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Fiscal constraints and budgetary reform - implications for IT investment in public sector An External Perspective
Fergal O’Brien
Chief Economist, IBEC
30th June 2011
Outlook for public spending (voted current and capital € bn)
Budgetary reform – the current model
Economic crisis and comparisons with best practice expose
flaws in budgetary model
Focus remains on annual cash accounting
No effective multi-annual fiscal planning
Limited resource reallocation
No coordination of capital and current spending
No performance budgeting
Budgetary reform – plans for a new model
EU semester system
Reform of the fiscal framework
Genuine multi-annual budgeting
Full cost allocation
New review mechanisms
Performance budgeting
Multi-annual budgeting
Elements already applied Capital expenditure on 5 year rolling envelopes with
10% carry-over provision Three-year Administrative Budget Agreements Multi-year Employment Control Frameworks
Key advantages Reinforce medium-term fiscal discipline Allow a more strategic allocation of expenditure More efficient inter-temporal planning
Outline for a new Medium-term Expenditure Framework
1. Aggregate expenditure levels – top down limit
2. Governmental Expenditure Assessment – regular
evaluation
3. Ministerial Current Expenditure Envelopes – cash
ceilings
4. Continuity and Effective Medium-term Control –
challenge is to get balance right between control
and flexibility
5. Numbers Policy and Administrative Budget
Agreements
The new Framework in practice
Will differentiate between ‘demand-led’ schemes; pay commitments and ‘other’ expenditure
Will allow for sensible approach to reallocation Carryover proposed to be max of 3% - capital is
10% Overruns treated as advance from following year
and will require re-prioritisation Expenditure allocations not automatic – target of
2-3% efficiency dividend arising from IT and management improvements
Some lessons from private sector change programmes
Productivity and workplace change as important as nominal cost reductions
IT investment has played major role in transformation programmes Investment needed to deliver savings
Embracing new technology essential to success of change programmes
Balance must be struck between need for cost savings and maintaining productivity enhancing investment in technology and in people skills
Update on Croke Park Agreement progress
Some good progress made on eGovernment and Ireland compares very well internationally
Implementation report urges focus on More shared services Greater availability of on-line services
Shared services progress weak in relation to Application processing HR systems General sharing of information across Depts.
Connecting capital and current spending plans
Current spending efficiency requires capital investment
Investment can be a combination of private sector and public sector
Private sector can make capital investment to provide technology platform for outsourced services
Potential for current spending savings should be key criterion for capital spending decisions
New budgetary approach must deliver coordination of current and capital spending plans
IT as a building block for better policy making
Performance budgeting initiative will bring significant data
challenges
Focus shifts to effectiveness
Wide range of output, outcome and impact indicators needed
Indicators must be integrated into expenditure sub-heads
Maximising potential of administrative datasets
Major untapped potential in drive for more effective evidence based
policy
Looking beyond austerity