Recent Performance-Based Budgeting Reforms in The Netherlands – Another Lap Around the Windmill!

Posted by Maarten de Jong[i]

An unknown person once noted that a cynical person is an idealist who, at some point, made the mistake of turning his ideals into his expectations. Looking at the increasing amount of critical studies on the impact of performance-based and program budgeting reforms, one could become a bit cynical towards this popular and ambitious type of budget reform. Not unlike the experience in other countries, the implementation of performance-based and program budgeting in the Netherlands over a decade ago has only partly lived up to its expectations.

There has not been much evidence that major reallocation of spending has taken place as a result of these reforms. In addition, the informational value of budgets and the administrative burden for line ministries have been continuous sources of debate.  Nevertheless, the concept of linking funding to results has proven its usefulness in agency management and does help the Ministry of Finance differentiate between a powerful claim and a powerful claimant in the budget process. Neither is anyone inclined to give up the benefits of increased transparency and enhanced managerial flexibility that resulted from introducing a program budget. Instead of becoming cynical or glorifying the "good old days" of input budgeting, the Netherlands Ministry of Finance accepted the fact that it may have had some unrealistic expectations and that some of the criticism on performance budgeting as implemented actually made sense and demanded a solution. This resulted in a major overhaul of the budget presentation and program structure in recent years called “Verantwoord Begroten” (translated as Accountable Budgeting).

Following a decade of mixed results of the previous reforms, one of the lessons learned was that a political process such as budget allocation by Parliament will not be rationalized by only changing the budget structure. Secondly, it had to be acknowledged that a program budget can never live up to the expectation of being definitive, comprehensive policy document that contains all the policy information considered useful by every stakeholder. Finally, the shift to full program budgeting had left Parliament and line ministry financial managers with a significant loss of control over inputs that was dearly missed, especially in times of budget cuts.

The Accountable Budgeting reform was introduced in the 2013 budget documents and targeted some of the more persistent problems encountered with regard to performance based program budgeting. These included limited usefulness of budgets and annual reports for financial analysis and unclear accountability for results, especially with regard to policy outcomes. The changes introduced enable more detailed Parliamentary oversight of spending as well as enhance internal control by the Ministry of Finance and line ministries. To achieve this, more detailed financial information was presented following a uniform classification of financial policy instruments and categories of organizational expenses.

In addition the use of policy information (performance indicators and policy texts explaining policy objectives) was curtailed and had to meet stricter conditions concerning the precise role and responsibility of government. As a result, about 50% of all performance indicators disappeared from the budget documents. The reason for this shift was that performance information in the old budgets had become more aimed at legitimizing funding and compliance purposes than at providing useful insights for improving policy efficiency and effectiveness. Use of performance information for the latter purpose is more likely to occur following multiyear ex-post evaluation than in a cyclical annual way. For this reason lessons drawn from evaluation reports gained a more prominent place in budget documents.

Another consideration was the fact that an increasing amount of information on policy effectiveness is becoming available from a diversity of sources within and outside of government. The concept of a budget document as a portal that electronically discloses the various sources of financial and policy information may better serve the information needs of today’s citizen and parliamentarians than reliance on a limited set of indicators that may be susceptible to selective presentation and framing. With the Accountable Budgeting reform, the Netherlands has taken a step towards meeting the demands of budget and results accountability in the information age while trying to meet more realistic expectations with regard to performance-based allocation through its budget documents.