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AUSTRALIA’S EXPERIENCE IN UTILISING
PERFORMANCE INFORMATION IN BUDGET AND
MANAGEMENT PROCESSES
Report for the 3rd Annual Meeting of the OECD Senior Budget
Officials Network on Performance and Results1
Mathew Fox
Assistant Secretary
Budget Coordination Branch
Budget Group
Department of Finance and Administration
Significant input to this paper on Australia’s performance budgeting framework was provided by Maureen Allan,
Budget Frameworks and Training Branch, Financial Management Group, Department of Finance and
Administration. Comments and/or questions on this draft paper can be addressed to: Mathew Fox, Assistant
Secretary Budget Coordination Branch, Budget Group, Department of Finance and Administration, John Gorton
Building, King Edward Terrace, PARKES, ACT 2600 (Mathew.Fox@finance.gov.au or +61 2 6215 3056).
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PART 1: DESCRIPTION OF PERFORMANCE SYSTEM
Performance information is an important aspect of the Australian Government’s
public sector financial and management framework.
Australia’s current budgeting and management arrangements focus on outputs and
outcomes, and have evolved from the programme management and budgeting reforms
of the early 1980s.
Australia’s budgeting and management framework is comprehensive and applies to all
public sector agencies. It has a number of goals:

Improving the quality of services;

Making the operations of government more efficient;

Increasing the chances that policies which are chosen and implemented will be
effective;

Enhancing the transparency of government operations; and

Making savings in expenditure;
These objectives are consistent with the Government’s fiscal policy objectives set out
in the Charter of Budget Honesty Act 1998 to guide the conduct of fiscal policy and
help maintain sustainable public finances.
Background
Australia’s current arrangements arose from the budgetary reforms associated with the
National Commission of Audit 1996, an independent review commissioned by the
incoming Australian Government.
That review considered aspects of the management and financial activities of the
Australian Government and how they were recorded. The Commission made many
recommendations, but it essentially recommended that:

Government management skills and government finances operate on a more
business-like footing;

The transparency of government finances be further improved; and

The culture and operations of the Australian Public Service reflect a more
business-like approach.
Between 1996 and 1999 legislative and administrative frameworks were introduced in
response to the National Commission of Audit:

The Audit Act 1901 was replaced in 1997 by new financial legislation for
Australian Government departments and agencies, and for Australian
Government authorities and companies. The legislation comprised the
Financial Management and Accountability Act 1997 (FMA Act) and the
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

Commonwealth Authorities and Companies Act 1997 (CAC Act), as well as
the Auditor-General Act 1997.
Financial management moved to a principles-based framework, with clear
lines of accountability.
The Charter of Budget Honesty Act 1998 (the Charter) was introduced. The
Charter provides a framework for a more transparent conduct of fiscal policy.
Its requirements include:
 Governments to disclose their fiscal strategy and to base this on principles
of sound fiscal management. The principles are identified in the Charter.
 Reporting on the fiscal strategy at Budget time (including a statement of
risks), half-year, and end-of-year. Prior to an election, a fiscal outlook
statement is also required.
 Specific guidelines governing the costing of election commitments by
Government and Opposition, and the release of information.
In addition to the legislative changes, other key reforms implemented in 1999-2000
included the move to accrual budgeting (including accrual appropriations); an
outcomes and outputs resource management and performance framework; and
increased flexibility and responsibility for agency chief executives (also reflected in
the Public Service Act 1999).
While benefits from the reforms of the mid-late 1990s have been realised, the
Australian Government has recognised the need for regular review and assessment of
the reforms.
This was most recently undertaken in 2002, when the Australian Government
endorsed the recommendations of the Budget Estimates and Framework Review in
November 2002. This included confirmation of accrual budgeting and Finance’s right
to amend agency financial estimates to ensure that the quality and timeliness of the
whole-of-government estimates is of the required standard
In retrospect, the changes initiated in 1999-2000 were a significant challenge for the
Government, Parliament, central and line-agency budget, management and technical
staff and information technology systems. In some cases these challenges are yet to be
met.
Institutional Framework
Under the devolved framework, performance management is generally the
responsibility of individual Ministers and their departments and agencies, although
outcomes are developed and agreed in consultation with the Minster for Finance and
Administration.
The Department of Finance and Administration (Finance) is responsible for providing
guidance on performance management policies relating to budget funding and
requirements for government statutory authorities and companies. For budget matters,
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Finance issues guidelines to agencies, which recommend the level of performance
reporting which is to be provided in agencies’ supporting information at budget.
In addition, while Finance has no formal responsibility for programme performance
management, as a central Budget agency, Finance is responsible for providing
Government with advice on whole-of-government expenditure priorities. In this
context, Finance provides advice to Cabinet and Ministers on the performance of
agencies and programmes, including when assessing new policy proposals in the
annual budget process.
With respect to programme reviews, Finance currently develops policies on the
review of programmes; however, individual departments and agencies are responsible
for developing evaluation strategies. Finance also sets criteria (including terms of
reference) for such reviews and recommends reviews of programmes on a targeted
basis to Government.
Major initiatives and whole-of-government initiatives may require cross-portfolio
agreement about evaluation and review strategies; this may include the departments
and agencies involved in implementing the policies as well as Finance and/or the
Department of the Prime Minister and Cabinet.
In relation to reporting in annual reports (which are signed the head of the agency) the
Australian Parliament’s Joint Committee of Public Accounts and Audit (JCPAA) has
issued requirements about reporting performance information in annual reports, which
must be adhered to by all FMA Act agencies. By contrast, CAC agencies are required
to comply with Australia’s corporations law.
PART 2: MEASUREMENT AND ASSESSMENT OF RESULTS
The Australian Government’s framework places a strong emphasis on outcomes and
outputs as the foundation for performance information. Outputs are the goods and
services produced by the individual department or agency on behalf of Government
for external organisations or individuals. Outcomes are defined as the Government’s
objectives for each portfolio (that is, the results, impacts or consequences of actions
by the Australian Government on the Australian community). Outcomes are the
results or impacts that the Government actually wants to achieve.
Departments and agencies are largely responsible for measuring and assessing the
performance of outcomes and outputs. Within departments and agencies, there is
likely to be strategic planning at the outcomes level as well as the organisation level.
Most agencies will also develop longer-term plans that stretch for three to five years
and review changes on an annual basis. Chief executives may consult with the
relevant Minister on strategic policy matters but there is no specific requirement to do
so.
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At Budget and in annual reports, agencies are required to report at the outcome level
and annual report requirements also require that agencies report, at a minimum, on the
organisational basis as well.
At present there is little use of performance targets during budget decision making and
the performance of agencies against performance targets is not formally reviewed
during the budget process. A further challenge is that the nature of Commonwealth
expenditure is not always amenable to the outcomes and outputs framework, for
example the Commonwealth has less direct involvement with the delivery of health
and education outcomes than many other countries do.
Under the Auditor-General Act 1997, the Australian National Audit Office (ANAO)
conducts financial and performance audits of agencies and programmes, however, the
ANAO does not audit Budget material.
Finance, in cooperation with agencies, will review this year, outcomes for all general
government sector agencies. The aim will be to ensure that outcomes information is
consistent with the policy framework and appropriate to the needs of Government and
Parliament.
PART 3: INTEGRATING AND USING PERFORMANCE
INFORMATION IN THE BUDGET PROCESS
The influence of performance information on decision-making and resource allocation
in the budget process is mixed.
Portfolio Budget Submissions and Annual Reports prepared by departments and
agencies provide a comprehensive report to the Government, Parliament and public
on resourcing and performance by outcome and output. These provide public
information on performance targets at the beginning of the year and a report against
these at the end of the year. However, this information is not well integrated into the
annual budget process.
At present, there is no mechanism, and no incentives, to ensure that performance
information is taken into account on a standard basis when the Government is making
budget decisions. There are separate initiatives that are helping to move in this
direction, recently with revisions to the format of new policy proposals as well as
current work to assess review arrangements and examining options for reform.
The format of new policy proposals was reviewed and revised by Finance and the
Department of Prime Minister and Cabinet in late 2004. These changes require
departments and agencies to identify the key benefits, risks and milestones for each
proposal, and other related implementation issues, to inform Cabinet’s consideration
of the proposal. These changes provide the basis for the further development of
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detailed implementation plans for certain new policies to manage the implementation
process, track progress and inform evaluation.
Reviews are a central feature of the Australian budget process and are an area where
performance information can be used to significantly inform budget decision-making.
They encompass a range of activities:

A process for automatic review of programmes that have been designated as
lapsing by the Cabinet;

A ‘targeted reviews’ process intended to focus on government priority areas,
including addressing long-term fiscal pressures identified in the
Intergenerational Report 2002-03; and

Specific reviews commissioned by the Cabinet to address particular issues in
the context of new policy decisions or development of new policy.
The lapsing programme review process is the most commonly used review type.
These reviews are designed to enable regular review of expenditures that have been
the subject of new policy proposals.
Renewal of funding of programmes designated as lapsing by the Cabinet is subject to
a programme review every four years. The process was refined in the 2005-06 Budget
to encompass two streams:

Major reviews - with terms of reference agreed by Ministers to evaluate a
programme/measure’s appropriateness, effectiveness and efficiency, and
conducted by the line agency in consultation with the three central
departments; and

Departmental reports - focusing on an evaluation of a programme/measure’s
effectiveness, and prepared by the line agency in consultation with Finance.
However, there are limitations with lapsing programme reviews:

They cover only a small and inconsistent proportion of total programme
expenditure;

They tend to cover specific measures rather than whole programmes, and they
therefore do not provide for a coherent review of the overall programme
covering the reviewed measure;

They have tended to become mechanistic and have produced little change to
the programmes and even less in the way of savings to the budget as, in the
main, spending portfolio Ministers recommend programmes be continued
largely unchanged or expanded; and

They require significant resources to conduct, and these may be better used in
alternative and more effective review processes.
The targeted reviews process was agreed by Cabinet in early 2004 and encompassed
two streams:

Long-term reviews that can take up to two years; and

Short-term reviews that aim to report in the following budget.
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While a small number of proposals for review have been put forward under this
process since its introduction in 2004, these have not clearly distinguished between
reviews that address budget pressures relating to demographic change and reviews
addressing other types of issues.
PART 4: REPORTING OF PERFORMANCE INFORMATION
Departments and agencies are required to make performance information available to
Government, Parliament and the public, but at present this information is not well
connected with the budget decision making phase of the budget process.
Budget papers (such as Portfolio Budget Statements) and Annual Reports provide the
most common source of information to Government, Parliament and the public.
There have been several reports over the last five years from Parliamentary
committees, the Australian National Audit Office and Finance that have identified
some areas needing improvement in current practice, particularly in the specification
and measurement of outcomes.
The most commonly cited complaint is that the Portfolio Budget Statements (which
contain information explaining the budget at the department/agency level) are difficult
to understand and/or do not provide information at a sufficient level of detail.
In addition, the ANAO concluded in its audit of Annual Performance Reporting that,
“in order to provide accountability and transparency to parliamentarians and other
stakeholders, agencies’ annual reporting frameworks need to be improved,
particularly in relation to:

the specification of agencies influence on, and contribution to, shared
outcomes;

Performance measures relating to quality and effectiveness/impact;

The efficiency of agency operations and the cost effectiveness of outputs
delivered; and

Targets or other basis for comparison.” 2
The Senate Finance and Public Administration Legislation Committee also reviewed
the format of Portfolio Budget Statements on three occasions in 1997, 1999 and 2000.
The Government addressed the recommendations of each report at the time - most of
the amendments related to the provision of additional information. In its conclusions
to the November 2000 report (Chapter 5), the Committee noted that, while Portfolio
Budget Statements contain a ‘wealth of useful information’, the Committee looked
2
Australian National Audit Office, Annual Performance Reporting, Audit Report No.11, 2003-04,
4 November 2003.
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forward to the documents eventually providing ‘a simple, straightforward, userfriendly, yet detailed guide to the estimates’.
The recommendations of Joint Committee of Public Accounts and Audit (JCPAA)
Report 388, Review of the Accrual Budget Documentation (June 2002) also contained
recommendations about Outcome statements and performance information for
departments and agencies. The Government accepted and implemented most, but not
all of the JCPAA’s recommendations.
Despite the availability of this information, Cabinet and Ministers tend to use other
information, and in particular, information on new policy proposals and reviews
contained in Cabinet Submissions and Portfolio Budget Submissions when making
decisions. While often related to publicly available material, this information is not
typically made public, and is of variable quality and usefulness. In addition, Ministers
also rely on advice from Finance, specific reviews, either prepared by an
interdepartmental committee established specifically for that purpose, or external
reviews (for example, by the Productivity Commission).
PART 5: KEY CHALLENGES
A key challenge with current arrangements is to ensure that the link between
programmes, outputs and outcomes are clear and measured effectively. A further
challenge is to ensure that Government focuses on performance information by better
integrating it into the decision making phase of the budget.
Finance’s current work on review arrangements will help assess how well these
arrangements supports consideration of new policy proposals, as well as
comprehensive review of the stock of Government expenditure in the budget context.
Over the last six years, from 2000-01 to 2005-06, annual government expenditure
increased by $50 billion. Both new policy spending and an increase in the stock of
government programmes have driven this increase.
New policy spending accounted for around 48 per cent (or $24 billion) of the total
increase, with a large part of the new policy spending has been in high priority areas
for the Government, in particular national security and defence, health, and social
security and welfare. These areas will remain sources of spending pressure over the
medium term. While they are high priority areas, it is important that they remain
subject to review to ensure coherence of programmes and lack of duplication.
The stock of programmes, however, while not reflecting new policy, accounted for
52 per cent (or around $26 billion) of the overall government expenditure increase
between 2000-01 and 2005-06. While this stock includes large programmes in high
priority spending areas, it also includes a large number of small to medium sized
programmes that may no longer be a priority for the government.
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However, despite the significant review activity that is undertaken each year, current
arrangements do not provide an integrated and systematic framework for Ministers to
look broadly across government expenditures, including tax expenditures, to identify
appropriate areas for review, or to ensure that the overall stock of programmes
remains aligned with policy priorities. Nor do current arrangements help ensure that
the stock of programmes are effective and are managed efficiently, including through
avoiding duplication and overlap. In addition, the quality of the performance
information that is available varies considerably between agencies.
PART 6: SOLUTIONS
Better integration of performance information into the decision making phases of the
budget process is a long term challenge that will require long term effort from Finance
and agencies.
Finance’s current focus on the review framework is to make the existing programme
review framework more coherent, better targeted to government priorities, and more
systematic than current review arrangements.
Current review arrangements reflect a mix of formal systematic processes and a
strategic and more targeted approach. This mix has led to a great deal and a varied
range of review activity. An integrated framework that gives greater coherence to
review activity may improve the effectiveness of that activity, as well as providing
better, more consistent performance information to inform budget decision making.
The emphasis in the current approach is on targeting review activity to priority areas
of Government policy. Better targeting of Government priorities may be able to be
achieved through better performance information and improved processes for
identifying areas for review.
Systematic processes for regular programme review are a potentially effective
mechanism for containing growth in government spending. The current lapsing
programme review process only covers measures and programmes that have been the
subject of recent policy deliberations. An approach to review the stock of
programmes that have not been subject to recent policy decisions would greatly
extend the scope and usefulness of programme review.
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PART 7: LESSONS LEARNED AND IMPACT
Two recurring themes in establishing good performance information that Australia
has faced is:

The quality of performance information in relation to agency contributions to
outcomes and outputs; and

The limited use of the performance information for decision making in the
budget context.
With respect to outcomes and outputs, they will remain an essential part of Australia’s
budgeting and management framework, however it is important to ensure links
between programmes, outputs and outcomes are clear and measured effectively –
particularly if this performance information is to inform budget decision making.
With respect to enhancing the utility of performance information for budget decision
making, a major challenge in introducing a more systematic approach to programme
reviews will be to ensure that it adds value to Government considerations, uses
agency resources efficiently and does not become a mechanistic exercise.
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