schools are 5.81 percent and 8.28 percent
respectively.
Technical note: Up until 2001, the data were released in the National Pupil Absence Tables, published at the
same time as the Performance Tables. From 2002, the provisional data for LEAs have been
released in an Early Statistics Statistical First Release (as National Statistics), in the autumn.
From 2003 data are published to two decimal places. The rounding convention used is: any
fractions of 0.005 and above will be rounded up, anything less than 0.005 will be rounded
down.
Revised figures for LEAs are published as a National Statistics product in a Statistical First Release in
December of each year.
54
Australia: Australian Institute of Health and Welfare
Selected health sector performance indicators
http://www.aihw.gov.au/publications/index.cfm/title/10085
Description:
Numerator:
Denominator:
Presentation:
Incidence of acute coronary heart disease events (“heart attacks”).
The sum of (a) the number of deaths recorded as CHD deaths and (b) the number of non-fatal
hospital separations for heart attack recorded as acute myocardial infarction (AMI), for people
aged 40–90 years.
People aged 40–90 years.
Age-standardized rate per 100,000 population, standardized to the June 2001 Australian
population.
Description:
Numerator:
Denominator:
Presentation:
Incidence rates for cancer.
New cases of registrable cancer.
Total population.
Age-standardized rate per 100,000 population, standardized to the June 2001 Australian
population.
Description:
Numerator:
Severe or profound core activity limitation by age and sex.
Those people who experience severe or profound activity limitations, such that they always or
sometimes need assistance with particular activities.
The population aged 5 years and over, 1988, 1993 and 1998.
Age-standardized percentage, standardized to the June 2001 Australian population. Disability
data have been adjusted using criteria common to the three Disability surveys.
Denominator:
Presentation:
Description:
Presentation:
Life expectancy at birth.
Life expectancy represents the number of years a person born now could expect to live if they
experienced mortality rates at each age that are currently experienced by the total (male or
female) population.
Description:
Percentage of adults 65 years and over who received an influenza vaccination for the previous
winter.
Number of adults aged 65 years and over sampled through the national Computer Aided
Telephone Interview survey who self-report having received an influenza vaccine for the
previous winter.
Number of adults aged 65 years and over sampled in the national Computer Aided Telephone
Interview survey.
Proportion of adults aged 65 years and over who have received an influenza vaccine.
Numerator:
Denominator:
Presentation:
Description:
Numerator:
Denominator:
Presentation:
Admissions to hospital that could have potentially been prevented through the provision of
appropriate non-hospital health services.
Potentially preventable hospital separations. Vaccine-preventable conditions include
influenza, bacterial pneumonia, tetanus, measles, mumps, rubella, pertussis and polio.
Potentially preventable acute conditions include dehydration/gastroenteritis; kidney infection;
perforated ulcer; cellulites; pelvic inflammatory disease; ear, nose and throat infections and
dental conditions. Potentially preventable chronic conditions include diabetes, asthma, angina,
hypertension, congestive heart failure and chronic obstructive pulmonary disease.
Total population.
Age-standardized rate per 1,000 population, standardized to the June 2001 Australian
population by geographical remoteness regions.

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