Which Form of Performance Budgeting Do Countries Actually Implement?
A number of countries around the world, including many developing countries, are attempting to improve the performance of their government sectors, and performance budgeting is often seen as an important aspect of these efforts. This is a very worthwhile objective, but one that often is difficult to achieve. One key question is: are countries primarily (and successfully) pursuing modern forms of performance budgeting, or are the reforms more similar to the type of program budgeting that was introduced in the 1960s?
The results are obviously mixed. However, when reviewing performance reform efforts in different countries, the following weaknesses are quite common:
- Many reform efforts are quite mechanical and ritualistic. There is little attention given to the quality of budget programs and indicators.
- Program and indicator definitions tend to focus on inputs and activities, and to some extent outputs. In many countries there are few examples of well-defined programs with clear outcome objectives and coherent indicators.
- Countries often retain detailed line-item budgets, effectively giving line managers little authority to manage their budget to meet objectives as efficiently as possible.
- Other rigidities are also prevalent, including on staffing decisions such as hiring and firing.
- Promotions and pay often continues to be based on seniority, giving very little financial incentives for good performers.
- Performance tends to have little or no influence on budget decisions. In many cases performance information is not even available or presented in a coherent manner when budget decisions are taken.
Conclusion
While many countries attempt to introduce modern forms of performance budgeting, as pioneered in countries like New Zealand, Australia and the UK, there are indications that many of them end up with schemes that are more similar to the failed program budget efforts in OECD countries during the 1960s. If this is correct, there may be good reasons to rethink and adjust ongoing performance budget reform efforts in these countries.
A common criticism of performance and program budgeting efforts is that they lead to budget planning systems that are mechanistic, overly complex, and overloaded with useless data; and that performance data have little or no impact on actual decisions. Many critics compare performance-oriented budget mechanisms to the planning models developed by Soviet central planners, and claim they are equally useful (or useless). Is there any truth to this claim? This blog provides a brief discussion of the claim in relation to three specific dimensions of performance budgeting: the historical roots, the concepts and the practical implementation of these concepts. 