The use of output and outcome information in public budgeting: trends and challenges

Miekatrien STERCK & Bram SCHEERS

Miekatrien STERCK Research Assistant

Public Management Institute Belgium

miekatrien.sterck@soc.kuleuven.ac.be

Bram SCHEERS

Research Assistant Public Management Institute

Belgium bram.scheers@soc.kuleuven.ac.be

Paper to present at the Annual Conference of the European Group of Public Administration, “Public Law and the Modernizing State”, Study Group on Public

Finance and Management, Oeiras, 03-06 September 2003

The use of output and outcome information in public budgeting: trends and challenges

1. Introduction

Public budgets increasingly contain information about the outputs and outcomes in addition to the traditional information about the inputs and activities (Pollitt & Bouckaert, 2000; OECD, 2002a; OECD, 2002b). There is a common trend to an increased use of results information in public budgeting, but the focus of the budget reforms varies from output budgeting to outcome budgeting. The degree in which the budget process and the budget documents become output and outcome oriented differs between countries. Several authors have described the use of output and outcome information in public budgeting. Osborne and Gaebler distinguish between output budgeting and outcome budgeting. They define output budgeting as a budget system that focuses on the output of the services, i.e. the volume produced. Outcome budgeting on the other hand is defined as a budget system that focuses on the outcomes of the funded activity, i.e. the quality or effectiveness of services produced (Osborne & Gaebler, 1992: 162). Other authors do not distinguish between outputs and outcomes, but use more general concepts, as there are performance budgeting and results-based budgeting. The General Accounting Office for example gives the following definitions of performance budgeting distinguishing between the budget format and the budget process. As a budget format or document, a performance budget shows performance levels that are somehow linked with specific budget amounts (General Accounting Office, 1993:1 ; Van Reeth, 2002: 30). As a practice or budget procedure, performance budgeting entails making budgetary choices based on program goals and measured results (General Accounting Office, 1999: 4; Van Reeth, 2002: 30). According to Hatry the key element of results-based budgeting is that it attempts to consider, if only roughly, the future values of performance indicators and the amount of outcomes expected from proposed budgeted resources and projected outputs (Hatry, 1999: 180). Lynch defines performance budgeting as a budget format that presents government program, input and output (Lynch, 1995: 373). The purpose of this article is to distinguish different categories of results-oriented budgeting and to make a classification of the use of output and outcome information in public budgeting. Firstly we give an overview of the trends in results-oriented budgeting in a selection of OECD countries. Secondly we describe the challenges occurring in output and outcome budgeting reforms. To conclude one can say that the observed budget systems are hybrids, differing all in the way output and outcome information influences the budget functions, procedures and budget formats.

2. Methodology

The described trends and challenges are based on the findings of an international comparative research in a selection of OECD-countries, namely Australia, Canada, New Zealand, Sweden, the Netherlands, the United Kingdom and the United States. The subject of research consists of results-oriented budget reforms concerning the ministries of the central government level. To examine results-oriented budget reforms several methodologies may be used. Firstly budget reforms may be explored conducting a survey as was done for example by OECD research (OECD, 2002a; OECD, 2003). Surveying allows to compare reforms in a very standardized way and to summarize the main features of the budget systems, but is not that appropriate to collect detailed information about the peculiarities of the different budget systems. To get a clear view on the typical characteristics of a particular budget system, the single case study method is more suitable (Blöndal, 2001a; Blöndal, 2001b; Boston & Pallot, 1997; Chan, Nizette, La Rance, Broughton & Russell, 2002). A multiple case study approach gives the opportunity to collect detailed information about every budget system and to compare the different budget systems (Schick, 1990; Pollitt & Bouckaert, 2000; Talbot, Daunton, & Morgan, 2001). Another method of examining budget reforms is the case survey: “case surveys go beyond traditional literature reviews by being more systematic, more explicit, more exhaustive and more quantitative (Rosenthal, 1984).” We use a multiple case study approach combined with a rather standardized description and classifications as used in case surveys. The research is based on a qualitative analysis of secondary data (reports and evaluations about the budget reforms) as well as primary data (budget documents and in-depth interviews with expert witnesses and civil servants involved). During the research we were coping with some methodological problems. Firstly it was difficult to find out to what extent the budget reforms are rhetorical and to what extent the statutory required or planned reforms are really implemented in day-to-day business. Secondly it was hard to define the coverage rate of the reforms. To what degree varies the use of output, outcome and cost information in the budget system between departments? What is the quality of the output, outcome and cost information? The research conducted by Supreme Audit Institutions in the examined countries helped us overcoming these methodological problems (General Accounting Office, 2000; General Accounting Office, 2001; Australian National Audit Office, 2001; Auditor General of Canada, 2000; Algemene Rekenkamer, 2002; UK National Audit Office, 2001).

3. Trends in the use of output and outcome information in public budgeting

3.1. Multiple rationalities contingency model To analyze the recent trends in public budgeting we use a multiple rationalities contingency model. Theoretically there is thus a two level contingency approach. The first level consists of the environmental contingency. Why is public management changing? Which contextual factors influence

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public management reform? Lüder developed a contingency model for accounting innovations in order to explain the transition from traditional government accounting to a more informative system (Lüder, 1994). The dependent variable in the model is thus the result of the innovation process. The independent variables are the following contextual variables: stimuli (fiscal stress, financial scandals dominating doctrine) and societal structural variables, political structural variables and administrative structural variables. There are also three clusters of behavioral, intervening variables: expectations of the general public, expectations and change behavior of the political actors and change behavior of the administrative actors (Lüder, 1994). Lüders’ contingency model was inspiring several other authors modifying and applying the model (Pollitt & Bouckaert, 2000; Mussari, 1995; Pallot, 1996;Chan, 1994; Van Reeth, 2002). The second level exists of the embedded contingency of the reform. The content of the reform is shaped by multiple rationalities. Budgeting is considered as a heterogeneous system with multiple functions, multiple users and multiple formats (Van Reeth, 2002). The challenge exists in harmonizing and aligning the functions, procedures and formats as to create a sustainable budget system. First of all the information content of the budget document may have important consequences for the discourse of the budget process and the use of the budget information. Secondly the budget procedure on its turn influences the way in which the budget documents will be used and which budget function will dominate. Finally a change of the dominant budget function requires an adaptation of the budget procedure and the budget format. The management function of the budget can only dominate if the budget procedure is decentralized and if the budget bill is structured by outputs and costs. Budgeting is thus defined as a system with a dominant function, a dominant procedure and a dominant format that is developed within a specific socio-economic, political and administrative context.

3.2. Evolution in budget functions Most budget scholars agree that budget systems should be considered as multifunctional. In 1966 Allen Schick described the evolution of US budgetary reforms in which he distinguished three different stages: the control-oriented line-item budgeting, the management-oriented performance budgeting introduced by the Hoover Commission and the planning-oriented Planning Programming Budgeting System (PPBS) (Schick, 1966). Based on Anthony’s distinction of administrative processes, Schick defined three competing budget functions: planning, management and control. “It should be clear, however, that every budget system contains planning, management and control features. A control orientation means the subordination, not the absence, of planning and management functions. In the matter of orientations, we are dealing with relative emphases, not with pure dichotomies (Schick, 1966: 245).”

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According to Rubin’s concept of real-time budgeting, budgeting is characterized by semi-independent, overlapping streams of decision making that depend on one another for pieces of information: revenues, budget process, expenditures, balance and implementation (Rubin, 1997) Wildavsky formulated the multifunctional character of budget systems as follows: “Budgeting is supposed to contribute to continuity (for planning), to change (for policy evaluation), to flexibility (for the economy) and to provide rigidity (for limiting spending). These different and to some extent opposed purposes contain a clue to the perennial dissatisfaction with budgeting (Wildavsky, 1978).” Results-oriented budget reforms may thus be driven by several reasons. In this paragraph we try to classify budget reforms by the causes and objectives of the reform. We consider the reform objective as the most proximate to the dominant budget function meant by the reform. By doing this, we however do not ignore that there might be hidden budget functions. The competition between manifest and latent budget functions will be dealt with later in the paragraph on competing budget functions. All results-oriented budget reforms have the objective to make government more efficient and effective. They introduce concepts of modern management and policy making in government. When observing recent results-oriented budget reforms in the selected OECD countries, one can however see that the need for more efficiency and effectiveness goes hand in hand with a need for modernizing accountability (Martin, 2002). On the one hand reforms are driven by the need for increased accountability within the executive branch, between autonomous agencies and departments and between departments and the central budget office. On the other hand there is a need for strengthened political accountability and transparency, as well to parliament as to the public. In this paragraph we will thus focus on the accountability function of the budget function, without saying that the planning and management function of budget reforms are no longer important.

CLUSTER ONE: INTERNAL ACCOUNTABILITY The first cluster of reforms deals with the need for increased accountability within the executive branch. The separation between policy preparation and policy implementation requires not only managerial autonomy for the executive agencies but also a strong outcome steering capacity within the departments. However there has been a tendency in new public management reforms to focus rather on the managerial responsiveness of executive agencies than on the steering and control capacity of departments. Recently there have however occurred some reforms, for example in New Zealand and Sweden to strengthen the outcome steering capacity of departments. Other reforms emphasize the integration of the budget and planning process and strengthen the accountability of departments and agencies to the central budget office, for example the Public Service Agreements (PSA’s) in the UK and the Program Assessment Rating Tool (PART) in the US.

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Need for strengthened outcome steering capacity of ministers and departments New Zealand

New Zealand was among the first countries that introduced the separation between strategic policy making and operational policy implementation by executive agencies. The State Sector Act 1988 and the Public Finance Act 1989 set up a public management system in which the political level purchases outputs from the departments and agencies in order to achieve the planned policy objectives. The Chief Executives enter in a performance agreement with the minister and have managerial autonomy to deliver the agreed outputs. This separation between policy and management however seemed to be partly dysfunctional as the managerial accountability started to dominate the political accountability and there was a lack of horizontal coordination. Therefore, in 1994 a strategic management system was developed in which horizontal, long term Strategic Results Areas were formulated and translated in more operational Key Results Areas. Several evaluations of the strategic management system revealed however that there was still a strong need for more strategic policy making and accountability, horizontal and vertical policy coordination, more exchange of information and a better link between the budget process and the strategic management system (Schick, 1996; Mascarenhas, 1996; Boston & Pallot, 1997; State Services Commission, 1998; Schick, 2001). In 1999 the strategic management system was thus adapted to increase the political involvement in the planning process by introducing a strategic results area network and to integrate the budget process and the planning process. Sweden

Sweden has had a long tradition of autonomous executive agencies implementing policy. Executive agencies are accountable to the cabinet as a whole and departments cannot intervene in the implementation of the law by agencies. Agencies are autonomous in defining their financial management, human resources management and organization structure. In the agencies 200000 people are employed whereas only 4000 in departments. There is a huge asymmetry between the large, powerful agencies and the small departments. There was a need for the departments to strengthen their capacity to steer and control the agencies in implementing the government’s policy objectives. Therefore, in 1988 a Performance Management System was developed. During the first half of the nineties the need for results-oriented steering was overshadowed by the need for stricter financial control as a consequence of the economic crisis. At the end of the nineties the attention shifted again towards results-oriented management and budgeting with the introduction of the VESTA project. VESTA has the ambition to introduce a new activity structure and an accrual-based budget. However, the question arises whether these reforms are sufficient to strengthen the policy steering capacity of the departments (Molander et.al. , 2002). Accountability of departments to the central budget office Secondly budget reform may also be driven by the need to strengthen the accountability of departments to horizontal departments, in particular the central budget office.

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United States (PART)

In the United States the Bush administration launched in 2001 the President’s Management Agenda, a comprehensive management reform program, consisting of five pillars, HRM, e-government, financial management, competitive sourcing and budget and performance integration. The Office of Management and Budget (OMB) measures the progress of the departments on these issues by means of a management scorecard. Concerning budget and performance integration, OMB has the ambition to achieve the initial goal of the Government Performance and Results act (GPRA) to develop a performance budget. Therefore OMB developed a binary nomenclature to measure the performance of budget programs, the Program Assessment Rating Tool (PART). The PART has been used by OMB to assess 20% of all programs in the FY 04 budget. United Kingdom

The UK government launched in 1998 the Comprehensive Spending Review and the Public Service Agreements with the ambition to create a multi-year and policy oriented budget process. The objectives of the Public Service Agreement Framework were to increase the departmental accountability, to enhance the efficiency and effectiveness of government, to promote cross-cutting policy making, to align policy and management and to align central government and local government policy. HM Treasury negotiates with the departments on the aims, objectives and key targets resulting in a Public Service Agreement. The Service Delivery Agreements set out which concrete activities the departments will undertake to achieve these aims, objectives and key targets. The departments report on the achievement of the PSA’s and SDA’s by means of a Spring Departmental Report and an Autumn Performance Report. The introduction of the PSA’s and SDA’s was mainly driven by the need for more departmental accountability, as well to HM Treasury as to Parliament. According to Richards and Smith the budget reform strengthened the position of HM Treasury in the policy making process and increased the control of HM Treasury over the departments (Richards & Smith, 2002).

CLUSTER TWO: EXTERNAL ACCOUNTABILITY The second cluster of budget reforms consists of initiatives to strengthen the accountability of the government to the parliament and the general public. Budget documents are extended with outcome and output information to inform the members of parliament on the policy objectives the government wants to achieve using the authorized resources and to make the budget debate more results-oriented. The Netherlands In the Netherlands, a budget reform initiative was set up in 1999 to create a more transparent and outcome-oriented budget structure and to focus the budget debate more on the broad policy priorities of government. The reform named “From budgeting for outcomes to reporting for outcomes” has the ambition to enhance the connection between the budget and the annual report and accounts. It was initiated by the Ministry of Finance, supported by the Public Finance Committee. The Law on Public

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Finance has been amended and the new outcome structured budget is in place since 2002. The Dutch budget reform emphasizes strengthening the accountability of government to parliament and the public by promoting the transparency and the policy orientation of the budget document. Canada In the early nineties Canadian budget reforms, as the Program Review (1994) and the Expenditure Management System (1994) focused mainly on financial control and reducing public expenditures. When public finances became more healthy in the second half of the nineties attention shifted towards results-oriented budgeting, increased accountability to parliament and regaining citizen’s trust. For example the Improved Reporting To Parliament Project (1994) obliged departments to report on their plans on the one hand and the achieved results on the other hand by means of a Report on Plans and Priorities at the beginning of the fiscal year and a Departmental Performance Report at the end of the fiscal year. United States (GPRA) The US Government Performance and Results Act 1993 obliges departments and agencies to make up strategic plans, performance plans and performance reports linked to the budget document. The objectives of the GPRA are threefold: make the congressional budget process more results-oriented, make internal management more efficient and effective, increase executive accountability to Congress and strengthen citizen’s trust in government. The GPRA was an initiative of the Senate Committee of Government Affairs and was implemented by the Office of Management and Budget. The GPRA reform was thus mainly driven by the need for enhanced external accountability. However, the question arises whether the accomplishments of the GPRA lies rather in an increased results-oriented focus in the budget process or in an enhanced results orientation in the daily management of departments and agencies. The answer to this question is rather ambiguous. It seems that the performance information is more used by the authorization committees than by the appropriation committees (Van Reeth, 2002). The performance information generated by the GPRA seems to be used in the decision making process without explicitly referring to the GPRA*.

CLUSTER THREE: INTERNAL AND EXTERNAL ACCOUNTABILITY Australia The most recent Australian budget reform, the Accrual Outputs & Outcomes Framework (1999) emphasizes as well the need for stronger accountability of agencies to departments as well as an enhanced external accountability. Yet since the early eighties the Australian Government had developed initiatives to make the budget and management system more results-oriented, as for example the introduction of program budgeting in 1983. Since the mid-nineties there is an increased attention to an integrated, comprehensive reform strategy. The Accrual Outputs & Outcomes * Interview with Chris Mihm, General Accounting Office, October 2002

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Framework focuses on managerial responsiveness, output steering accrual budgeting on the one hand, combined with an outcome-oriented, long-term budget and planning process on the other hand. The Joint Committee supported the reform for Public Accounts and Audit, which was, contrary to most public finance committees in other countries, an advocate of introducing accrual budgeting. Since the new framework has been implemented in 1999, however, members of parliament have criticized that the output information in the Portfolio Budget Statements and annual reports is too aggregated and that it is difficult to get a clear view on the agencies’ contributions to the outputs (Department of the Parliamentary Library, 2002). There is obviously a need to achieve a greater convergence between performance information collected for external accountability and internal management purposes (Department of Finance and Administration & Department of Family and Community Services, 2002).

3.3. Evolution in the budget process To describe the evolution in the budget process one traditionally uses the following variables: the degree of centralization (top-down versus bottom-up) and the dominant actors (legislative versus executive dominance). “Top-down budgeting means that budgeting is centralized, either in the legislative or the executive branch or both. An individual, a committee, or an office is responsible for setting overall targets and evaluating requests. By contrast bottom-up budgeting means there is no prior central control policy over the budget. Budgets are created as the aggregates of individual requests from agencies or committees (Rubin, 1992: 11).” “Executive budgeting means that the chief executive and his staff have the responsibility for putting together a budget proposal and presenting it to the legislature for approval. Legislative budgeting means that the agencies make their proposals for spending directly to the legislature without being evaluated first by the executive (Rubin, 1992)”. These dimensions to describe budget processes, top-down versus bottom-up and legislative versus executive, should be considered rather as the ends of a continuous spectrum than as pure dichotomies. Budget systems may for example be featured both by top-down and bottom-up streams of decision-making. It might also be hard to find a hundred percent legislative system. The overall direction of change has been towards more executive budgeting. In the majority of the observed countries, with the exception of the United States, there is thus an executive dominance over the budget process. Therefore we will mainly focus on the other dimensions of analysis, the degree of centralization of the budget process. Observing the degree of centralization of the budget process, one can distinguish two clusters of the budget systems. The first cluster contains the budget systems featured by a top-down macro-budget process but a decentralized micro budget process (Australia, New Zealand, UK, Sweden). The second cluster exists of the budget systems that remain rather centralized and are characterized by an influential central actor dominating the overall budget process (Netherlands, US, Canada).

CLUSTER ONE: TOP-DOWN MACRO BUDGETING AND BOTTOM-UP MICRO BUDGETING The first cluster exists of budget systems with a very centralized decision-making at macro-level combined with a decentralization of budgetary decision-making to the micro level. This cluster contains Australia, Sweden, the UK and New Zealand.

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Australia In Australia the budget process starts with on the one hand a discussion by the Prime Minister, the Treasurer and the Minister for Finance and Administration on the general fiscal strategy and on the other hand a Senior Ministers’ debate on the policy priorities of the government. Based on these decisions, agencies develop Portfolio Budget Submissions in which they set out the outcomes and outputs to achieve, the resources needed and the performance measures to follow up the outcomes and outputs. These portfolio budget submissions are then discussed by the Prime Minister and the Senior Cabinet Ministers in the Expenditure Review Committee. Based on the recommendations of the Expenditure Review Committee, the Cabinet finally decides on the resource level for every outcome and on the distribution of resources between departmental outputs on the one hand and administered outputs (transfers & grants) on the other hand (Chan, Nizette et.al., 2002). The decision on the resource level for the individual outputs is made by the managers of departments and agencies. Afterwards the Budget Papers are submitted to Parliament and approved after the scrutiny by the Senate Legislative Review Committee. One may conclude that the decision-making on the general fiscal strategy and the general policy priorities occurs very top-down, but that the decisions on the portfolio budgets are rather decentralized. Sweden The Swedish budget process can be split up in two large phases: the top-down decision making on the total level of government expenditures and the limits for the 27 expenditure areas and the bottom-up decision making on the agencies’ appropriations (Blöndal, 2001a). The budget process starts thus with the update and review of the three-year budget framework by the Ministry of Finance, for the total framework and by the ministries, for their expenditure areas. Based on the recommendations of the Ministry of Finance, the Cabinet then collectively decides on the total government expenditure limit and on the expenditure level for each of the 27 expenditure areas. The decisions of this Cabinet Budget Meeting are then approved by Parliament in the Spring Fiscal Policy Bill. Until the decisions are made by the Cabinet Budget Meeting and are approved by Parliament, the budget process occurs very top-down and rather input-oriented. Within the limits of each expenditure level, however, each minister becomes his own Minister of Finance to appropriate resources to the expenditure area agencies. “It is during that phase that performance information enters the budget formulation process (Blöndal, 2001a).” Each minister submits his proposal for appropriations to the Ministry of Finance that coordinates the composition of the Budget Bill. After the debate on the limits for each of the 27 expenditure areas by the Finance Committee and the discussions on the appropriations by the Select Committee, the budget is approved in the plenary session. Afterwards the minister and agencies negotiate on the Regleringsbrev, the instruction letter with the outcomes and outputs the agency has to achieve with the appropriation. The agencies give account to the cabinet on their results by means of an annual report.

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United Kingdom The 1998 Comprehensive Spending Review introduced a multiyear and outcome-oriented budget process in the UK. Every two year the budgetary and policy objectives are evaluated and revised during the Spending Review process. The Treasury sets the level of Total Managed Expenditure for the coming three year and derives the Departmental Expenditure Limits (DEL’s) and the Annual Managed Expenditure (AME). “The decisions on budgets and targets are made alongside each other and are considered by the same Cabinet Committee. So the negotiation of the outcome measures is part of the budgeting process (Ellis & Mitchell, 2002).” The departments and HM Treasury negotiate Public Service Agreements that set the aims, objectives and performance targets to achieve. Within the boundaries of this Public Service Agreement the departments have managerial autonomy for resource allocation. Concluding we can say that in the UK budget system a top-down macro budgetary process is combined with decentralization of financial management and resource allocation to the departments. New Zealand In New Zealand the executive budget process exists of two phases: the strategic phase and the initiative phase (Treasury, 1996). During the strategic phase ministers decide on the general budgetary policy for the coming three years resulting in the submission of a Budget Policy Statement in Parliament. During the initiative phase ministers and chief executives prepare budget baseline submissions or vote budget submissions on the one hand and budget initiative submissions (new policy initiatives) on the other hand. Afterwards the Cabinet collectively reviews and discusses the budget baselines and the budget initiatives and decides whether the submissions fit into the general fiscal strategy. Ministers have the freedom to transfer resources between outputs as long as the budgetary baseline is not exceeded. When the final budgetary decisions are made by the Cabinet, the budget documents are presented to parliament and discussed on Budget Day. Afterwards The Finance and Expenditure Committee discusses the Budget estimates and refers them for further scrutiny to the competent committees (Treasury, 2002). These committees report back to the plenary and after the third reading, the Appropriation Bill is approved. Members of parliament have the right to propose amendments to the Vote Budgets, but the cabinet has a veto power, that cannot be overruled. The New Zealand budget process is thus characterized by a strong executive dominance and a combination of a top-down budget strategy and bottom-up budget submissions.

CLUSTER TWO: TOP-DOWN BUDGET PROCESS The second cluster contains the budget systems with a centralized, top-down budget process: the central budget office or the budget committee sets the budgetary targets and the departments or agencies submit their budget requests for review to this central actor which makes the final budgetary decision. To this cluster belong the Netherlands, the United States and Canada.

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The Netherlands The budget process in the Netherlands occurs rather top-down. The Minister of Finance makes up the scenario for the budget process and the budget instructions and sends them to the departments which can then start with the preparation of the budget. The Minister of Finance then gives the Cabinet an overview of the budgetary and economic expectations and the scope for policymaking by means of a Kaderbrief or frame letter. On the basis of this letter the Cabinet decides on potential budget cuts, the total amount of expenditures for each department and the budgetary space for new initiatives. The so-called Totalenbrief sets the total amount of expenditures and non-fiscal receipts for the whole public sector. After that, each department sends the budget submission to the Minister of Finance and discusses the proposal with the Inspection of Finance. Then the decisions are made on the estimated fiscal revenues based on the latest macro-economic forecasts. The macro-budgetary and financial policy is set out in the so-called Miljoenennota which is submitted to Parliament together with the departmental budgets in September. The Miljoenennota and the Departmental Budgets are then discussed and approved by both houses of Parliament. Only the Lower House has the right to amend the budget (Bestebreur, Kraak et.al., 2001). Canada The Canadian budget process is characterized by a strong executive dominance and a rather top-down course. These findings are mainly based on the detailed examination and description of the budget process by Blöndal (Blöndal, 2001b). The executive budget process starts with two cabinet meetings in which the broad budget themes and the key elements are set. The Minister of Finance gives the cabinet advice on the fiscal and expenditure targets and the President of the Treasury Board gives an overview of the expenditure reallocation and reduction options (Treasury Board Secretariat of Canada, 1996). Preceding the parliamentary approval process, parliament discusses the budget yet during the pre-budget consultation process. The Standing Committee on Public Finance organizes public hearings on the broad budgetary policy and reports the results to the House of Commons for debate. At the same time the executive budget process goes on: every minister can propose new policy initiatives that are discussed in policy cabinet committees. The ministers then compare the different policy initiatives and decide collectively on the most important priorities and formulate an advice to the Prime Minister and the Minister of Finance. The Prime Minister and the Minister of Finance then make the final budgetary decisions and introduces the Budget in Parliament. The President of the Treasury Board submits the Estimates and the Reports on Plans and Priorities for each department and agency. After the examination of the Estimates by the Standing Committees, Parliament approves the Estimates. United States In the United States of America there is a more even distribution of power between the executive branch and the legislative branch compared with most OECD-countries in which the executive branch dominates the legislative branch. The Congressional Budget Act of 1974 has made that the legislative and the executive branch formally have their own budget and budget procedures which are intertwined

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in an annual cycle. “The Presidential budget process starts with the establishment of the general budget and fiscal policy guidelines. Based on these guidelines, the Office of Management and Budget works with the federal agencies to establish specific policy directions and planning levels for the agencies (Office of Management and Budget, 2003).” Recently OMB has developed an instrument to assess the effectiveness and management of programs, the Program Assessment Rating Tool. For the FY 04 budget OMB has used the PART to assess 20% of all programs. “In early fall, agencies then submit their budget requests to OMB where analysts review them and identify issues that OMB officials need to discuss with the agencies. OMB and the agencies resolve many issues themselves. Others require the involvement of the President and White House policy officials (Office of Management and Budget, 2003).” After this decision-making process is completed, the budget document is finalized and transmitted to Congress. Agencies then also submit their annual performance plans that are linked to the budget to the committees. “Congress considers the President’s Budget proposals and approves, modifies or disapproves them. It can change funding levels, eliminate programs or add programs not requested by the President.” The Legislative budget process starts with the House Budget Committee and Senate Budget Committee formulating both a Budget Resolution that sets the general level of revenue and spending. After these resolutions have been voted plenary by the House and the Senate, both chambers try to agree on a Concurrent Budget Resolution. The Authorizing Committees in both chambers then report to the Budget Committee on the changes in law needed to comply with the budget resolution by means of reconciliation. The Appropriation Committees in both chambers then report on the spending measures needed to comply with the resolution. Both the House and the Senate then vote on the 13 separate Appropriation Bills and the Reconciliation Bill. House and Senate try to agree on each Appropriation Bill in a Conference Committee. After that, the House and the Senate vote on the Conference Report and the Appropriation Bills are signed by the president, unless he uses his veto power. Subsequently, the Reconciliation Conference Committees are held. Both chambers vote on the reconciliation and the President afterwards signs or vetoes the Reconciliation Bill. The GPRA reform was meant to strengthen the oversight role of the congressional committees as they received more information on the performance of the agencies. The PART reform might have reinforced the oversight role of OMB. The performance information contained in the performance plans is generated bottom-up, but the overall budget process remains rather top-down.

3.4. Evolution in budget formats Budget documents may have different budget structures and may contain different kinds of information. Budget literature and practice distinguish a clear classification of the different possible budget formats based on the focus on either inputs, activities, outputs or outcomes (Rubin, 1992; Wildavsky, 1978; Martin, 2002). The following figure illustrates the of budget formats:

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INPUT ACTIVITY OUTPUT OUTCOME

program budgeting

line-item budgeting

performance budgeting

outcome budgeting

Figure 1: Classification of public budget formats

There is however no consensus among budget scholars about the influence of the budget format on the budgetary outcomes (Grizzle, 1986). On the one hand, there are scholars which are emphasizing the impact of the budget format on the results of the budget process (Mosher, 1954; Burkhead, 1956, Schick, 1966; Fenno, 1968; Wildavsky, 1978). Mosher stated: “The way in which information is classified importantly affects the kinds of treatments and the kinds of decisions that can be made at various levels because the classification framework conditions our subsequent perspectives, understandings and decisions made within the framework (Mosher, 1954).” When the Planning Programming Budgeting System was designed in the sixties several authors again emphasized the importance of the budget format (Wildavsky, 1978; Fenno, 1968; Schick, 1966). Budgetary decision-making may be considered as a two-step process: the budget format influences the content of the budget decisions and the budget discourse, which are in the second phase affecting the final budget decisions. The importance of a results-oriented budget format lies thus in making the budget discourse more results-oriented (Grizzle, 1986). On the other hand, there are scholars which are convinced that the political rationality of budgetary decision making dominates the influence of the budget format as for example Lauth, Ramsey & Hackbart, Juszczak, Carr, Hickman & Cope (Grizzle, 1986). Some scholars rather take a position in the middle. They emphasize the importance of intervening variables. Schick states that the way in which the budget format determines the budgetary outcomes depends on the dominant budget orientation (planning, control or management). “Budget formats implicitly or explicitly define the range within which policy and allocation decisions will take place (Rubin, 1992).” Most research on budget formats focuses thus on the degree in which activity, output and outcome information is contained in the budget document as a whole. However, we think that there is need for more specification in this matter as there are huge variations between budget systems according to which document of the budget documentation contains the results information. The output and outcome information may be part of the authorized part of the budget or be may be contained in the non-authorized part of the budget or in a document separate to the budget document. Therefore it is necessary to add to the input-outcome dimension a second dimension, the authorized-non-authorized

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dimension. Osborne and Gaebler distinguish between linking outputs and outcomes to the budget on the one hand and purchasing outputs and outcomes on the other hand. On the one hand there is the budget system that defines the mission and the outputs or outcomes desired and measures them but does not tie dollars spent to volume of outputs (Osborne & Gaebler, 1992: 161-162). This could be defined as a budget system that links specific outputs and outcomes to the budget (Martin, 2002: 250). On the other hand there is the budget system that allocates a certain amount of money for a certain amount of outputs or to produce the agreed outcomes, in other words, a budget system that purchases specific resources for the accomplishment of specific outputs or outcomes (Martin, 2002: 250). Observing the budget formats in a selection of OECD countries we distinguished three clusters: budget systems in which appropriations are made for outcomes, budget systems in which appropriations are made for outputs and budget systems in which output and outcome information is informing the traditional appropriations.

CLUSTER ONE: APPROPRIATIONS FOR OUTCOMES The first cluster contains countries in which appropriations are made for outcomes and not for outputs and processes. Decreasingly Australia, the Netherlands, the United Kingdom and Sweden belong to this cluster. Australia In Australia, appropriations are explicitly made for outcomes in the Appropriation Bills. The Portfolio Budget Statements then provide additional details and explanations of the Budget to inform senators and members of the public of the proposed allocation of resources to government outcomes. Thus, under the Australian outcomes and outputs framework, “appropriations are structured around outcomes, whilst Portfolio Budget Statements specify the price, quality and quantity of outputs agencies will deliver and the criteria they will use for demonstrating the contribution of agency outputs and administered items to outcomes (Chan, Nizette, La Rance, Broughton & Russell, 2002).” For example, in the Appropriation Bill 2002-2003 the Department of Family and Community Services receives appropriations for three outcomes. One of these outcomes is “Stronger Families - Families, young people and students have access to financial assistance and family support services”. The Portfolio Budget Statement 2002-2003 specifies the four output groups (family assistance, youth and student support, child support and child care support), which contribute to meeting government’s commitment (Parliament of the Commonwealth of Australia, 2002; Department of Family and Community Services, 2002). The Netherlands In the Netherlands a new performance-oriented budget format has been introduced in 2001. In this new budget format, appropriations are made for beleidsartikelen or policy lines. These are outcomes that the Dutch government aims to achieve. The policy objectives, the instruments to achieve them, the outputs to deliver and the estimated means are described in the explanatory statement. An

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example is the policy line “Stimulation of the innovative power” of the Ministry of Economic Affairs. The explanatory statement then describes the three operational objectives to achieve this outcome: an international trend-setting infrastructure for innovation, development of innovation in the market and an excellent IT basis. In order to be able to appropriate means to policy objectives, the Governments Accounts Act of 1976 has been changed. United Kingdom In the United Kingdom, the Estimates are the means of obtaining from Parliament the legal authority to consume the resources and spend the cash the government needs to finance department’s agreed spending programs for the financial year. Parliament gives statutory authority for both the consumption of resources and for cash to be drawn from the Consolidated Fund by Acts of Parliament. “The Appropriation Act not only gives Parliamentary authority for total resources requested to be used and cash to be issued from the Consolidated Fund but also limits the way in which the resources can be used by prescribing how the overall sum is to be appropriated to particular Request for Resources (RfRs) in order to finance specified services (HM Treasury, 2003).” The RfRs are outcomes the government wants to achieve. An example is the Request for Resources “Giving everyone the chance, through education, training and work to realize their full potential and thus build an inclusive and fair society (UK Parliament, 2002)”. The government has also made use of performance measures to set clear, transparent targets to improve public services in a number of areas by means of Public Service Agreements (PSAs) and Service Delivery Agreements (SDAs). The PSAs set the outcomes that should be reached within the three-year fixed budget for Departmental Expenditure Limits. These budgets are, however, reviewed biennially. The outcome-oriented PSAs were supplemented in the Spending Review 2000 by output-oriented Service Delivery Agreements (SDAs). The function of SDAs is to outline how the department intends to deliver on its PSA targets. They provide the link between PSAs and the more detailed business plans of departments and their agencies. In the PSA of the Department for International Development, one of the described objectives is to reduce poverty in Asia. The SDA describes that the Department for International Development will provide increased support to contribute to, amongst other things, deepening democracy, improving rights of the socially excluded and reducing corruption in Bangladesh, Nepal, India, Pakistan and Indonesia (Department for UK International Development & HM Treasury, 2002a; UK Department for International Development & HM Treasury, 2002b). Sweden The Swedish situation is less clear than the previous ones. Though, Sweden is placed within this cluster because the Budget Bill has been organized into 27 expenditure areas to shift away from input budgeting to concentrating on policies and outcomes. Parliament decides in a first stage on the amount to allocate to each of these areas. VESTA or the performance budgeting project has introduced an activity structure in the Budget Bill (the implementation is still going). This activity structure is used to allocate resources in accordance with political priorities and thus to relate the planning and budgeting process. It exists of three levels: policy areas, activity areas or programs and sub-activity areas which are contained entirely within one agency. The objective, outcome, budget and

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cost are defined for each level (Regeringskansliet, 2000). The policy areas are subdivisions of the expenditure areas and are used to allow a closer linkage between objectives, costs and results and to make it easier to see where the money goes. Sveriges Riksdag or Parliament sets the objectives and the financial framework for the policy areas in the second stage and the government reports on the outcomes. The budget document also contains proposals for the appropriation to the agencies and the major transfer programs to be voted by the Parliament. The appropriations voted by the Parliament relate to agencies. The government sets the objectives and the resource framework for the programs and sub-programs. The latter is done in the Regleringsbrev or supply letter to the agencies and the agencies report on the outcomes. A fictive example from the public prosecutors is given to illustrate the purpose of the reform (Lindblom, 2002). The Regleringsbrev for the public prosecutors should specify on the one hand the impact objectives, e.g. “reduce crime to make people more secure”, decided by Parliament. On the other hand, the operational objectives decided by government should be described, e.g. “the closed cases shall be at least as many as the received cases. The flow rate shall decrease (Lindblom, 2002).”

CLUSTER TWO: APPROPRIATIONS FOR OUTPUTS New Zealand The second cluster that can be defined includes countries in which appropriations are made for outputs. This is the case in New Zealand. In the Estimates of Appropriations for the Government of New Zealand, appropriations are made for output classes. To facilitate examination of the appropriations sought, the Estimates provide members of Parliament with details about the objectives for each vote (i.e. a grouping of one or more appropriations that are the responsibility of one minister and are administered by one department) and specification of the outputs to be purchased by the Vote minister. The government is thus required to show the links between resources used and desired outcomes by buying outputs, hence outputs are the pivot of the system. Parliament thus still appropriates explicitly for outputs (Kibblewhite & Ussher, 2002). In the Estimates of Appropriations and within the vote police, means are for example appropriated for the output class “Road safety program” and not for the outcome “Enhance road safety” (New Zealand Parliament, 2003). By clearly separating the responsibility of departments for outputs and the government for outcomes, the Public Finance Act of 1989 recognizes the difficulties of holding agencies accountable for results. The greater emphasis on outputs and lesser emphasis on outcomes is also caused by the difficulties in establishing the causal relationship between outputs and outcomes where the sources of impact are so diverse, as in health, education and social welfare (Mascarenhas, 1996). Because of these difficulties, the Public Finance Act has chosen to structure the budget according to outputs and not outcomes. New Zealand also introduced the Strategic Management System in 1994. This implied that Strategic Result Areas or policy objectives in the medium term were formulated. These were translated in Key Result Areas or more detailed departmental objectives. This system has been reformed in the Strategic Result Area Networks in 1998 (State Services Commission, 1998).

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CLUSTER THREE: OUTCOMES AND OUTPUTS INFORMING TRADITIONAL APPROPRIATIONS A third cluster consists of budget systems in which the output and/or outcome information or documentation influences or is meant to influence the budget process, but is not contained in the authorized budget documentation. The means are thus not appropriated for outcomes or outputs, but for programs bedded in an organizational structure (departments and agencies). However, the performance information is or may be taken into account when the Ministry of Finance and the departments negotiate on the budget submissions. The information is also often used afterwards by the ministries to guide, monitor and evaluate their agencies on the efficient and effective use of inputs. This applies to Canada and the United States. Canada In Canada, federal Parliament authorizes government to spend money by means of part two of the Main Estimates. The Main Estimates are detailed plans of the government outlays by department and agency. They consist of three parts of which part two itemizes each government expenditure for which parliamentary approval is required. The Reports on Plans and Priorities and the Performance Reports, both introduced in 1994 within the Improved Reporting to Parliament Project, are a recasting of part 3. They are prepared by each individual department and agency. The reports are designed to provide more detailed information through a focus on results in a more strategic, multi-year perspective on program delivery. They contain information on objectives, initiatives and planned results, including links to related resource requirements over a three-year time horizon (Blöndal, 2001b). One of the strategic outcomes in the report on plans and priorities 2003-2004 of the Department of Justice is enhancing security for Canadians (Department of Justice, 2003). Ongoing and new initiatives that should be taken in order to achieve this outcome are for example public safety and anti-terrorism, firearms program and fighting organized crime. In 1997 the Auditor General of Canada reported that the review and use of the new Estimates documents by standing committees was limited. This finding was confirmed in 2000 (Auditor General of Canada, 2000). United States The U.S. Congress does not, strictly spoken, pass a budget; but it passes 13 appropriation bills to determine budget authority for discretionary spending, tax bills to determine revenue and reconciliation bills to alter existing entitlements. The appropriation bills are the vehicles to pass the budget to the voting process. Next to these appropriation bills, there are also a lot of other types of budget documents as for example the President’s budget and the agencies’ justifications of budget estimates. The Government Performance and Results Act (GPRA) of 1993 introduced some new documents that were intended to influence the budget process. The Act requires each federal department and agency to submit a strategic plan, an annual performance plan and an annual performance report. The objective was to introduce performance budgeting. GPRA planned to extend indirectly the traditional content of the budget format, i.e. inputs under a program activity label, to process-, output- and outcome-measures or indicators under agency specific, outcome-oriented goal (Van Reeth, 2002). The US Department of and Human Services (HHS) for example tries to connect the strategic goals

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(e.g. “Increase the percentage of the Nation’s children and adults who have access to regular health care and expand consumer choices) with the performance goals (e.g. “Decreasing the number of uninsured children and adults) and the programs (e.g. State Children’s Health Insurance Program) in strategic plans and performance plans (US Department of Health and Human Services, 2002a; US Department of Health and Human Services, 2002b). Agencies were encouraged to integrate the performance plans with their justifications of budget estimates. There is only mixed evidence that members of Congress are looking at performance information and using it for decision-making purposes. The current President’s Management Agenda builds on GPRA, but aims to go a step further. Its objective for the President’s budget is to evolve towards a performance budget in which performance data are formally integrated. In order to evaluate the effectiveness of programs the executive budget office, the Office of Management and Budget, developed recently the Program Assessment Rating Tool (Office of Management and Budget, 2002). Performance information is thus more and more taken into account for the formulation of the President’s budget, while there is no evidence about its use in the Congressional budget process.

4. Challenges in the use of output and outcome information in budgeting

The movement towards an increased use of outcome and output information in public budget systems involves a lot of challenges. A very important challenge is the incompatibility of functions. The current budget reforms emphasize accountability for efficiency and effectiveness, which may have conflicting demands for the format and process of the budget compared to for example the need for financial control. To the extent that the different functions, formats and procedures are competing or incompatible, they can be expected to operate in a parallel way or even crowd out each other and thus make the reforms unsustainable.

4.1. Competing budget functions Budget systems are assumed to be multifunctional. Our research on budget reform revealed three important tensions: financial control versus results-oriented budgeting, political accountability versus administrative accountability and authorization versus management.

FINANCIAL CONTROL VERSUS RESULTS-ORIENTED BUDGETING The financial control function requires a very centralized budget process and a line-item budget. In times of economic crises the need for savings dominates the need for results-oriented budget reform. In the early nineties several governments were coping with serious financial problems and the results-oriented budgeting reforms were overshadowed by the need for financial control. Governments installed top-down expenditure limits to control public finance. As soon as there occurred a downward tendency in government debt at the end of the nineties, the attention shifted more to policy planning and outcome budgeting. This was for example the case in Sweden, the US and the Netherlands. In

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Sweden the budget process was transformed in 1996 to become more top-down because of the need for stricter financial control. Since the mid nineties results-oriented budgeting and management initiatives were launched but they were given priority to only after the public finances were back under control at the end of the nineties. The following figure illustrates the importance of healthy public finances to implement results-oriented budget reforms. In the early nineties budget reforms were mainly meant to strengthen financial control, for example the New Budget Process in Sweden and the Expenditure Management System in Canada. At the end of the nineties there occurred a very obvious increase in performance- and outcome-oriented budget reforms as for example the Accrual Outcomes and Outputs Framework in Australia, the Public Service Agreements in the UK and the introduction of an outcome budget in the Netherlands.

1994

ExpenditureManagementSystem (CA)

ComprehensiveSpendingReview (UK)

1990

Budget EnforcementAct (US)

1996

New BudgetProcess (SW)

1998

Accrual Outcomes &Outputs Framework (Aus)

VESTA (Sw)

ResultsforCanadians(Can)

White book (Sw)

Public ServiceAgreements (UK)

19851989

PublicFinanceAct (NZ)

1990 1994

StrategicManagementSystem (NZ)

1997 1998 1999 2000

1986

OperationAccountableGovernment (NL)

Improved reportingto Parliament (Can)

GPRA(US)

1993 2001

President'sManagementAgenda (US)

Budgeting andreporting for outcomes (NL)

Program review (Ca)

Managementby Results (Fl)

Frame budgeting (FL)

Performancebudgeting andcontracting (Fl)

1995 2002

Managingforoutcomes (NZ)

1988

PerformanceManagement (Sw)

FInancial control orientedbudget reforms

Results oriented budgetreforms

Figure 2: Comparison of the evolution of financial control oriented budget reforms and results-oriented budget reforms Results-oriented budget reforms may also serve a latent savings agenda. Governments expect that the introduction of performance information in the budget might help them to legitimize budget cuts. In this scenario the need for savings and the initiation of performance budgeting can go hand in hand as one expects that the introduction of results-oriented management at micro-level will increase the efficiency of the organization and will generate savings at macro-level. This was for example the underlying assumption in the New Zealand reform in the late eighties that focused considerably on managerial accountability and the increase of efficiency. In the early nineties the attention shifted to political accountability and strategic management (Schick, 2001). In times of strong financial constraints agencies might however initiate performance management reforms to be better prepared for justifying and negotiating their budget submissions. In this way they can make it harder for the Finance Minister to force the necessary savings, as it is easier to conduct linear expenditure reductions with a line-item budget than with a performance budget.

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POLITICAL ACCOUNTABILITY VERSUS ADMINISTRATIVE ACCOUNTABILITY Another challenge to cope with is the dilemma between political control and management freedom. Often budgeting reforms are driven by the need to strengthen the ministers’ control on departments and agencies. Recent reforms in Australia, New Zealand and the UK obliged departments and agencies to plan and report their activities in accordance with the policy objectives (Department of Finance and Administration, 2000; State Services Commission, 1998; National Audit Office, 2001). Sweden has had a long tradition of devolving policy implementation to autonomous agencies. But there seemed to be an accountability problem. Budget reform was implemented to strengthen the control of departments on agencies, but the departments do not seem to have enough steering capacity to fulfill this task. Agencies then seized the opportunity to fill this vacuum by developing their own policy developing capacity blurring the politico-administrative accountability (Molander et.al., 2002).

AUTHORIZATION FUNCTION VERSUS MANAGEMENT FUNCTION Because of the evolution to more results-oriented budgeting there is a trend to reduce the number of budget articles authorized by Parliament and to increase the degree of management freedom of the executive power. This means that information reported to parliament in the budget and in the annual reports is much more aggregated and outcome-oriented. This means that there is an asymmetry between the information collected for external accountability and the information collected for internal accountability. This issue has for example been touched on by Australian Parliament stating that the information given by agencies in Portfolio Budget Statements and annual reports does not suffice to give parliament a clear view of the agency’s contribution to outcomes (Department of the Parliamentary Library, 2002). The American Government Performance and Results Act also includes the functions of planning, budgeting and management which are constructed around diverse institutional settings, under the same umbrella. “Although GPRA deals with these three functions as an aggregate, each function is a complex entity that contains its own conflicting approaches as well as conflict between functions (Radin, 2000).”

4.2. Competing budget procedures

TOP-DOWN VERSUS BOTTOM-UP The course of the budget process might be either top-down or bottom-up. A bottom-up or decentralized budget process links up with the activities and outputs of the different organizational entities, but causes difficulties for financial control. In the majority of examined countries there is a trend to move towards a centralized or top-down budget process: one starts by defining the broad strategic budgetary and policy outcomes and translates them afterwards in more operational budgets and outputs. The centralization at macro-level is compensated by the increase of management

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freedom at micro-level. This combination of top-down macro budgetary policy and bottom-up development of budget proposals is used in Australia, New Zealand, Sweden and the UK.

EXECUTIVE VERSUS LEGISLATIVE DOMINANCE The dominance of the executive power is a fact in the majority of examined countries. The number of authorized budget articles has decreased in all countries. The executive power has in several countries the discretion to reallocate resources, to carry over resources at the end of the year, to build up reserves and to loan. Several budget reforms aim at strengthening the accountability of the executive power to the legislative power. However, one can observe a widespread lack of interest within parliamentary commissions for outcome and output information in the budget document. There are different possible explanations for this observation. Firstly the performance information in the budget document might not be tuned to the parliamentary information needs. Another explanation may be that members of parliament focus more on the authorization function of the budget than on the accountability and management function. That explains why they are especially interested in authorizing funds and less in the explanatory budget memoranda.

4.3. Competing budget formats

OUTCOMES VERSUS OUTPUTS Another important dilemma of budget reforms is whether to focus on outputs or outcomes. In the managerial budgeting model agencies are providing outputs at an agreed price. In this model there is a very clear accountability relationship between the provider of outputs and the buyer of outputs. However, delivering outputs is not the final government’s objective. “There are problems with a simplistic application of the managerialist approach to public administration in that it decouples management from the political process and undermines cross-sectoral coordination (Boston & Pallot, 1997).” These problems were for example perceived in New Zealand.

In the outcome budgeting approach agencies are working together to achieve the outcomes as set by the government. In this way one can cope better with the coordination of cross-cutting issues. However, there is not such a clear accountability relationship especially when the outcomes are formulated in a very abstract and general way.

The challenge exists in balancing the managerial approach and the policy approach. When the appropriation bill focuses on outcomes, the outputs that have to be delivered are agreed on in the explanatory documents added to the appropriation bill (e.g. Portfolio Budget Statements (Australia), explanatory budget memorandum (Netherlands), Public Service Agreements and Service Delivery Agreements (UK)).

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CONSOLIDATION VERSUS DETAIL The core of the new public management idea is the division of policy making and policy implementation. The political level is responsible for the development of the general budgetary and policy objectives and the steering and monitoring of the budget implementation. Line managers get the responsibility to manage the resources of their department or agency to deliver the agreed outputs. This evolution in the budget process also has an impact on the budget format. Budget documents are more focused on the policy headlines and become more compact. Financial and non-financial information is consolidated at a higher level. Within departments and agencies management information systems are developed to monitor the progress of the agency in achieving its objectives and the budget implementation. This information is in the first place used for internal management purposes, but may also be reported externally in the annual report. The harmonizing of the internal reporting and the consolidated reporting evokes a lot of challenges. Departments and agencies have to develop different monitoring systems for the different reporting needs. The information streams of different organizational entities have to be aligned so that the information can be consolidated. There is also a tension between the supply of information by the administrative level and the information needs of the political level. There occurs a problem of information asymmetry: the political level wants more detailed information about the operations and outputs of the administrative level.

QUALITY OF OUTPUT AND OUTCOME INFORMATION The use of a results-oriented budget document depends highly on the quality of the information contained in it. Several Supreme Audit Institutions reported however that the quality of the non-financial information in the budgets is unsatisfactorily. The policy objectives as formulated in budget documents are too abstract and too vague and the performance information is not specific enough and not time-based. Often a causal relationship between the outputs and outcomes is missing. There are not enough historical data. In countries with a modified cash system, information about the cost of outputs is missing.

The validity and reliability of the performance information in the budget should be guaranteed and therefore an audit of performance information is necessary. This type of audit might as well focus on the performance information as such, as on the performance measurement systems and strategic planning techniques. In the UK for example the National Audit Office started recently auditing the quality of the performance information in the Public Service Agreements, especially focusing on the information systems behind the Public Service Agreements.

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5. Conclusion: hybrid budget systems

The objective of this article was to describe the different forms of results-oriented budget systems in a selection of OECD countries (Australia, Canada, New Zealand, Sweden, the Netherlands, the UK and the US). We tried to develop classifications of results-oriented budget systems by looking at the trends in budget functions, in the budget process and in the budget format. Firstly we classified the budget systems by their budget functions. Result-oriented budget reforms extended the traditional authorization and financial control function of the budget with a planning and management function. Recently the need for accountability for results has been added to the need for more efficiency and effectiveness. On the one hand, recent reforms have been driven by the need for more internal accountability within the executive branch, between ministries and agencies (Sweden, New Zealand, Australia) and between ministries and central budget offices (the UK and the US (PART)). On the other hand there has been a need for more external accountability for results to Parliament (Australia, Canada, the Netherlands and the US). Secondly we classified the budget systems by the features of the budget process. Therefore we looked at the degree of centralization of the budget process and the role of decentralized actors (top-down versus bottom-up). We distinguished two clusters: the first cluster contains the budget processes that combine a top-down macro-budgetary process with a bottom-up micro-budgetary process (Australia, Sweden, the UK and New Zealand) and the second cluster exists of the budget systems that remained rather top-down and centralized (Canada, the Netherlands and the US). Thirdly the budget systems were classified by the budget format. Therefore we used both the output/outcome dimension as the authorized/non-authorized dimension. The most advanced budget formats are the outcome-based appropriation bills. Appropriations are made for outcomes and the authorized part of the budget is thus outcome-structured. This is the case in Australia, the Netherlands, Sweden, and the UK. One might however deliberately choose to make appropriations for outputs instead of outcomes and to explain the connection between outcomes and outputs in supplementary documents, as for example in New Zealand. Other countries decided not to make appropriations for outcomes and outputs, but to use the output and outcome information only to inform the budgetary decision-making. The output and outcome information is then reported in the non-authorized part of the budget (explanatory memorandum) or in separate performance plans. This budget format is used in Canada and the US. The evolution towards an increased use of output and outcome information in budget systems evokes however a lot of challenges. Firstly budget functions might be competing: results-oriented budget reforms seem to lead to several tensions: between financial control and policy planning and management, between political accountability and administrative accountability and between authorization and managerial responsiveness. Secondly within the budget process there is a tension between executive and legislative dominance and between centralization and decentralization. In reforming the budget format the challenges exist mainly in finding the right balance between the output orientation and the outcome orientation and between consolidation and detail. Another important

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challenge to make budget documents more results-oriented is the need for valid and reliable performance information. Reforming budget systems evokes thus a lot of challenges and reality is more complex than one might suppose by considering theoretical typologies: the observed budget systems are rather hybrids than pure typologies. However we tried to classify the observed budget systems by the evolutions in the functions, processes and formats. The following table synthesizes the observed findings:

Trend in budget function

Trend in budget process

Trend in budget format

Cluster I Australia, New Zealand, Sweden, UK

Internal accountability Macro top-down and micro bottom-up

Purchasing outcomes/outputs

Cluster II The Netherlands

External accountability Rather top-down Purchasing outcomes

Cluster III Canada, US

External accountability Rather top-down Linking outcomes and outputs to budgets

Table 1: Classification of trends in budget functions, budget process and budget formats in 7 OECD countries. Firstly there are the budget systems combining a very progressive results-oriented budget format with the need for strict financial control at macro level. These countries moved to an accrual-budget in which resources are allocated to outcomes or to outputs. These reforms were mainly driven by the need for increased internal accountability combined with the ambition to increase the efficiency and effectiveness of government. Some of the reforms, as for example in Australia also aimed at strengthening the accountability to parliament and to the public. Besides the manifest accountability function of the budget, the financial control function remained thus very significant. This becomes evident in the budget procedure that combines a top-down and centralized decision-making about macro expenditure levels and a decentralized decision-making about expenditures at micro level. Secondly there is a group of budget systems combining an outcome-oriented budget format and an ambition to strengthen external accountability with a rather centralized and traditional budget procedure. An example of this is the Netherlands. The Netherlands evolved at the end of the nineties to a budget in which resources are allocated to policy objectives. The purpose of this reform was to make the budget document more transparent and relevant for parliament and the public. The reform focused rather on the budget format, than on the budget procedure that remained traditionally centralized. Thirdly there is a cluster of budget systems characterized by an increase of performance information in the documents accompanying the budget bill and a status quo in the authorizing budget procedure. This is for example the case in the US and Canada. The budget bill is supplemented with output-oriented performance plans, but the authorized budget is still based on a program structure. Budget

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reforms are initiated to strengthen the external accountability for results but the input orientation remains dominating because the performance information contained in the budget documents is not satisfactorily used in the budgetary decision making process. One can thus observe that the majority of the examined budget reforms manage to alter the format of the budget documents, but that it seems to be more difficult to transform the budget procedure and the dominant budget function. Devolving budget responsibilities requires a shift of power. Altering the dominant budget function might require a cultural shift. The importance of a cultural shift is an interesting topic for further research on budget reforms.

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