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October 23, 2012

New Budgetary Reforms in Austria: An Emphasis on Flexibility, Performance, and Gender

Posted by Ralph Schmitt-Nilson

Following up on a first set of reforms in 2010, the Austrian budget for 2013 introduces a new set of public financial management (PFM) reforms. Whereas the first stage focused on implementation of a medium-term expenditure framework, the second and latest stage of reform brings fundamental change in a range of fields. It signals three main aspects: more discretion for line ministries, a new performance-oriented budget structure, and a commitment to Gender Responsive Budgeting (GRB).

To improve flexibility for line ministries and big federal agencies, appropriations are shifted to a more aggregated level. The budget entities are given clearly structured duties and global budgets for flexible use. The stated rationale is that an increase in autonomy and responsibility leads to more motivated management and staff of institutions and more efficient use of funds. This builds upon positive experiences that Austria has with the introduction of more flexibility for line ministries since 2000. Line ministries also receive the authority to carry over a substantial part of the budget into the next year. The aim is to avoid spending sprees at the end of the fiscal year when departments often look for ways to use up the current budget. A carry-over facility gives them an incentive to remain frugal with their spending until the end of the year and to improve room for maneuver in the next year. Still, these developments could also be dangerous for yearly budget credibility. First, carry-over facilities make it harder to exactly plan expenditures for the fiscal year on an aggregate level. Second, high levels of carry-over can weaken the incentive for solid budget planning at the line ministry level.

These innovations on flexibility are mirrored in a new budget structure. It consists of circa 30 budget chapters (each ministry and big federal agency is responsible for one at least). The chapters contain one or up to four global budgets, which act as budget clusters for the respective entities. The former budget structure comprised more than 1000 line item appropriations. These are now replaced by around 70 global budgets for the whole federal government. Performance indicators are aligned with the three highest levels of the budget structure (budget chapter > global budget > detailed budget). Outputs, means, and benchmarks of success have to be formulated for each level.

The new budget structure is also attuned for another important goal: Gender Responsive Budgeting (GRB). Austrian authorities have decided to integrate GRB into the budget reform as the budget is considered a “key lever for gender equality”.[1] For each budget chapter at least one gender-related outcome has to be defined by the respective ministry. Even before parliamentary discussions on the next budget have begun a few ministries have already floated their respective GRB-related outcomes. These include for instance:

  • The Ministry of Economy, Family, and Youth: Improving work-life balance;
  • The Ministry of Finance: Increasing the percentage of women in supervisory board functions of larger, state-owned companies.

In conclusion, the crucial innovation of these budgetary reforms is the new balance between the bodies that review and approve the budget (i.e., the Ministry of Finance and the parliament, as well as the planning and executing entities, like line ministries). The philosophy is that the center approves goals and states benchmarks, whereas ministries gain discretion for the execution of their tasks. This development is in line with a broader trend within PFM across OECD countries. For continental European countries Austria is clearly a forerunner.



[1] http://www.un.org/womenwatch/daw/csw/csw56/panels/panel3-Gerhard-Steger.pdf

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