The Australians Mid-Term Expenditure Framework (MTEF). Its Features and Its Underlying Supporting Institutions/Systems

7/30/2019 The Australians Mid-Term Expenditure Framework (MTEF). Its Features and Its Underlying Supporting Institutions/Systems

1/23

THE AUSTRALIAN MTEF

ITS FEATURES AND ITS UNDERLYING SUPPORTINGINSTITUTIONS/SYSTEMS

Presented by Pat McMahon

Budget Advisor,

Australian Department of Finance and Deregulation


2/23

Aims of the next two sessions are to:

1. Gain a better understanding what an MTEF isand the differences to the traditional approach;

2. Draw out the key institutions and systemsnecessary to support an MTEF; and

3. Examine practical examples of how an MTEFcould be applied in some pilot agencies.


3/23

Three Features of an MTEF

1. Budgeting for more than one year - The forward years

estimates represent a continuation of government policies;

2. The only adjustments allowed being i) price or cost changes

beyond the control of managers, ii) government decisions, and

iii) demand variations in demand driven programs; and

3. MTEF does not mean that appropriations are for multiple

years. In Australia appropriations are for one year only.


4/23

Benefits of a True MTEF (A multi-year Budget)

MTEF not

linked toBudget

MTEF linked

to Budget

More useful to Cabinet forstrategic allocation decisions

x

More accuracy in the estimatesand more reliable fiscal settings

x

More certainty for line ministriesto plan

x

Less work in building budgets (nomore zero budgeting)

x

A "True" MTEF x


5/23

Feature 1. Budgeting for more than one year -2008-09 Budget


6/23

Feature 2. Forward Estimates are linked to theBudget (no zero based budgeting each year)

Reconciliation of 2007 -08 Budget, 2007 -08 MYEFO, 2007 PEFO and

2008-09 Budget underlying cash balance estimates

a. Excludes the public debt net interest effect of policy measures.b. Excludes expected Future Fund earnings.


7/23

Some examples of other variations (fromBudget Paper No.1 2008-09)

a $318 million reduction in estimated expenses forParenting Payment reflecting an increase in the number of

people no longer eligible for the payment due to higherreported incomes

a $178 million reduction in estimated expenses forPharmaceuticals and Pharmaceutical Services driven by a

lower than expected growth in usage of a range of drugs onthe Pharmaceutical Benefits Scheme

a $128 million reduction in estimated expenses for FamilyTax Benefit driven by a decrease in customer numbers dueto higher reported incomes


8/23

Feature 3. Multi-year budgeting but annualappropriations!


9/23

Feature 3. Multi-year Budget andAnnual Appropriations under anMTEF

Continuing Policy New Policy Process

MTEF Current (already implemented)

Long Term Development Plan20yrs

Medium Term Development

Plan/Strategic Plan

5 yrs

Medium Term Development Plan- to

be implemented

Government New Policy/Ministry New

Policy

Changes to Continuing Policy from

PBB

T

O

A

C

H

IE

V

E

4

Y

E

BUDGET

Review of Continuing Policy using PBB

Activity Program Output Outcome

MTEF Revised New State Budget Plan5 Years

Continuing Policy

over 5 years

New Policy over 5

years

Total over 5 years



Governments Agenda

/Strategic Plan

4 yrs

Governments Agenda/Planyet tobeimplemented

Government New Policy/Ministry NewPolicy

Changes to Continuing Policy from

PBB

T

O

A

C

H

IE

V

EReview of Continuing Policy using PBB


ONE YEARs APPROPRIATION

Continuing Policy

In Budget year

New Policy in

Budget year

TotalAppropriation

R

A

N

E

W


10/23

Five institutional Building Blocksunderlying the Australian MTEF

A. Cabinet process that records decisions on a multi-year basis;

B. Parameters Economic (e.g. prices) and program specificadjustments for factors beyond the control of governments;

C. Defining programs and operating cost frameworks (runningcosts vs non running costs) (relates strongly to the usefulness

of PBB and aligns MTEF and PBB);

D. Costing system requiring Department of Finance agreement; and

E. Authoritative Financial Management Information System.


11/23

Building Block A. Example of aBudget Decision by Government

Humanitarian migration program additional 500 places for Iraqis in 2008-09

Expense ($m) 2007-08 2008-09 2009-10 2010-11 2011-12

Department of Education, Employment

and Workplace Relations- 3.9 4.3 4.2 4.3

Department of Immigration and

Citizenship- 3.8 2.8 0.6 0.1

Department of Families, Housing,

Community Services and Indigenous

Affairs

- 1.4 2.2 2.2 2.3

Department of the Treasury - 0.8 0.8 0.8 0.9

Department of Health and Ageing - 0.4 0.9 0.9 0.9

Medicare Australia - .. .. .. ..

Total - 10.3 11.0 8.8 8.5

Related revenue ($m)

Australian Taxation Office - 1.0 1.1 1.2 1.3

Australian Customs Service - .. .. .. ..

Total - 1.0 1.1 1.2 1.3SOURCE: BUDGET PAPER NO.22008-09


12/23

Building Block B. Parameters foreconomic and program specificvariables

Parameters are the economic or program specific

variables over which managers & governmentshave no control which influence the price or costof an output.

Arrangements are required to generate and apply theparameter forecasts to forward estimates

It is very important that such adjustments occur in theForward Estimates otherwise the funding provided will notbe sufficient to allow the delivery of programs as intended bythe Government


13/23

Examples of some economicparameters from 2008-09 BudgetPapers


14/23

Examples that highlight some program specificparameters (from 2008-09 Budget Papers)

a $207 million increase in estimated expenses for Medicare

Services reflecting increases in demand for a range of medicalservices including services provided by general practitioners,

pathology services and diagnostic imaging services and

a $240 million increase in estimated expenses for interest rate

subsidies available under Exceptional Circumstances assistance,primarily due to a higher than expected take-up by eligible

farmers.


15/23

Generating the forecasts ofeconomic parameters & programspecific variablesEconomic parameters

Economic parameters are based on the forecasts of theJoint Economic Forecasting Group.

The economic parameters are updated at regularintervals, usually three or four times a year.

Program specific parameters Models agreed between the Department of Finance and

the line ministries are usually used togenerate theforward estimates of complex and large programs.


16/23


17/23

Building Block D. Accurate & independentcostings

The Government requires that agencies must agree

their costings with the Department of Finance. Note: Department of Finance agreeing to the costs does

not mean it supports the policy merits of the new

policy proposal.

By fully analysing the costings, the Department ofFinance often improves its understanding of the

policy and its merit.


18/23

Building Block E. A central budgeting systemto control variations to the forward estimates

The authoritative record of estimates is the central budgetingsystem managed by the Department of Finance.

Changes cannot be made without authority i.e.

Government decisions;

Economic parameters; Program specific parameters; and Other (rarely used, but could include changes due to accounting

standards etc)


19/23

Summary of what is an MTEF and how it differsto the traditional models

Estimates of revenues and expenditures ofpolicies

agreed by the Government for future years

linked to the Budget (i.e. no more zero based

budgeting). Variations can only be for a few reasons, i.e.

generally: Government decisions

Parameter adjustments

MTEF can be readily linked to a multi-year national plan


20/23

Graphical Representation of aBudget process under an MTEF inIndonesia




Medium Term DevelopmentPlan/Strategic P lan

5 yrs

Long Term Development Plan to beimplemented

Medium Term Development Plan- tobe implemented


Changes to Continuing Policy fromPBB

TO

ACHIEVE

NationalVision

PRESIDENTS

VISION



MTEF Revised New State Budget Plan 5 Years

Continuing Policyover 5 years

New Policy over 5years

Total over 5 years




Medium Term DevelopmentPlan/Strategic P lan

5 yrs

Long Term Development Plan to beimplemented

Medium Term Development Plan- tobe implemented


Changes to Continuing Policy fromPBB

TO

ACHIEVE

NationalVision

PRESIDENTS

VISION



MTEF Revised New State Budget Plan 5 Years

Continuing Policyover 5 years

New Policy over 5years

Total over 5 years


21/23

Hypothetical example ofcontinuing and new policy Family PlanningFive year National Plan

The National Plan states an aspirational target for Family Planning

Services to cover 25 million families.

Existing 4 year Budget Plan

Previous decisions allocated funds to cover only 10 million families.

Fiscal space allows for new spending on priorities not yet implemented

Government calls for new policy submissions within limits available.New Policy in the Budget

Government allocates funds for an additional 5 million families. The

new forward estimates provide funding for 15 million families.

Appropriation for Family Planning assistance to 15 million families.


22/23

NUMBER OF FAMILIES

2009 2010 2011 2012 2013

Planning Target 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000

MTEF - Existing Policy 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000

New Policy (Addition) 0 5,000,000 5,000,000 5,000,000 5,000,000

MTEF

0

5,000,000

10,000,000

15,000,000

20,000,000

2009 2010 2011 2012 2013

NumberofFam

ilie

MTEF - Existing Policy Revised MTEF


23/23

Any Questions? Discussion!

Documents

The Australians Mid-Term Expenditure Framework (MTEF). Its Features and Its Underlying Supporting Institutions/Systems