Performance budget is a way of managing public finances in order to achieve greater efficiency, effectiveness and transparency in public spending. The activity-based budget is prepared in accordance with the principles and methods of the process. It can be used to improve the efficiency and effectiveness of the management of a given unit. Units are obliged to keep records of budget expenditure in a traditional manner and to record the same expenditure in a task-based manner.
Where is the performance budget used?
It is a budget that shows the contribution of productivity and services to an organisation's unit. It is used by government bodies to show the link between the performance of services provided by federal, state or local authorities and taxpayers funds.
It is often accompanied by a reform that involves the implementation of multi-annual expenditure planning and the development of an effectiveness audit. It is used to a different extent and in different forms in a large number of countries. This method can also be applied in local government units (but not always in the government sector).
What is it all about?
Performance budget is based on the use of effective information during parliamentary work on the adoption of a budget law and on the practical application of this information in the process of budget planning by the government.
This method also consists in the preparation of the state budget based on the objectives of this budget, which is in line with the indications contained in the strategic and programming documents of the government.
Decisions on efficiency budgets are focused on service performance. The allocation of resources is based on specific objectives agreed by the budgetary committees.
The principles of performance budget:
- a several-year projection of the task-oriented budget
"Performance budgeting is a system of budgeting that presents the purpose and objectives for which funds are required, costs of programs and associated activities proposed for achieving those objectives and outputs to be produced or services to be rendered under each program. A comprehensive performance budgeting system quantifies the entire results based chain as follows (see figure 1 for an illustration):
Inputs/Intermediate inputs: resources to produce outputs. Outputs: quantity and quality of goods and services produced. Outcome: progress in achieving program objectives. Impact: program goals. Reach identifies people who benefit or are hurt by a program."(Anwar Shah and Chunli Shen, A Primer on Performance Budgeting).
"The strategic context for PB is being satisfied increasingly through public annual reporting; embracing both a declaration of the strategic intention and the outcome of performance. Here performance is considered in terms of outcomes (wider societal impact) and outputs (organisationally specific). The ideal for PB is to trace the causal connection between outputs and impact."(Aidan Rose, 2003, Results-Orientated Budget Practice in OECD Countries).
- Informing the public about the priorities.
- Increasing the accountability of local authorities towards taxpayers.
- Quantification of individual objectives.
"(a) More than ever before it will make the Budget an instrument of expressing Governmant policy on each governmentalprogramme. (b) It will be a more useful document to the taxpayers and Members of Parliament since the major emphasis will be on programmes and activities, work to be accomplished and its cost." (Peter N. DEAN, 1986, Assesing the performance budgeting experiment in four developing countries).
- The department's ability to manipulate data in order to achieve its purpose.
- Lack of unified cost standards in many agencies.
- In some cases, potential disagreement on where spending priorities should be in the case of a multi agency government.
- Achieve greater transparency in public finances.
- Achieving greater efficiency in the implementation of public tasks.
- Provide citizens with more reliable information on actions taken and their costs.
- Increasing the effectiveness of public spending.
- Aidan Rose, 2003, Results-Orientated Budget Practice in OECD Countries, Overseas Development Institute.
- Anwar Shah and Chunli Shen, A Primer on Performance Budgeting.
- Peter N. DEAN, 1986, Assesing the performance budgeting experiment in four developing countries.
Author: Aleksandra Jasińska