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April 11, 2013

Austria – From an Incremental Improver to a Comprehensive Reformer

Posted by Johann Seiwald[1]

From the mid 1990s on, Austria has steadily improved its framework for fiscal policy and budgeting. With Austria’s accession to the European Union and the corresponding need to meet the Maastricht debt and deficit requirements, in 1996 a top-down approach replaced a “demand-driven” budgeting model in which fiscal discipline was not enforced and line ministries had little incentives for structural changes. Since 2000, the use of lump-sum budgets and performance budgeting has been piloted in more than 20 government agencies, including prisons, a printing office and the police academy. The implementation of a new cost accounting system for all federal ministries, as well as projects aimed at improving performance management, and introducing product definitions for public services and performance indicators in several line ministries, has steadily enriched the financial management framework.

The new legal framework

By the late 2000s, Austria’s fiscal and budgetary reforms had gotten as far as they could without revisiting the country’s constitutional and legal frameworks. A comprehensive budget reform, however, demanded for a constitutional amendment as the basic principles are set there.

Beside the amendment to the constitution laying down the core pillars of the new framework, two rounds of revisions to the organic budget law were necessary for its implementation. They were unanimously approved by the Parliament in 2007 (1st stage, medium-term expenditure framework) and 2009 (2nd stage, performance and accrual accounting). The new legal framework gives more managerial freedom to line-ministries and agencies, but is counter-balanced by a clearly defined responsibility for ministries to manage their budgets within the ceilings set out in the MTEF’s ceilings, and to conform with specified accountability and transparency requirements (e.g., prepare their budgets and accounts on an accrual basis, and report the outputs and outcomes of their spending programs to parliament and the public).[2]

Gaining commitment of all stakeholders

The reform of the late 2000s was driven by the Ministry of Finance which chose to involve all relevant stakeholders in order to guarantee success in implementing the reform. To win the support of parliament, an advisory committee consisting of all parliamentary parties and experts was established in 2007, and is still active. This committee was separated from the formal parliamentary process which enabled a more open and less technical discussion of the issues.  The Court of Audit was also a strong supporter of the reform, and an active partner of the Ministry of Finance in preparing the technical framework and legal documents.

Line ministries, on the other hand, were initially less receptive to the reform. In particular, they were skeptical of the proposed sanctions regime, the new accounting system, increased reporting requirements, and responsibility for defining and reporting outcome objectives. Consensus in the Council of Ministers could only be achieved by marrying this additional obligations on line ministries with a much more flexible budget regime which granted ministries increased freedom to manage their operations and budgets, and by dividing responsibility for performance budgeting and reporting between the Ministry of Finance and the Federal Chancellery to prevent the former from becoming too powerful.[3]

Budget reform goes beyond finances

Budget reform was the trigger for a more comprehensive reform of the federal public sector in Austria. To put line ministries in the driver’s seat of the reform, line ministries were required to develop strategic outcome objectives, define clear outputs and numerical indicators associated with those objectives, and certify the financial coverage of the ceilings established by the MTEF. The line ministries were supported by the Federal Chancellery in the development of performance objectives and indicators, a task for which a 3-year preparation phase was allocated. During this period, the Federal Chancellery provided feedback to the ministries on their proposals and suggestions for modifying or strengthening them.

As Parliament and the public were the principal customer for the new budget information, the first parliamentary debate on the “new budget” was preceded by six months of intense engagement by the Federal Chancellery and the Ministry of Finance with members of parliament and briefings of representatives of media. This strategy proved successful and was followed by an intense debate in parliament about the targeted levels of the outcome objectives, the appropriateness of the suggested outputs and performance indicators, as well as the sustainability of the fiscal position in the medium-term.  The quality of this debate stood in stark contrast to previous discussions in parliament which had focused primarily on the details of the budget. The attention given to the budget by the media, advocacy groups and NGOs was also considerably greater.

Comprehensiveness continued

These new arrangements for budgeting are not the end of the story as, so far, the above-discussed reforms had only focused on the federal government budget. State-owned enterprises (SOEs) - including railways, theaters, museums, universities, treasury and many others enterprises - still have separate laws regulating their governance structure, financial performance and (to some degree) their accounting and reporting system.  A comprehensive reform is not on the agenda yet.

Federal, state, and local governments also continue to follow different accounting and budgeting frameworks. To improve fiscal coordination between levels of government, in 2012 the federal government concluded a contract with all states which committed state and local level to new fiscal rules, medium-term budget frameworks, reporting requirements, as well as new enforcement arrangements and sanctions. As potential next steps, the governments are considering the harmonization of accounting standards across levels of government and the implementation of performance budgeting at the state and local level.

[1] Before joining the Fund, Johann was the Head of the Austrian Performance Management Office and Senior Advisor at the Ministry of Finance, where he was part of the development team of the budget reform and implemented the performance budgeting and management system in Austria.

[2] For further details, see New Budgetary Reforms in Austria: An Emphasis on Flexibility, Performance, and Gender, posted by Ralph Schmitt-Nilson, October 23, 2012; Budgetary Reforms in Austria: An Emphasis on Performance and Accountability, posted by Abdul Khan, August 02, 2010.

[3] See Steger, Gerhard: Austria’s Budget Reform: How to Create Consensus for a Decisive Change of Fiscal Rules. OECD Journal on Budgeting, 2010/01.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy. 


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