Analysis of Performance Budgeting During Recent Fiscal Consolidation in Canada

Mostafa Askari

7th Annual Meeting of OECD Parliamentary Budget Officials and Independent Fiscal Institutions

April 16, 2015

Expenditure Management System

Note: Framework adapted from Dr. Allen Schick’s research; using Government of Canada objectives 1

• Money is aligned with the Government’s policy priorities

Allocative Efficiency

• The Government’s finances are sustainable over the long-term and medium-term fiscal anchors are respected

Fiscal Stewardship

• Programs are managed in a manner that provides “value-for-money”

Operating Efficiency

Program-Based Budgeting

2

Each government department is responsible for managing a suite of programs.

Administratively, funding is provided to

organizations (for example, Health

Canada).

Functionally, money is managed on a program-level basis (for example, medical clinic services

for First Nations).

Comprehensive Management Framework

3

4 Spending Areas

Social Affairs

Economic Affairs

International Affairs

Government Affairs

16 Outcome Areas

Healthy Canadians

Programs aim to create a responsible, accessible, and sustainable health system.

400 Program Activities

Food Safety

Verification of compliance by industry with standards and science-based regulations.

2,000 Performance Targets

95% of tested domestic meat products in compliance with regulations.

Performance-Based Budgeting Challenges

4

Parliamentarians’ access to performance data varies

Challenge 1

Data lacks overall context and cannot be

readily synthesized

Challenge 2

Unknown how influential

performance data is in budgeting

Performance Results

5

Government Performance Percentage of total

Program-weighted2010-11 2011-12 2012-13 2013-14 Average

Met 43% 42% 39% 46% 42%Not Met 19% 14% 12% 16% 15%N/A 38% 44% 49% 38% 43%

Spending-weighted2010-11 2011-12 2012-13 2013-14 Average

Met 51% 45% 45% 50% 47%Not Met 22% 23% 18% 21% 21%N/A 27% 33% 37% 29% 32%

Performance Trend Analysis

6

% o

f ta

rget

s m

et

0

20

40

60

80

100

10

-11

11

-12

12

-13

13

-14

10

-11

11

-12

12

-13

13

-14

10

-11

11

-12

12

-13

13

-14

10

-11

11

-12

12

-13

13

-14

10

-11

11

-12

12

-13

13

-14

Economy Innovation Environment Incomesecurity &

employment

Securemarketplace

Economic

0

20

40

60

80

100

10

-11

11

-12

12

-13

13

-14

10

-11

11

-12

12

-13

13

-14

10

-11

11

-12

12

-13

13

-14

10

-11

11

-12

12

-13

13

-14

Domestic Safety& Security

A diverse society Health Culture &Heritage

Social

0

20

40

60

80

100

10

-11

11

-12

12

-13

13

-14

10

-11

11

-12

12

-13

13

-14

10

-11

11

-12

12

-13

13

-14

GovernmentOperations

Transparency &Accountability

DemocraticInstitutions

Government

0

20

40

60

80

100

10

-11

11

-12

12

-13

13

-14

10

-11

11

-12

12

-13

13

-14

10

-11

11

-12

12

-13

13

-14

10

-11

11

-12

12

-13

13

-14

InternationalSafety & Security

Global PovertyReduction

GlobalCommerce

North AmericanPartnership

International

Case Study: Canada’s 2012 Budget

7

• The first comprehensive spending review under new EMS

• 100% of direct program spending reviewed

• 5% in cost reductions proposed

Test case for performance

budgeting

• 3-month review, start to finish

• Business cases not published

• Uncertain risks/returns

Rapid implementation

Performance Budgeting Statistics

8

Prior Year’s Performance Impact on Program Budget: 2010-11 to 2013-14 Percentage of total

Budget Increase

Budget Decrease

Difference

Met 44% 42% 2%

Not Met 16% 14% 2%

N/A 39% 44% -4%

Terminated Average

Met 43% 42%

Not Met 23% 15%

N/A 34% 43%

Prior Year’s Performance Impact on Program Termination: 2010-11 to 2013-14 Percentage of total

Predictive Value of Performance

9

∆ budget = f ( political priorities, performance )

y = 0.21x + 38.22 R² = 0.05

0

10

20

30

40

50

60

70

80

90

100

-100 -80 -60 -40 -20 0 20 40 60 80 100

Pe

rcen

tage

of

tar

gets

me

t ((

20

12

-13

)

Percentage budget change (2013-14)

The EMS is designed to use non-financial performance data for resource allocation decisions.

Yet performance and budget growth are not closely correlated.

Performance-Based Resource Allocations

10

Controlling for other observable variables did not improve the statistical link between budgets and performance

Program performance in the prior year

Program budget size

Program performance two and three years’ prior

Thematic policy area

Key Conclusions

11

• Program performance was not influential during Canada’s recent fiscal restructuring

Canadian performance

budgeting

• May require enhanced or more relevant non-financial information than what is reported currently

Parliamentary clients

• Predictive performance budgeting analysis has a long way to go

• At a minimum, now have an established framework for future spending reviews

PBO