Presentation by Martin Kelleners at the 10th annual meeting of the Senior Budget Officials Performance and Results Network held on 24-25 November 2014. Find more information at http://www.oecd.org/gov/budgeting

1. Federal Ministry of Finance
Berlin
10th Annual OECD Senior Budget Officials Meeting on Performance and Results 24./25. November 2014, Paris, France
Martin Kelleners Deputy Director General DG Budget Federal Ministry of Finance, Germany
Implementing Spending Reviews: Dilemmas and Choices

2. Federal Ministry of Finance
Berlin
Economic and fiscal situation in Germany
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The Economy is currently in a good shape (real GDP growth in 2014: +1,2% and 2015: +1,3%).
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Unemployment rate is historically low (ILO unemployment rate September 2014: 5,0%).
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General government budget (Maastricht criterion) is in balance since 2012.
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Federal budget for 2015 is balanced for the first time since 1969 and will stay balanced in the medium term planning period.

3. Federal Ministry of Finance
Berlin
Debt brake and Top Down Budgeting
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New budget rule (“debt brake”) forces to have a nearly structurally balanced budget.
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Such a strong rule requires a budget process starting with the boundaries set by the rule.
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The conclusive consequence was the introduction of Top Down Budgeting in 2012.
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Top Down gives plenty of freedom and room to maneuver for line ministries within their expenditure ceilings. Potentially too many?

4. Federal Ministry of Finance
Berlin
The general use of performance information
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Germany has included some performance information into the budget documentation.
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According to the OECD it would be classified at the modest end of the spectrum of presentational performance budgeting. Each ministerial budget has a foreword outlining the context for the major policy fields addressed in the financial allocations and, in its narrative, will indicate the performance elements that are anticipated to accompany successful implementation. Within each ministry budget, each subject chapter will be preceded by preliminary narrative remarks – again no more than one page long – highlighting the main budget indications and performance elements.
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Further steps on performance budgeting – suggested by MoF – were not accepted by the budget committee of the Bundestag.

5. Federal Ministry of Finance
Berlin
The way towards spending reviews I
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There is a need for an addition to the Top Down- Budgeting, which evaluates the usefulness and efficiency of expenditure.
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The performance elements in the German federal budget are not sufficient to ensure that.
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MoF accentuated the need for a supplementary tool that gives us more insight in the budgets of line ministries and room for re-prioritization.
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OECD supports those needs in their Budget Review for Germany.

6. Federal Ministry of Finance
Berlin
The way towards spending reviews II
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Spending reviews can be such a tool as international experiences show.
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Coalition agreement of 2013 foresees the implementation of rolling selective spending reviews for the federal level.
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New Spending Review working unit at MoF was established in summer 2014.
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We understand Spending Reviews as a tool within the process of budget preparation. They should help us drafting the budget (see following figure).

7. Federal Ministry of Finance
Berlin
Spending Review and Budget preparation - examplary 2015/2016 -
Spending Review Process
Consideration of the Outcome of the SR
Cabinet decision on SR for Budget 2017
Cabinet decision regarding profile and content of SR
Cabinet decision on SR for Budget 2018
Preparation of the Federal Budget
Parl. Discussion on draft budget
Top-Down process 2017; leading to benchmark figure deciscion
Benchmark figure decision* 2016 in Cabinet
Cabinet deciscion draft budget 2016
…
Mar 2015
…
Jun 2015
…
Aug 2015
…
Dec 2015
Jan 2016
Feb 2016
Mar 2016
* First step of the top down process: setting the overall limits to the line ministries budgets.

8. Federal Ministry of Finance
Berlin
Three stages of spending reviews:
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Initializing: setting the framework and content
•Doing: applying evaluation methods, involving experts
•Completing/institutionalizing: producing output, keeping the spending review process going on
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9. Federal Ministry of Finance
Berlin
Initializing spending reviews: questions
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Should spending reviews be linked to explicit starting points (e.g. long-term sustainability), should/can their quantitative goals be derived from those problems?
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How can items be selected? Are all items suitable for spending reviews?
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Which formats of goals have been successful (e.g. savings as percentage of the reviewed expenditure)?
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To what extent do spending reviews need detailed rules of procedure?
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How much levels should be created, on which level should decisions be taken?
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If involved, what should be the formal role of external experts?
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Should there be a general rule on the usage of identified savings?

10. Federal Ministry of Finance
Berlin
Initializing spending reviews: Thesis for discussion
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Spending reviews in general should be understood as a tool to create fiscal space. Sustainability aspects and other high ranking topics might be useful to underline the need to create fiscal space, but spending reviews mostly aim to cut back outdated programs and structures in the budget.
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Spending reviews are intended to link expenditure evaluations directly to the budget. This has to be ensured by the governance structure. A leading role of Ministry of Finance, a well-structured participation of line ministries and the participation and the support by the center of government are crucial. External experts may play a supporting role. The rules for the utilization of identified savings may vary from year to year, but should be binding defined at the start of each review.

11. Federal Ministry of Finance
Berlin
Doing spending reviews: questions
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What can be done in advance of spending reviews to improve the information basis?
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Which role can external scientific publications and scientists/experts play?
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Why does information from performance budgeting and/or line ministries evaluations contribute so little to spending reviews?
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Is a uniform set of examining questions across all review items useful?
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Are elaborated methodological toolkits available?

12. Federal Ministry of Finance
Berlin
Doing spending reviews: thesis for discussion
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A decisive step in the review process is the jointly and binding definition of the goal of the reviewed expenditure at the initial stage of the process to avoid “aiming at moving targets” during the review.
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Because of the limited time frame reviews should rely on available data.
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Reviewing methodology should on the one hand fulfill basic requirements, on the other hand it should not be too elaborated to avoid potentially “endless” scientific discussions.

13. Federal Ministry of Finance
Berlin
Completing/institutionalizing spending reviews: questions
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Which output formats (e.g. only saving proposal list or more comprehensive report) of spending reviews have been successful?
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How did countries, which started spending reviews in a financial crisis situation, manage the transition of the reviewing system to better (or less worse) times?
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Is it useful to support the permanence of the process by goals like “reviewing each ministry once per legislature”?
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How to prevent participants from gaming the system?

14. Federal Ministry of Finance
Berlin
Completing/institutionalizing spending reviews: Thesis for discussion
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In general, spending reviews should present results/proposals, which affect the subsequent budget and because of this should be part of the budget decision of the government. Besides pure changes in budget figures, there should be some reporting on the findings to stimulate and support a public discussion and to inform the parliament.
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There is a real danger for spending review structures to “fall asleep” after a while. Any goal of gaining comprehensiveness over time will be useful to avoid this. Gaming the system must be taken into account and calls for periodical rearrangements of the structures.

15. Thank you!
Martin Kelleners Deputy Director General DG Budget Federal Ministry of Finance, Germany martin.kelleners@bmf.bund.de