Economic Policy Committee
The President
Medium term expenditure frameworks and
performance budgeting: Elements of the Quality of
Public Finances
Dr. Christian Kastrop
President of the Economic Policy
Committee, European Union
The Quality of Public Finances
Economic Policy Committee
The President
Quality means improving the growth and employment
effects of public resources
 Expenditure Side: Focus on long-term growth
("investment in the future")
 Revenue Side: Taking negative financing effects into
account
 Institutions: Modern budget and accounting system
It’s important to consider both: Effectiveness & Efficiency
Effectiveness:
Doing the right things
Efficiency:
Doing the things right
Economic Policy Committee
The President
The European Perspective:
Quality of Public Finance and the
Stability and Growth Pact
SGP is the fiscal framework of the EMU aims at ensuring
budgetary discipline through two main requirements:
– Treaty requirement to avoid excessive deficit positions (3% deficit and
60% debt of GDP)
– Requirement to achieve and maintain the medium-term budgetary
objective (MTO)
At first sight clearly quantitative aspects: But improving the
quality of public finances can enhance business and
growth conditions, while at the same time allowing a better
control of the overall public spending at the national level.
Quality is an important factor in fulfilling the
requirements of the SGP
Economic Policy Committee
The President
The European Perspective:
Quality of Public Finance and the
Lisbon Strategy
• During the meeting of the European Council in Lisbon
in 2000, the Heads of State or Government launched
a "Lisbon Strategy" aimed at making the EU the most
competitive and the most dynamic knowledge-based
economy in the world by 2010
• As quality of public finances means improving the
growth and employment effects of public resources, it
is also a key contribution to the Lisbon strategy
Quality of public finances
The way forward (1)
Economic Policy Committee
The President
European Commissions Roadmap for Deriving a
Conceptual Framework and a Set of Indicators
Goal
Long-term economic growth
Environmental
Dimension
Layer 1:
Public finance
processes
Layer 2:
Public finance
outcomes
Composition,
efficiency and
effectiveness of
expenditure
Structure and
efficiency of
revenue systems
Level of
expenditure and
revenues
Fiscal governance
Fiscal position
and sustainability
Public finance
policies impacting
on market
functioning and
business
environment
Quality of public finances
The way forward (2)
Economic Policy Committee
The President
Layer 1 dimensions of quality of public finances
Expenditure
Revenue
• Long term trends in
the composition of
public spending
• Tax expenditures
• Efficiency and
effectiveness for
individual spending
areas
(infrastructure, R+D,
health, education)
• Alternative tax bases,
tax shifting across tax
bases
• Microeconomic and
macroeconomic effects
of taxation on personal
and corporate behaviors
Institutions
• Fiscal Rules (debt rules,
medium term budgetary
frameworks)
• Performance budgeting
and evaluations
• Efficiency of public
administrations (HRM,
information and
communication
technologies)
Economic Policy Committee
The President
Budget and Accounting System:
Starting Point for
Efficiency Improvements
A modern budget and accounting system must:
• enable strict priorization
• provide for a consistent system of reporting on
public activities, including purposes, content and
costs
• provide sufficient information concerning the
political objectives and strategies as well as the
degree to which objectives are met
• include long term financial consequences of
decisions
Use of Performance Information
Economic Policy Committee
The President
• The road from incremental budgeting towards
results-based budgeting is proving to be long and
difficult
• Results information will never completely replace
the discussion on inputs, but will shift the focus
• Most OECD countries cannot imagine operating
a budget system today without PI. Countries
evolving their performance approach rather than
discarding
• There is a need for more realistic expectations
and greater efforts to get all stakeholders on
board
Economic Policy Committee
The President
EU-Comparison
Index of Budgetary Procedures
The overall total index of
budget procedures
incorporates amongst
others:
•Budget transparency
•multi-annual planning
horizon
•process top-down budgeting
•prudent economic assumption
•performance budgeting
•numerical fiscal rules
Source: EU Commission, Public Finance Report 2007
Economic Policy Committee
The President
Current Institutional
Reforms in Germany
Commission on the Modernisation of
Federation-Länder Financial Relations
(FöKo II): Reform of constitutional rules
governing public finances
Federal Ministry of Finance is working on a
reform of the Federation’s budgetary and
accounting system with the aim of improving
expenditure efficiency
Economic Policy Committee
The President
Medium term expenditure frameworks and
performance budgeting: Elements of the Quality of
Public Finances
Dr. Christian Kastrop
President of the Economic Policy
Committee, European Union