Performance budget

reforms in the Netherlands

Maarten de Jong

1

Today…

Day 2 Tuesday 24 03, 9am - 4pm

Morning : Plenary session

(presentations and

discussion)

Afternoon : Group will be

split into 2 for exercise,

including opportunity for

consultation

Maarten

de Jong

& Wim

Kooij

Example of performance

budgeting in the Netherlands

Monitoring and control tools for budget performance (internal use of performance information)

Unité GBO centrale

Unité GBO des 3 vagues

Responsables de

programmes

Today…

Rationale for reforms

Development performance budgeting over time in the Netherlands

Some Pitfalls

Choosing goals and indicators

Adjustments made to performance budgeting recently

Performance information use

Rationale for reforms

Good governance Democratic state

Transparency Accountability

Inclusiveness

Effectiveness and efficiency Participation

Rationale for reforms

Intended results of reforms

Increased transparency of government spending and

results

Allocative efficiency gains

Operational efficiency gains

Increased result orientation

More effective

allocation and management of resources

Rationale for reforms

Development performance budgeting

over time in the Netherlands

Early 1970s-2001

• Early flirtations with performance elements

• line-tem budgets with scarce performance information, development of spending reviews

2001- 2007

• Ambitious budget reform (VBTB)

• program budget aimed at improving transparency and efficiency, emphasis on availability of performance indicators

2007-2011

• Experiments to increase informational value

• program budget aimed at improving transparency, focus on government priorities, attempt at delivery approach (inspired by UK)

2011 - present

• Accountable budgeting reform (VB)

• program budget with more detailed financial information, selective inclusion performance information, increased emphasis on policy evaluation

7

Ambitious Budget Reform (2001-2007)

Comprehensive coverage of all public spending

Introduction program budgeting

‘Big bang’ introduction

Large investment in communication and capacity building

Strong political support

Civil service ‘indoctrinated’ by mantra of these questions:

8

Major players within Dutch Civil Service

in performance and budget dialogue

Ministry of

General Affairs

(PM Office)

Ministry of Finance - Budget Affairs - Budget Inspectorate - Academy of Finance

Line Ministries

- Fin. Econ. Affairs Unit - Policy directorates - Executive Units - Inspectorate

Executive Agencies Executive Agencies Executive Agencies

Line Ministries - Fin. Econ. Affairs Unit - Policy directorates - Executive Units - Inspectorate

Line Ministries - Fin. Econ. Affairs Unit - Policy directorates - Executive Units - Inspectorate

Internal

Audit

Service

National

Court of

Audit

VBTB ‘as intended’

Transport Safety program

Ministry of Infrastructure

10

Art 32 Continuously improve the safety of

persons on roads or railroads, as well as the

safety of public transport

32.01 Reducing

the nr. of victims

on roads

32.0 2 Reducing

the nr. of victims

on railroads

32.0 3 Improving

social safety of

public transport

32.01 .01 Reducing the nr. of victims on roads

32.01.02 Safety standards for vehi cles and technology

32.01.03 Influencing behavior travelers

32.01.04 Adaptations to the infrastructure

32.01.05 Inspection

Problems & Criticism

Strong emphasis line ministries on compliance and legitimization

Lengthy and unaccessible documentation often containing irrelevant information

Heavy administrative burden on civil service

No political interest

Budgets not useful for financial analysis

11

Experiments to increase informational value

(2007-2011)

Focus performance information on

government priorities

Performance reporting for some

Ministries temporarily abandoned

altogether

Introduction of PM’s ‘Accountability

Letter’ to Parliament

Examples of priorities from government coalition:

3. Bringing closer a solution to the conflicts in the Mid-East

20. Annual growth of 5% for public transport by railroad

51. Reduce nr. of stolen bikes by 100.000 compared to 2006

Some major pitfalls

Overcomplexity and bureaucratic burden

Measures

Scrap bad and unclear indicators each year

Pragmatism in attributing organizational costs

Some major pitfalls

Perverse effects

Some major pitfalls

Unclarity of information ownership and integrity

Measures:

State source of information in budget

Perform audits (prefarably risk based)

Some major pitfalls

Departments trying to legitimize spending

Some major pitfalls

Example: Sports article of Ministry of Health

Objective: Achieve a society that enjoys sports and is actively

involved in sports

8 performance indicators including:

The % of people meeting target for weekly physical exercise

The % of people active in sports organizations

The nr of Olympic medal achieved by the NL

Funding: Some 140 € million

17

Some major pitfalls

18

Municipalities

Provinces

Central government

However, in reality:

•Total government spending on sports in the NL: 1,3 € billion mostly by municipalities

•Instruments and expenditure not aligned with goals and indicators

Goals, objectives and targets

‘Un objectif sans plan

s’appelle un vœu’

Le Petit Prince

Antoine de Saint-Exupéry

19

Goals, objectives and targets

S M A R T ? Specific Measurable Achievable Result-oriented Time-constrained

Action-oriented Realistic Tangible

Agreed Relevant Trackable

Attainable Reasonable Timeline

Accountable Responsible Timed

20

Goals, objectives and targets

Or a simple rule of thumb?

2 elements make up goal:

-Something that needs to be influenced (often noun)

-The desired direction of this influence (often verb)

Do you, as a non-specialist, understand these two elements?

21

Choosing indicators

Rule of thumb

A good indicator:

Should give an idea of the level of success of the intended policy (also to

non specialists!)

Can be influenced by the intended policy

Is practical and relatively easy to collect at acceptable costs

22

Choosing indicators

23

Choosing indicators

Good example

24

Objective Instrument Budget Performance

Protect land by maintaining coastal line and containing river systems (Ministry of Infrastructure)

-Maintaining and

strenghtening levies

according to program

-Identify weak spots

-Develop strategy for

disaster control

€ 642.011 % of levies that comply with the legally required level of protection

Choosing indicators

Bad (and difficult) example

25

Objective Instrument Budget Performance

Promoting worldwide regional stability by contributing to prevention of conflicts, crisis- operations and providing post –crisis assistance

(BUIZA)

-Diplomacy

-Military assistance (to

NATO operation

Afghanistan)

-Funding development

projects

€ 312.177

Failed States Index

=

Rating 0-120 for stability according to a NGO

Information provided for the 8 worst rated states worldwide

Large ambitions, mixed results

Early 1970s-2001

• Early flirtations with performance elements

• line-tem budgets with scarce performance information, development of spending reviews

2001- 2007

• Ambitious budget reform (VBTB)

• program budget aimed at improving transparency and efficiency, emphasis on availability of performance indicators

2007-2011

• Experiments to increase informational value

• program budget aimed at improving transparency, focus on government priorities, attempt at delivery approach (inspired by UK)

2011 - present

• Accountable budgeting reform (VB)

• program budget with more detailed financial information, selective inclusion performance information, increased emphasis on policy evaluation

Accountable budgeting reform (2011-

present) More detailed financial information in budgets (harmonization!)

Selective use of policy information and indicators

Introduce annual ‘policy conclusion statement’ for each program

Renewed emphasis on policy evaluation

Accountable Budgeting program template

A General objective

B Role and responsibility

C Policy changes / lessons learned

D1 Budgetary table

D2 Budget flexibiliy

E Explanation financial instruments

VBTB program template

A General objective

B Policy description

C Responsibility

D External factors

E Measurable data general objective

F Budgetary table

G Budget flexibility

For each sub article:

H Operational goal

I Policy motivation

J Intsruments used

K Measurable data operational goal

L Evaluation planning

Accountable budgeting reform (2011-

present)

Impact of Gvt. on desired policy

outcome? Significance of financial

contribution by Gvt. ?

Is policy executed by

Gvt. agency?

Gvt. Stimulates

Gvt. Regulates

Gvt. Finances

Gvt. Executes

Accountable budgeting reform (2011-

present)

0 50

100

150

200

250

300

350

400

2011

2013

Nr. of indicators cut by 50% on average

Lessons from a difficult process

Performance information seldom plays a role in allocation by politicians

The budget cannot be the comprehensive and objective ‘mother of all policy documents’

A supply side oriented, uniform approach to performance information is no recipe for use

Attribution of outcomes to spending on an annual basis is most often unrealistic

Rely on multi year ex-post policy

evaluation for assessing

effectiveness

instead of

Relying on PI use in annual

budgetary cycle

Lessons from a difficult process

Despite not having ‘rationalized’ budget allocation by politicians, our

performance based program structure does contribute to fiscal stability and

predictability :

Program structure ensures managerial flexibility

Program objectives and intended measures provide leverage for

budgetary negotiations

Performance information enbables evaluation of effectiveness

In addition performance information can be helpful for:

internal steering and oversight (e.g. agencies)

External accountability

Conclusion reforms in the Netherlands

Despite not having ‘rationalized’ budget allocation by politicians, our

performance based program structure does contribute to fiscal

stability and predictability :

Program structure ensures managerial flexibility

Program objectives and intended measures provide leverage for

budgetary negotiations

Performance information enbables evaluation of effectiveness

32

Helpful institutional factors:

Political support

Highly decentralized financial stewardship by line ministries

Active budgetary dialogue and exchange of information

Performance dialogue between line ministries and agencies developed earlier (since mid 1990s)

Helpful for PI use at agency level:

Learning culture

Reporting tradition

Leadership

‘Engineer mentality’ or metrics driven policy fields

……

33

U$ing PI for improving €fficiency &€ffectiveness

Example: forestry

And the real world is even more complex

35

Output

External factors Efficiency

Input

Effectiveness

Net policy effect

Gross policy effect

Cost - effectiveness

Realization of policy goal

Long road with many obstacles but

well worth the trip!

36

Capacity FEA directorates

Capacity total fin. staff

Counterintuitive to many in public

service..

Deterministic logic Political logic

SMART objectives and sharp definitions

Indefinite (vague) objectives

Efficient information and reporting relationships

Redundancy in information and relations

Decision making in an annual predictable cycle

Seize opportunities in an unpredicatbel process

39

Degree to which government organizations use performance information

depends on many factors such as:

• Organizational culture

• Availiablity perfomance information

• Type of policy (motivational nature)

• Competition

• Measurement challenges

• Managerial autonomy

• Leadership’s commitment to results

(Based on Moynihan&Lavertu 2008, Moynihan&Pandey 2010, Dull 2009, Lagraeid et al 2008)

Use of performance information

Cultural aspects should not be overlooked

Evaluation capacity but also mentality:

• Selection of appropriate staff: mixture of analytic and research capacity

(introvert) and staff with the ability to network, deal with resistance and able to

operate in a fluid environment (extrovert)

• Result orientation in formulating and substantiating policy proposals (a PB

structure can help strengthen this awareness)

• Performance planning and monitoring ought to enhance rather than erode

result orientation of motivated public professionals

41 Use of performance information