Transcript Diapositive 1

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FAD seminar on the implementation of the
budget and accounting reforms in France
The budgetary aspects of the reforms
Xavier Hürstel
Deputy director to the Budget Directorate
Washington - December 7th 2007
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Outline
1. Background to the Government budgeting and
accounting reform
2. Main goals and aspects of the reform
3. Public management reform
4. Conclusion
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1. The deteriorating situation of French budget
In 30 years, French public debt has increased threefold,
and twofold in the last 20 years
In 20 years, the French public deficit has exceeded
3% of GDP in one year out of two despite criteria
imposed by the stability and growth pact
Government spending has registered uninterrupted
increases and has doubled in 20 years. The government
wage bill and debt service charges represented 58% of
government expenditure in 2002 versus 48% in 1990.
 Diminishing room for manoeuvre prompted policy
makers to reassess budgetary reform
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1. Reasons for reforming the 1959 organic law on
budget bills
The 1959 OL has a satisfactory track record:
- 45 annual budgets executed
- Within the framework of an optimized parliamentary procedure
- By permitting the transition to the Economic and Monetary Union
But it is subject to manifest shortfalls and has demonstrated its
limitations :
- Difficulties in restraining government spending trends
- Difficulties in measuring and improving productivity of public services
- Unsuccessful attempts to introduce improvements : impossibility of
moving beyond the classification of expenses by nature
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1. A successful track record of reforms in other
countries
Results in other countries demonstrate the critical role of
budgetary reform in the reform of the State
The main OECD countries have launched budgetary reforms,
driven by needs largely shared from one country to another :
- Improved efficiency of administration ;
- Quality of services provided to users ;
- Transparency in measuring Government actions.
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1. A favourable environment and unprecedented political
consensus
36 bills were tabled over 40 years in an attempt to modify the
organic law of 2 January 1959
The 1 August 2001 OL (LOLF) benefited from a favourable
political environment and political consensus:
- A parliamentary initiative
- A non-partisan political agreement (transcending traditional
political divisions)
- Consensus with the Government
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1. Recent reforms of the budget review process
In 1996, the Government agreed to organize, in both houses of
Parliament, a budget policy debate in the spring to ensure the active
involvement of members of Parliament in drafting the budget bill even
before the sending of the budget ceiling letters setting the expense limits
of the various ministries. This debate is specifically provided for under
article 48 of the LOLF.
Since 1999 and the adoption of the euro by France, the Government must
notify the European Commission every year of the stability programme
conveyed in December.
In accordance with article 50 of the LOLF, a “multi-year programme for
public finances” must accompany the budget bill. This offers Parliament a
means of expressing an opinion indirectly on the content of the stability
programme and provides it with greater information.
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2. First goal : to produce a clearer, more transparent
and complete budget that reflects public policies
Within the framework of the LOLF, the budget is no
longer based on a classification of expenses
according to their nature (operating, investment,
intervention expenditure etc.) but rather on public
policy (security, culture, healthcare, justice, … etc)
The Parliament and the citizenry can in this way
better evaluate the total resources deployed towards
public policies
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2. Missions, programmes and actions : a three-tiered
Government budget architecture
Major government policies divided into 34 missions
A mission is created at the Government’s initiative and may be pursued
at a ministerial or Interministerial level.
It is in turn divided into programmes.
Parliament votes on the budget according to mission. It can modify
appropriations between programmes belonging to the same mission.
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2. Missions, programmes and actions : a three-tiered
Government budget architecture
132 programmes establish the framework defining the
implementation of public policy
The programme constitutes the unit of parliamentary authorization.
It represents an overall control total and maximum budget line, is
subject to the authority of a single ministry, and covers a coherent
set of actions.
Its implementation is assigned to a manager, appointed by the
minister concerned. This programme manager can modify the
budget appropriations by action or nature, exemplifying the
principle of fungibility.
Budget appropriations in the appendix of the Budget bill constitute
non-binding general guidelines.
Each programme is associated with specific objectives and results
targets.
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2. Missions, programmes and actions: a three-tiered
Government budget architecture
605 actions define the purpose of the budget appropriations :
A non-binding programme budget breakdown for
information purposes, the action provides greater details on
the intended purpose of appropriations.
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2. The new budgetary architecture
Mission
Parliamentary
discussion
and vote
Authorization
Programme
Programme
Execution
Management
Action Action Action Action
Programme
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2. Example : Research and Higher Education Mission
• Higher education and university research
• Student life
• Multidisciplinary scientific research
• Research in the field of environmental management and resources
• Spatial research
• Research strategy and oversight
National
Education
and Research
• Research in risk and pollution
Ecology
• Energy research
• Industrial research
Economy,
Finance and
Industry
• Research in transportation, infrastructure and housing
Equipment
• Dual research (civil and military)
Defence
• Cultural and scientific research
Culture
• Higher education and agricultural research
Agriculture
2. Example : Justice
Before : 30 chapters
Title III - Service resources
– Personnel - service payroll
– Retired personnel - pensions and
allowances
– Active and retired personnel social contributions
– Departmental equipment in operations
– Operating subsidies
– Sundry expenditures
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After : six programmes
Administrative jurisdiction
The judicial system
Prisons and correctional
administration
Legal protection for minors
Title IV - Public intervention
– Political and administrative interventions
Access to justice and legal aid
– Social programmes - aid and solidarity
Title V - Government expenditures
– Administrative and other facilities
Title VI - Government capital grants
– Cultural and social programmes
Support for judicial policy
and related organizations
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2. A dual presentation of appropriations by nature
and purpose
To better monitor the use of public funds, the LOLF provides for a
dual presentation of the budget appropriations for each programme:
- By purpose (actions) ;
- By nature of expenditure (personnel, operating, capital,
intervention expenditure, … etc). Expenditures are classified by
budget titles and, within titles, by category.
This breakdown of programme budget appropriations is a nonbinding guideline except for personnel expenses, which are limited,
by virtue of the principle of asymmetrical fungibility :
- A maximum wage bill per programme ;
- A maximum total number of employees per ministry.
2. Presentation of appropriations fortified by a matrix budget approach
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Classification by nature
The
programme:
framework for
finding specific
appropriations
Allowances
for public
authorities
Personnel
expenses
Operating
expenses
Interest
expenses
Mission A
Mission B
Classification
by destination
Programme X
Programme
X
Action
Action
Action
Action
Action
Action
1n°1
2n°2
3n°3
Programme YY
Programme
Action
Action
Action
Action
Action
Action
1n°1
n°2
2
n°3
3
Programme ZZ
Programme
Action n°1
Action
1
Action n°2
Action 2
A detailed budget for actions
presented in the
budget bill appendices
Financial
CAPEX Intervention
expenses transaction
expenses
7 titles and
18 expense
categories set
by Article 5
2. For each programme
Annual performances plan (PAP) :
- A strategic presentation
- A presentation of appropriations (including a summary of prior years)
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2. A more transparent and complete budget
Zero-based budgeting (“first-Euro justification of appropriations”)
Cost analysis of actions
Linking of operators to programmes in the 2008 budget draft :
649 operators contribute to 71 different programmes
Integration of tax expenditure in the programmes
2. For each programme
Annual performances plans (PAP) : components of zero-based
budgeting (“first-euro appropriation justification”)
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2. For each programme
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Annual performances plans (PAP) - Cost analysis of actions :
Details for comprehensive services and support functions
A forecast breakdown of these expenditures by action
2. For each programme
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Annual performances plans (PAP) : information on operators (when available)
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2. Second goal : to produce a performance-based budget
One of the major objectives of the reform of public
management is to promote government transition from a
resource-based culture to a result-based culture to ensure
that every euro spent is more useful and effective.
Performance, i.e. the ability to achieve predefined
objectives, is the cornerstone of the new budgetary
framework.
In consequence, parliamentary debates are no longer
focused solely on budget appropriations and their
justifications, but also on public policy strategies and
objectives.
2. The performance dimension of the budget
For each programme there exists a strategy, objectives and
quantified performance indicators.
These components are included in annual performance plans
(PAP) appended to the Budget bill.
Each indicator is assigned a value for the year of the budget
bill and a medium-term target (1-4 years).
Under the authority of the minister concerned, the
programme manager proceeds on this basis. This manager
reports to Parliament on the results upon examination of the
budget review act in the annual performance report
(RAP).
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2. For each programme
Annual performances plans (PAP) :
- Presentation of the programme and different actions
- Performance objectives and indicators
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2. The virtuous chain
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A PROGRAMME
A COMMITMENT to achieve results
The annual performance plan (PAP)
The REPORT on results
The annual performance report (RAP)
Virtuous chain:
corrective actions taken
according to results
2. Annual performance reports (RAP)
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Presented on 1 June N+1
Based on the model of PAP to facilitate readability and
comparisons
The first year of RAP concerned the 2006 budget act
In particular, RAP present :
The execution of expenditures versus appropriations voted
Performance variances (objectives met or not)
Variances from cost analysis
Parliament is provided with all useful information before reviewing
the 2008 budget draft (fall 2007)
2. Cross-cutting policy documents (DPT)
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Addressing cross-cutting issues other than through interministerial
missions
Coordination of objectives and indicators under the management of
the lead ministry
A lead ministry (ex. Equipment for road safety DPT)
Partnership programmes (ex. police, gendarmerie, higher education)
Cross-cutting policies
A different vector of analysis from that applied to develop ministerial
programmes
Presentation of interministerial policies to parliament
Eleven DPT retained (civil security, overseas territories, road safety,
delinquency prevention, fight against global warming, external action,
town policy, French policy for development, fight against exclusion,
land settlement, youth professional integration)
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2. The LOLF introduces a new management approach
based on a combination of autonomy and responsibility
Autonomy
- Globalization of appropriations within a given programme
- The fungibility of appropriations between budget titles and
actions, subject to maximum wage bill.
- A maximum ministerial headcount (FTE basis) that can be
allocated among the programmes: a non-binding amount per
category of employment.
- Fewer ex ante compliance controls (development of internal
controls, management control, evaluations, …).
Accountability
- To commit to objectives and report on actions.
- To report on results of activity and expenditures.
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2. Modernizing procedures for optimizing public governance
Multi-year planning for public finances (central government,
regional & local governments and social security funds) :
incorporated within the budget act in the form of a report
(similar to the Stability and Growth Pact).
Parliamentary debate on budget policies (three months before
the presentation of the budget): principal options concerning tax
policy.
Report on all tax and social security contributions
and a debate before presenting the general budget bill and the
social security budget bill.
2. Increased powers for Parliament
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The first parliamentary debate conducted on the basis of
LOLF principles was held in fall 2005 (2006 Budget Act).
A discussion on the total appropriation budget accompanied by
votes on appropriations by mission.
Until 2004
– 6% of appropriations were subject to
specific votes in the course of the budget
debate.
– 94% of the expenditures – the “current
services appropriation” – were renewed
on the basis of a single vote.
Starting in 2005
– All appropriations are debated in
Parliament and voted on per mission.
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2. Increased powers for Parliament
Expanded parliamentary powers to introduce amendments.
Better budget execution controls and more investigative
powers.
2. More transparent, effective budgetary oversight
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With the LOLF, three major innovations have strengthened Government
budgetary oversight :
Option of carrying forward appropriations henceforth limited to 3% of
the initial appropriations.
The earmarking of appropriations early on in the budget bill
presentation phase (ex ante visibility of available funds).
The rule governing the application of surplus receipts (for 2006,
allocated to reduce the budget deficit).
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2. New methods for exercising financial control
The reform of financial controls and the implementation of
ministerial budget and accounting controllers meet new needs
resulting directly from the LOLF.
With application effective January 1st 2006, the new financial
control procedures address a threefold objective:
- To ensure compliance with parliamentary authorizations ;
- To provide information on financial risks ;
- To regulate budgetary execution, when necessary.
An approach based on good budgetary management (and no
longer ex ante controls).
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3. The LOLF introduces a performance-based management approach
Yesterday
• The absence of performance criteria in the 1959 OL
– A budget system that was exclusively resource-based: resultsbased criteria were not included in the budget process. No
information provided to Parliament on :
• The objectives of public action
• The effectiveness and results of public spending.
Today
• The LOLF introduces performance measurement
criteria in the budgeting process :
– In exchange for increased autonomy, program managers are
responsible for their program steering and meeting their
objectives: moving from a resource-based culture to a resultsbased culture ;
– Each program has objectives (five on average),
indicators (an average of 2 per objective) and targets.
3. The French approach to a performance-based system 35
The choice of measuring performance in providing and
managing services: on this basis, indicators must focus on what
can be accomplished with specific resources.
Objectives and indicators on which the programme manager can
exercise little influence must be avoided.
A methodological guide was produced to describe performance
measurement .
An approach shared with parliament, the Audit Court and the
Interministerial Programme Audit Committee.
3. The performance-based approach in France
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A methodological guide was produced to describe performance measurement:
• An approach shared with Parliament, the Audit Court and the Interministerial Program Audit
Committee. An approach based on a benchmark of the best international practices.
• Objectives seeking to improve the effectiveness of spending (“spend better”) measured by
indicators (target results of 1-5 years) and identifying action levers on which the program manager
can exercise influence
Three performance analysis criteria: a necessary equilibrium between the point of
views
Point of view
Categories
of objectives
Examples
of objectives
Examples
of indicators
Citizen
Socioeconomic
effectiveness
Improve the
professional placement
of young graduates
% of graduates finding
a job within six months of
obtaining their diploma
User
Service quality
Accelerate legal
decisions
Average duration of court
decisions; average length of
time of pending judgments
Reduce the cost
of managing taxes
Cost per taxpayer
Taxpayer
Management
efficiency
3. Performance objectives occupy a specific place in
the production chain
Resources
Activities
Products(*)
Results(**)
Benefit for
USERS:
Service quality
Benefit for
TAXPAYERS:
Effective management
of resources
(*) : Goods produced, services delivered
(**) : Modification of the economic, social, environmental, cultural, healthcare
reality
The results are attributable to a programme manager, not the effects
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Effects(**)
Benefit for
CITIZENS:
Socioeconomic efficiency
General objectives:
Socioeconomic impact
dependent on several
factors, for example the
unemployment rate
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3. Defining performance objectives = an approach
seeking to identify action levers
Exercise an impact on policy formulation
Modification of the system, beneficiaries, conditions of access,
duration
Exercise influence on procedures for implementing the system
by the administration
Ability to make a selection between different policy mechanisms,
organization method adopted to implement the policy,
implementation process, resource allocation choices
3. Definition of performance objectives is based on certain principles
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Principles
Explanation
1
Selective objectives covering the main items
5-6 objectives per
programme
2
Objectives confirming an improvement in spending No activity or resource-
3
Objectives providing a balance among three points
of view
Socioeconomic
efficiency/effective
management of resources
4
Objectives that are coordinated (Mission, CrossCutting Performance Document)
Within the framework of a
common strategy
5
Objectives that are understandable: clear and
precise
based objectives
Explained (in the comments)
In particular, indicate the
proposed action levers
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Objectives that can be attributed
Objectives not too distant in
relation to the programme
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Objectives that can be measured
Objectives accompanied by
quantifiable indicator(s)
3. Refinement of approach to performance measurement
• Reducing the number of
objectives to become more
strategic :
– In Budget Act 2008, 621 objectives,
and 1276 indicators
• Increased focus on results :
– Indicators increasingly measure
results, not inputs
• Objectives that can be attributed :
– not too distant in relation to the
program
• Increased focus on efficiency :
– Indicators increasingly measure
results, not inputs
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Budget
Act
2006
Budget
Act
2007
Budget
Act
2008
Effectiveness
53%
49%
42%
Quality
28%
22%
23%
Efficiency
29%
29%
35%
Target
(3 years or
more)
53%
46%
67%
Description
(prevision)
66%
92%
92%
80%
86%
Description
(realization)
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3. The virtuous chain of performance management
provided for by the 2001 OL
Annual
Annual
Performance
Review
Implementation
Results
Initial assessment
Analysis of results
Performancebased
management
Formalization of objectives in the
APP at the national level and in the
POB at the operational level
Performance
Plan
Define/redefine
objectives,
indicators,
targets, action
levers
Conclusion
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Why LOLF is a better means than the 1959 OL to re-establish
public finances balance :
•
Political decisions are more global, due to :
zero based budget : discussions between Budget Directorate and
spending ministries are focused on their outstanding disagreements
political decisions are taken by mission or programme (allow
more fungibility)
•
Then, within that global frame, Budget Directorate and spending
ministries discuss on details
the budget preparation is improved
•
•
The pay and workforce controls (a maximum wage bill per
programme and a maximum number of employees per ministry) makes
staff reducing easier (example : 5,000 job cuts forecasted in the 2006
budget and 10,000 carried out)
Political decisions are owned by each ministry (budgetary decisions
for 2008 budget draft taken by a Government seminar in July 2007)
Why move to multi-annual budgeting?

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Weaknesses of the current, annual system
—
Structural reforms are difficult to reconcile with an annual system
and there is no guarantee they will be implemented
— Focus on in-year control leads to micromanagement of spending
— A time-consuming approach which leaves little time for strategic
analysis of expenditure

Clear advantages of multi-year approach
—
—
—
Locks-in a trajectory for the public finances : a prior political
commitment to a framework for future spending decisions
Provides visibility to managers : in particular to facilitate long-term
structural reforms
International experience is encouraging : UK, Netherlands,
Sweden operating multi-annual systems for over a decade. Ceilings
have generally been observed with knock-on benefits for
Governments’ fiscal credibility
Multi-year budgeting: The French approach
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
Clear medium-term fiscal objectives
— Reduce debt-GDP ratio from 64% in 2006 to below 60 % by 2012
— Restore balance by 2012 at the latest compared to 2.4% in 2006
— Implies a halving of real growth rate of overall public expenditure from
2.25% to 1.1% per year over the next 5 years and a maximum rate of
growth for central government to the level of inflation

Multi-year budgets for the whole central Government budget (c. 35% of
total public expenditure)
— Should cover all the budget (better fiscal discipline)
— 3 year allocations with the first exercise covering 2009, 2010 and 2011 –
might be reviewed every 2 years (in 2010)

A comprehensive review of public policies : RGPP
— Aims to improve the effectiveness of public policies in meeting citizens’
needs through a 3-year programme of modernisation and structural reform
— 21 audit teams made up of govt and outside experts looking at range of
ministerial and cross-govt issues reporting in April 2008
— Within the context of a high-level commitment to replace only one of
every two retiring public employees
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