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Tools for spending review in Japan and Key performance indicator utilisation -- Toshiaki Hiromitsu, Japan


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Presentation by Toshiaki Hiromitsu, Japan, at the 11th annual meeting of the OECD Senior Budget Officials Performance and Results network, Paris, 26-27 November 2015.

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Tools for spending review in Japan and Key performance indicator utilisation -- Toshiaki Hiromitsu, Japan

  1. 1. Tools for Spending Review in Japan and Key Performance Indicator (KPI) utilization Toshiaki Hiromitsu Director of Research Division Budget Bureau Ministry of Finance, JAPAN 26th November 2015 11th Annual Meeting of the OECD Senior Budget Officials Performance and Results Network
  2. 2. Outline of Presentation I. Tools for Spending Review in Japan a. National Audit b. Policy Evaluation c. Budget Execution Survey d. Administrative Programs Review (Reference) Relation to Budget Process II. Key Performance Indicator (KPI) Utilization III. Comments 1
  3. 3. I. Tools for Spending Review in Japan a. National Audit (External Audit) • Board of Audit (established in 1880), an independent body, audits state accounts • Examines legal compliance, efficiency, and effectiveness in project implementation *In FY2014 report on the results of settlement audit, 570 projects amounting to 157 billion yen was pointed out. b. Policy Evaluation (Self Assessment) • Ministries set organizational policy goals and assess achievements (since 2001-) • Results are reflected in budget requests by line ministries c. Budget Execution Surveys (Internal Audit) • MOF (Budget Bureau and regional agencies) conducts surveys on selected on- going individual programs (since FY2002-) • Examines necessity, effectiveness, and efficiency • Results are reflected in budget requests by line ministries *In FY2014, 75 programs examined, of which 6 programs were abolished in whole or part. Reflected in the FY2015 budget (Expenditure cuts in the FY2015 budget: 37.9 billion yen. 2
  4. 4. I. Tools for Spending Review in Japan d. Administrative Programs Review (i)  Line ministries make self-evaluation on individual programs (all programs in the central government (over 5,000 programs)).  Experts outside the government evaluate about 1,000 programs in 5,000 programs intensively.  The discussions by experts are open to the public . 1st Phase: Experts outside the government discuss whether the budgets of some programs were used properly in the previous year. The results of the discussion are reflected in the budget request for the next fiscal year. The discussion is open to the public. 2nd Phase: Programs further needed to be reviewed are discussed by experts outside the government and officials in the government. Then, experts evaluate whether programs are necessary or not in terms of its clarity and effectiveness. The discussion is open to the public and the results are reflected in the budget formulation for the next fiscal year. 3 (Autumn Review) Every November Every June
  5. 5. d. Administrative Programs Review (ii)  The results of administrative Programs Review in FY2014 About 100 billion yen was reduced at the budget formulation process through the discussion at Autumn Review, compared to the budget request process. (Examples) - Reduction in reward for nursing care FY2015 budget request: 2,756 billion yen ⇒ FY initial budget: 2,631 billion yen (minus 125 billion yen) - Reduction in subsidies for the regional revitalization FY2015 budget request: 6 billion yen ⇒ FY initial budget: 3.8 billion yen (minus 2.2 billion yen) - Reduction in the programs for developing human resources in science area FY2015 budget request: 5 billion yen ⇒ FY initial budget: 0.1 billion yen (minus 4.9 billion yen) 4 I. Tools for Spending Review in Japan
  6. 6. Budget process Apr. Fiscal year starts May Jun. Jul. Aug. Budget requests submitted to MOF Sep. Oct. Nov. Dec. Draft budget decided by Cabinet Jan. Draft budget submitted to the Diet Feb. Mar. Budget approved Policy Evaluation Budget Execution Surveys Review of Administrative Programs National Audit Reflect performance informationinbudget requests Publicationof ReviewSheets Budget formulation (MOF) Set organizational policy goals Assess achivement of organizational policygoals in the previous fiscal year Publicationof the results Publicationon expenditure cuts in the draft budget reflectingthe budget executionsurveys Use performance information inbudget formulation Budget ExecutionSurveys (MOF,Regional agencies) Work on ReviewSheets (line ministries) For all projects; Interim publication of review sheetsand open Through a whole year: Implementationofaudits * Settlementreportby MOF also submitted MeetingwithMOF MeetingwithMOF MeetingwithMOF Report on the results of settlement audit to the Diet and the Cabinet (Reference) Relation to Budget Process 5 Use Performance information in budget formulation Autumn Review by Administrative Promotion Council (Open to the public)
  7. 7. • The commitments of the government 1) Primary Balance: to be in surplus by FY2020 2) Public debt (to GDP): to be steadily reduced beyond FY2020 over the medium- to long-term • Mid-term review In FY2018, progress will be assessed against the following benchmarks. – PB deficit: approx. -1% of GDP in FY2018 – Size of expenditure: extending the recent 3-year trajectory of the expenditure* of the Central Government towards FY2018, that is, the total rise of 1.6 trillion for the 3 years, taking into account the economic and price development. * excluding the expenditures for (i) national debt service and (ii) local allocation tax grants, etc. – The government will consider additional measures in expenditure and revenue, if needed, to achieve the FY2020 target. 6 The Fiscal Consolidation Plan ---- main points ---- (June 30, 2015) II. Key Performance Indicator (KPI) Utilization
  8. 8. Primary Balance of central and local governments (in percent of GDP) ▲ 6.6 ▲ 5.7 ▲ 4.4 ▲ 3.0 ▲ 2.5 ▲ 2.3 ▲ 1.7 ▲ 1.4 ▲ 1.0 ▲ 2.5 ▲ 2.1 ▲ 2.2 ▲ 2.2 ▲ 7 ▲ 6 ▲ 5 ▲ 4 ▲ 3 ▲ 2 ▲ 1 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 In percent of GDP FY Notes: FY2010-2013: from “Annual Report on National Accounts,” FY2013-2020: from “Economic and Fiscal Projections for Medium to Long Term Analysis.” FY2015 primary deficits of central and local governments will be presented in “Annual Report on National Accounts” in December 2016. ■ Target to halve the primary deficit (-3.3%) ⇒Expected to be achieved Target of Primary Surplus ■ -6.2 trillion yen -11.9 trillion yen “Baseline Case” (July 2015) “Economic Revival Case” (July 2015) Current plan period Base year of target to halve the primary deficit 7 II. Key Performance Indicator (KPI) Utilization
  9. 9. 8 1. In order to implement the fiscal consolidation plan steadily, the reform process and KPI need to be embodied. The government is currently discussing about it. 2. Contents, scales, and timing need to be clarified about the major 8o items for the expenditure reform in the fiscal consolidation plan. 3. It is important to make the reform process easy to understand. “Visualization” of the reforms is required so that the public and private companies can implement the reforms properly. ≪Implementation of the fiscal consolidation plan≫ ・Approximately 1% of the primary deficit to GDP ratio in FY2018, and the primary surplus in FY2020 ・Basic principle for major expenditure reforms (80 items) - Social security area : 44 items - Area other than social security : 19 items - Local government administrative and fiscal reform : 17 items ・Clarify contents, scales, and timing of the reforms ・ Establish KPI in terms of macro and micro perspectives ・Clear commitment to the expenditure control and economic growth ・Visualization of the reform process ・ Establishment of the evaluation and checking systems ・ Evaluate and check the progress every fiscal year ・ Develop the policies based on quantitative estimation and evidence Fiscal consolidation plan The reform process, KPI Materialization of the reform process PDCA in the intensive reform period II. Key Performance Indicator (KPI) Utilization
  10. 10. 【Social Security area】  Outpatient treatment: indicators measuring the difference in outpatient treatment fees among local regions  Medicine, pharmaceutical: indicators measuring usage ratio of generic drugs  Behavior of patients: number of patients suffering from lifestyle diseases, indicators measuring medical examination frequency 【Social Infrastructure Improvement】  Promotion of PPP/PFI: number of public-private joint committees in the central and local governments 【Education, Science, Technology】  R&D: Research investment from private companies to universities and public research institute 【Local government’s administrative reform】  IT and work restructuring: indicators measuring optimization, reduction in operational costs 9 II. Key Performance Indicator (KPI) Utilization 1. Clarify i) timing of reform implementation, ii) quantitative target, iii) organization in charge. 2. Quantitative benchmark which evaluates the effects for curving expenditures and strengthening growth is especially important. Examples
  11. 11. 10 III. Comments Compared with other countries, the scale of social security expenditures is placed at the middle level but the scale of tax revenue is placed at the lowest level. In addition, the scale of expenditures not relating to social security is placed at the lowest level. International Comparison of Fiscal Scales 32.8 31.2 30.3 28.0 26.8 26.8 26.7 26.6 25.6 25.4 25.3 24.8 24.0 24.0 23.8 23.0 23.0 23.0 22.1 20.4 20.3 18.5 17.7 17.7 17.2 16.4 16.0 14.5 7.9 0 20 40 1Denmark 2France 3Finland 4Austria 5Greece 6Italy 7Belgium 8Sweden 9Germany 10Slovenia 11Japan 12Norway 13United Kingdom 14Portugal 15Netherlands 16Ireland 17Luxembourg 18Spain 19Hungary 20Czech Republic 21Poland 22Iceland 23Estonia 24Slovak Republic 25United States 26Turkey 27Israel 28Switzerland 29Korea 23.0 22.0 21.9 21.7 21.7 21.7 21.6 21.2 20.9 20.5 19.9 19.7 19.3 19.3 19.2 19.1 18.5 18.5 18.4 18.4 18.3 18.1 18.1 18.0 17.6 16.6 16.5 15.5 14.8 0 20 40 1Hungary 2Iceland 3Belgium 4Israel 5Sweden 6Slovenia 7Denmark 8Finland 9Netherlands 10France 11Poland 12Portugal 13Estonia 14Czech Republic 15United States 16Spain 17Slovak Republic 18Luxembourg 19Austria 20United Kingdom 21Ireland 22Greece 23Norway 24Korea 25Turkey 26Italy 27Switzerland 28Germany 29Japan General Government Expenditures not Relating to Social Security (as a percentage of GDP) General Government Tax Revenue (as a percentage of GDP) General Government Social Security Expenditures (as a percentage of GDP) CY2011  Small and effective government?  Social security reform?  Revenue reform? 46.7 34.3 33.0 31.9 31.8 31.1 29.9 29.5 28.7 27.8 27.4 27.0 26.6 26.5 26.0 24.3 23.7 23.7 22.7 22.7 22.1 21.6 21.6 20.9 20.4 20.1 20.1 19.9 19.8 19.5 18.5 16.9 16.8 16.5 0 20 40 60 1Denmark 2Sweden 3Norway 4Iceland 5New Zealand 6Finland 7Belgium 8Italy 9United Kingdom 10Austria 11France 12Israel 13Luxembourg 14Australia 15Canada 16Hungary 17Netherlands 18Portugal 19Ireland 20Germany 21Slovenia 22Switzerland 23Greece 24Poland 25Estonia 26Spain 27Turkey 28Chile 29Korea 30Czech Republic 31United States 32Mexico 33Japan 34Slovak Republic