Results Based Budgeting in Australia

1. Results Based Budgeting in Australia Presentation by Richard Murray, Executive Director - Fiscal and Corporate, Department of the Treasury

2. Outline • Overview of the Fiscal Framework • Charter of Budget Honesty • Medium Term Fiscal strategy • Accrual Budgeting • The Outcomes and Outputs Framework • Outcomes, Outputs and Administered Programs • Case Study: Education • What have we learned? • Programs versus Outcomes • Measuring performance against Outcomes • The need for central oversight • Evaluation

3. The Fiscal Framework

4. Charter of Budget Honesty • Guides rather than mandates the conduct of fiscal policy. Requires the Government to: • outline its medium term fiscal strategy • publish financial statements consistent with Australian and international accounting standards • specify fiscal policy actions that are temporary in nature, and the process for their reversal • publish an Intergenerational Report every 5 years

5. Medium-term Fiscal Strategy • Strategy since 1996/97 is for Budget balance on average over the cycle • Supplementary objectives are: • maintain surpluses while economic growth prospects remain sound • no increase in the tax burden from 1996/97 levels • halve net debt – achieved in 2000-01 • improve the Commonwealth’s net worth position over the medium to longer term

6. Improvement in Net debt

7. OECD comparison of net debt

8. Accrual Budgets • Provides a more comprehensive picture of government operations • Improves focus on fiscal sustainability (the balance sheet) and intergenerational equity • compares assets and liabilities (rather than just inflows and outflows of cash) • for the Budget and forward estimates • for individual agencies as well as whole of government • Imposes more business-like discipline on agencies • Ensures more focus on net worth

9. The Outcomes and Outputs Framework

10. Outcomes, Outputs and Administered Programs • Outcomes are defined by Finance as: ‘The impact sought or expected by government in a given policy arena.’ • The focus is on change and consequences: what effect can government have on the community, economy and/or national interest?

11. Outcomes, Outputs and Administered Programs • Outputs have been defined by Finance as: ‘The actual deliverables – goods and services – agencies produce to generate the desired outcomes specified by government.’ • Customers include members of the public, industries or sectors, ministers, members of Parliament, other agencies or even in some instances, interests (eg the national interest).

12. Outcomes, Outputs and Administered Programs • Administered Programs are defined by Finance as: ‘Those resources administered by the agency on behalf of the government (such as transfer payments to the States, grants and benefits) to contribute to a specified outcome.’ • They are identified separately from outputs because they involve different accountability requirements.

13. Government Policy Platform and Priorities Outcome A Outcome B Outcome C Outcome D Outcome E Agency responsible for Agency responsible for Outcomes A and B Outcomes C, D and E Outputs and Outputs and Administered Administered Items for Outcome E Items for Outcome B A Model of the Framework

14. Case Study: Education Outcome 1 Outcome 2 Outcome 3 ‘Individuals achieve high quality foundation skills and learning outcomes from schools and other providers.’ ‘Individuals achieve relevant skills and learning outcomes from post school education and training.’ ‘Australia has a strong science, research and innovation capacity and is engaged internationally on science, education and training to advance our social development and economic growth.’ Output 2.1: Funding for vocational education and training Output 2.2:New apprenticeships Output 2.3: Assistance for skills and career development Output 2.4: Funding for higher education Output 2.5:Assistance to post school students including those with special needs Output 1.1: Funding for schools Output 1.2: Assistance to individuals including those with special needs Output 1.3: Assistance for quality teaching and learning Output 1.4: Assistance for transition through and from school Output 3.1:Research infrastructure Output 3.2: Assistance for science collaboration and innovation Output 3.3: Support for the Australian education and training export industry and international relationships

15. Case Study: Education Outcomes should: Outcome 1: ‘Individuals achieve high quality foundation skills and learning outcomes from schools and other providers.’ Very Good Focus on the end result, not the means of achieving it Outcome 3: ‘Australia has a strong science, research and innovation capacity and is engaged internationally on science, education and training to advance our social development and economic growth.’ Fair / Poor

16. Case Study: Education Outcomes should: Outcome 1: ‘Individuals achieve high quality foundation skills and learning outcomes from schools and other providers.’ Very Good Be succinct Outcome 3: ‘Australia has a strong science, research and innovation capacity and is engaged internationally on science, education and training to advance our social development and economic growth.’ Fair

17. Case Study: Education Outcomes should: Outcome 1: ‘Individuals achieve high quality foundation skills and learning outcomes from schools and other providers.’ Very Good Be specific to the area being addressed Outcome 3: ‘Australia has a strong science, research and innovation capacity and is engaged internationally on science, education and training to advance our social development and economic growth.’ Fair

18. Case Study: Education Outcomes should: Outcome 1: ‘Individuals achieve high quality foundation skills and learning outcomes from schools and other providers.’ Very Good Be stated in a way that allows the target group to be identified Outcome 3: ‘Australia has a strong science, research and innovation capacity and is engaged internationally on science, education and training to advance our social development and economic growth.’ Fair

19. Case Study: Education Outcomes should: Outcome 1: ‘Individuals achieve high quality foundation skills and learning outcomes from schools and other providers.’ Good Enable the formulation of effective indicators Outcome 3: ‘Australia has a strong science, research and innovation capacity and is engaged internationally on science, education and training to advance our social development and economic growth.’ Poor

20. Case Study: Education Outcomes should: Outcome 1: ‘Individuals achieve high quality foundation skills and learning outcomes from schools and other providers.’ Very Good Be free of value-laden, generalised or aspirational language Outcome 3: ‘Australia has a strong science, research and innovation capacity and is engaged internationally on science, education and training to advance our social development and economic growth.’ Good / Fair

21. Case Study: Education Outcomes should: Outcome 1: ‘Individuals achieve high quality foundation skills and learning outcomes from schools and other providers.’ Good Be amenable to extension across agency boundaries Outcome 3: ‘Australia has a strong science, research and innovation capacity and is engaged internationally on science, education and training to advance our social development and economic growth.’ Good

22. Case Study: Education Outcomes should: Outcome 1: ‘Individuals achieve high quality foundation skills and learning outcomes from schools and other providers.’ Very Good Be able to be related to Budget documentation Outcome 3: ‘Australia has a strong science, research and innovation capacity and is engaged internationally on science, education and training to advance our social development and economic growth.’ Fair

23. Case Study: Education For Outputs it should be possible to: • define outputs in terms of what is produced; • measure both departmental outputs and administered programs in terms of price, quantity and quality (PQQ); and • relate outputs to an outcome • if this cannot be done the agency should cease to produce the output or identify an additional outcome that the agency should achieve.

24. Case Study: Education Output Groups Output 2.1: Funding for vocational education and training Output 2.2:New apprenticeships Output 2.3: Assistance for skills and career development Output 2.4: Funding for higher education Output 2.5:Assistance to post school student including those with special needs Output 1.1: Funding for schools Output 1.2: Assistance to individuals including those with special needs Output 1.3: Assistance for quality teaching and learning Output 1.4: Assistance for transition through and from school Output 3.1:Research infrastructure Output 3.2: Assistance for science collaboration and innovation Output 3.3: Support for the Australian education and training export industry and international relationships Defines what is being provided, price and quantity are measurable and Outputs relate well to Outcomes.

25. Case Study: Education Targets and performance indicators • Mean scores of Australian students in reading, mathematical and scientific literacy compared with OECD average for 2000 (set to 500)

26. Case Study: Education Graduate starting salaries as a proportion of Average Weekly Earnings

27. Case Study: Education Outcome 3 Effectiveness indicator: Patents • Graph 2.3.3 Number of patents issued to Australian residents in Australia

28. What have we learned?

29. Programs versus Outcomes • Ministers often make policy decisions based on programs • Budget documentation tends to provide information on Outcomes • There has been a move towards providing more administered program information to Government

30. Measuring performance against Outcomes • Many outcomes are too broad. For example ‘ The Defence of Australia’ • In this case the Government has moved to define 7 sub outcomes for reporting purposes • Outcome 1: Command of Operations in Defence of Australia and its interests • Outcome 2: Navy Capability • Outcome 3: Army Capability • Outcome 4: Air force Capability • Outcome 5: Strategic Policy • Outcome 6: Intelligence • Outcome 7: Superannuation and Housing Support Services for Current and Retired Personnel

31. The need for central oversight • A devolved management model and relative financial autonomy has led to a lack of central knowledge on financial information • Leads to a lack of scrutiny of agency performance by central agencies • Directly affects the ability of central agencies to advise on Budget Strategy • The Government has acted to provide the Department of Finance with additional resources and mandated ‘program’ and ‘cash’ reporting

32. Evaluation and Audit • Evaluation of performance information is essential to measuring the achievement of Outcomes • Senate Estimates Committees scrutinise performance information ex-ante • The Audit Office scrutinise performance information ex-post • Are Chief Executives held accountable for Outcomes?

33. Questions?