Title page 1

Contents 5

Foreword 4

Abbreviations and acronyms 9

Executive summary 10

1. Set clear fiscal objectives 13

1.1. Introduction: Anchoring fiscal policy 14

1.2. What are fiscal objectives and fiscal rules? 14

1.2.1. Fiscal objectives and rules and budget aggregates 15

1.2.2. The benefits of setting clear fiscal objectives and rules 17

1.2.3. Features of clear, well-designed fiscal objectives and rules 18

1.3. Flexibility 19

1.3.1. Flexibility to revise objectives 19

1.3.2. Responsive fiscal objectives and rules 20

1.3.3. Escape clauses in fiscal objectives and rules 20

1.4. Simplicity 21

1.4.1. Simple objectives and rules are predictable and easily understood 21

1.4.2. Clear and coherent frameworks 21

1.5. Accountability 22

1.5.1. Disclosing fiscal objectives and rules 23

1.5.2. Strengthening enforcement 23

References 26

2. Objective economic assumptions 27

2.1. Introduction: Earning trust 28

2.2. Economic assumptions and forecasting arrangements 28

2.2.1. Economic forecasts and public finances 28

2.2.2. Forecasting in the budget process 29

2.2.3. Assessing long-term fiscal sustainability 29

2.2.4. Institutional arrangements for setting economic assumptions 30

2.3. What makes economic assumptions objective? 31

2.3.1. Public disclosure 31

2.3.2. Rigorous review 32

2.3.3. Independent inputs 33

2.3.4. Economic assumptions and the role of IFIs 35

2.4. Managing uncertainties in economic assumptions and forecasts 35

2.4.1. Prudent and central forecasts 35

2.4.2. Sensitivity analyses, scenarios and risk reporting 36

2.4.3. Integrating climate change into macroeconomic forecasts 37

References 39

3. Multi-year expenditure baselines 40

3.1. Introduction: Spending over the medium-term 41

3.2. What are expenditure baselines? 41

3.2.1. Projections of the government's spending commitments 41

3.2.2. The benefits of well-defined and costed baselines 42

3.2.3. Challenges in preparing baselines 43

3.3. The design of multi-year expenditure baselines 43

3.3.1. Multi-year projections 43

3.3.2. Aligned with expenditure controls 44

3.3.3. Separate costings for baselines and new measures 45

3.4. Integrating expenditure baselines into the budget process 46

3.4.1. Shared responsibilities 46

3.4.2. Regular updates of expenditure baselines 46

3.4.3. Reconciling expenditure baselines with outturns 47

References 47

4. Top-down expenditure ceilings 48

4.1. Introduction: The bedrock of a modern budget process 49

4.2. A widespread practice with varying results 50

4.2.1. Early examples of successful top-down budget reforms 50

4.2.2. Top-down budgeting is a widespread practice among OECD countries 50

4.2.3. Strengthening top-down ceilings in the face of rising spending pressures 51

4.3. A top-down budget process 52

4.3.1. Stage 1: Updating the budget framework 52

4.3.2. Stage 2: Setting the envelope 53

4.3.3. Stage 3: Negotiating vote-level ceilings and estimates 53

4.4. The design of expenditure ceilings 53

4.4.1. Expenditure ceilings should be established for the medium-term 55

4.4.2. Expenditure ceilings should be allocated to ministers 56

4.4.3. Ceilings should provide a degree of in-built flexibility 58

4.5. Expenditure ceilings and line ministries 60

4.5.1. Delegating budget flexibility within clear rules 60

4.5.2. Monitoring budget execution 61

References 62

5. Regular spending reviews 63

5.1. Introduction: Grappling with baselines 64

5.2. What is a spending review? 65

5.2.1. Spending reviews identify savings to reprioritise in the budget 65

5.2.2. Spending reviews are closely linked to the budget process 65

5.2.3. Spending reviews are implemented in a variety of ways 66

5.3. Responding to the government's policy agenda 66

5.3.1. The objectives and scope of spending reviews respond to a changing mandate 68

5.3.2. Regular spending reviews build impact 68

5.3.3. Flexibility of spending reviews maintains relevance 68

5.3.4. Savings targets focus the spending review process 70

5.4. Conducting spending reviews 70

5.4.1. Setting clear goals guides clear recommendations 70

5.4.2. Making use of knowledge and expertise in line ministries 71

5.4.3. Aligning with the budget framework 73

5.5. Practical and transparent recommendations 74

5.5.1. Clear recommendations 74

5.5.2. Monitoring the implementation of recommendations 74

5.5.3. Increase transparency to build support and impact 75

References 76

6. Informed spending decisions 77

6.1. Introduction: Making better decisions 78

6.2. Performance budgeting 78

6.2.1. OECD country experiences with performance budgeting 78

6.2.2. Key components of the effective performance budgeting framework 81

6.3. Budget impact assessments 85

6.3.1. Emphasis on outcomes in the budget process 85

6.3.2. Combining tools and information for measuring impact 87

6.3.3. Accountability and transparency 88

6.3.4. Enabling environment 89

6.4. Policy evaluation and better spending 90

6.4.1. Institutionalising from a whole of government perspective 91

6.4.2. Promoting quality evaluations 93

6.4.3. Impacting budget decisions 94

References 96

7. Consider all forms of expenditure 97

7.1. Introduction: Improving budget coverage and control 98

7.2. The different ways to fund policy 98

7.2.1. Spending authorised through appropriations 98

7.2.2. Spending authorised through standing legislation 99

7.2.3. Spending authorised through tax laws 99

7.2.4. Government loans and guarantees 100

7.2.5. Challenges for budget control 101

7.3. Tax expenditure 102

7.3.1. Estimating the cost of tax expenditure 102

7.3.2. Integrating tax expenditure with the budget reporting 104

7.3.3. Strengthening the management of tax expenditure policy 104

7.3.4. Co-ordinating tax expenditure 105

7.4. Loans and guarantees 105

7.4.1. Estimating the costs of loans and guarantees 105

7.4.2. Maintaining budget controls 106

7.4.3. Tailoring reporting for decision-making 107

7.4.4. Co-ordinating loans and guarantees 108

7.5. Managing fiscal risks 108

7.5.1. Strategies and institutional arrangements for managing risks 109

7.5.2. Identifying and classifying fiscal risks 110

7.5.3. Measuring and analysing fiscal risks 111

7.5.4. Reporting fiscal risks 113

References 114

8. Line ministries as partners 115

8.1. Introduction: a changing relationship 116

8.2. Evolving responsibilities and relationships in the budget process 116

8.2.1. Budget reforms have changed responsibilities and accountability 117

8.2.2. Public sector reforms have created new relationships 118

8.3. The central budget authority and the line ministry finance function 119

8.3.1. Common structures for co-ordinating spending between the CBA and line ministries 119

8.3.2. Interactions throughout the budget cycle 122

8.4. Supporting stronger partnerships 123

8.4.1. Regular communication 124

8.4.2. Developing and professionalising the finance function 126

References 128

9. Budget transparency 129

9.1. Introduction: Supporting accountability and awareness 130

9.2. Publishing budget reports 131

9.2.1. Pre-budget reports 134

9.2.2. The budget 134

9.2.3. Budget execution reports 136

9.2.4. Entity level budget plans and reports 138

9.2.5. Long-term fiscal sustainability reports 139

9.2.6. Budget guidance 139

9.3. Comprehensive and reliable financial reporting 141

9.3.1. Improving the coverage of financial reporting 141

9.3.2. Applying international accounting and auditing standards 143

9.3.3. Using accrual accounting reforms to improve transparency 144

9.4. Communicating public finances 144

9.4.1. Harmonising reporting 145

9.4.2. Using technology 146

9.4.3. Reaching audiences 148

References 151

10. Effective budget oversight 152

10.1. Introduction: A cornerstone for democratic government 153

10.2. Budget oversight by parliament 153

10.2.1. Legislative powers for amending the budget 153

10.2.2. Oversight across the budget cycle 154

10.2.3. Time, information and resources available for parliamentary scrutiny and debate 157

10.2.4. The role of parliamentary committees 158

10.3. The significance of independent fiscal institutions 160

10.3.1. The growing number of IFIs in OECD countries 160

10.3.2. Supporting parliamentary oversight and costing legislative proposals 161

10.3.3. Creating stronger fiscal advocates 162

10.4. The significance of supreme audit institutions 163

10.4.1. The roles and responsibilities of SAIs 163

10.4.2. SAIs perform a range of different audits 164

10.4.3. Strengthening SAIs as organisations 165

10.4.4. Increasing impact 166

10.5. Engaging citizens 166

10.5.1. Finance ministries are providing more space for deliberation on budget policy 166

10.5.2. Parliamentary-led engagement 168

References 170

Annex A. Fiscal objectives and fiscal rules 171

Annex B. Methodological note 173

Annex C. Methodology for the OECD Fiscal Advocacy Index 176

References 179

Tables 7

Table 1.1. National fiscal objectives and rules for budget aggregates in OECD countries 16

Table 1.2. Corrective and enforcement mechanisms for national fiscal rules and objectives 24

Table 2.1. Managing forecast biases 32

Table 4.1. Top-down expenditure ceilings by category 57

Table 6.1. Common tools for gender and green budgeting in OECD countries 87

Table 6.2. Distributional analysis in budgeting in selected OECD countries 89

Table 7.1. Estimating the costs of loans and guarantees 106

Table 7.2. Fiscal stress tests in selected OECD countries, 2011-2019 113

Table 9.1. Publication of key budget documents 132

Table 9.2. Reporting on tax expenditure 141

Table 10.1. Staffing parliamentary budget offices in OECD countries 161

Figures 7

Figure 1.1. Rising levels of public debt in the OECD 14

Figure 1.2. Escape clauses in national fiscal rules 21

Figure 2.1. Length of long-term fiscal sustainability assessments 30

Figure 2.2. Main responsibility for macroeconomic and revenue forecasts 31

Figure 2.3. Improving the interpretation of macroeconomic forecasts 37

Figure 3.1. Length of multi-annual expenditure baselines in OECD countries 44

Figure 4.1. Top-down expenditure ceilings in OECD countries 51

Figure 4.2. Preparing top-down expenditure ceilings 52

Figure 4.3. Key features of medium-term expenditure ceilings in OECD countries 54

Figure 4.4. Flexibility mechanisms for in-year budget changes 61

Figure 5.1. Use of spending reviews in OECD countries, 2011-2023 64

Figure 5.2. Key steps in the spending review process and the spending review framework 66

Figure 5.3. Scope of spending reviews in the Netherlands, 1980-2024 67

Figure 5.4. Responsibilities for the objective, scope and approval of spending reviews 71

Figure 5.5. Responsibilities for preparing the analysis and recommendations in a spending review 72

Figure 5.6. Spending reviews and budgeting in Germany 73

Figure 5.7. Transparency of spending review reports 75

Figure 6.1. OECD Performance Budgeting Framework 79

Figure 6.2. Approaches to performance budgeting in OECD countries 80

Figure 6.3. Challenges to implementing performance budgeting 81

Figure 6.4. Performance information and internal accountability 82

Figure 6.5. Performance information in France 84

Figure 6.6. The emergence of strategic budget initiatives across OECD countries, 1980-2022 86

Figure 7.1. Change in the stock of loans and guarantees during the COVID-19 pandemic 101

Figure 7.2. Institutional arrangements for fiscal risk management 110

Figure 7.3. Identification and quantification of fiscal risks 112

Figure 8.1. Common structures for budget co-ordination between the central budget authority and line ministries 120

Figure 8.2. Roles of the line ministry finance function 122

Figure 8.3. Collaboration between the central budget authority and line ministry finance function 124

Figure 9.1. Changes to the publication of budget documents over time 131

Figure 9.2. Frequency of in-year reporting 137

Figure 9.3. Publication of year-end reports and financial statements 138

Figure 9.4. Accounting basis in OECD countries 142

Figure 9.5. Approaches to promoting a better understanding of budgets 149

Figure 10.1. Time available for parliamentary debate of the budget proposal 157

Figure 10.2. Growth of independent fiscal institutions in OECD countries 160

Figure 10.3. The 2024 OECD Fiscal Advocacy Index 163

Figure 10.4. The role of SAIs in performance budgeting 165

Boxes 8

Box 1.1. Four main types of fiscal objectives and rules 15

Box 1.2. Revising fiscal objectives in the Netherlands 19

Box 1.3. Fiscal rules in Switzerland 22

Box 1.4. Fiscal objectives in Australia's Economic and Fiscal Strategy 23

Box 2.1. Review of the forecasting tools in Belgium 33

Box 2.2. Independent inputs on economic assumptions in Germany 34

Box 2.3. Climate change and macro-fiscal forecasting in Denmark 38

Box 3.1. Australia's Forward Estimates 42

Box 3.2. Health expenditure baselines in Belgium 45

Box 4.1. Objectives and rules, expenditure ceilings and appropriations 49

Box 4.2. Fixed-term expenditure ceilings in Finland 55

Box 4.3. Budgeting for social security in France 58

Box 4.4. Budget margins in Sweden 59

Box 5.1. The responsiveness of spending reviews in the Netherlands 67

Box 5.2. Spending reviews in Denmark 69

Box 6.1. Performance budgeting in France 84

Box 6.2. Statement and Impacts Report on Gender, Diversity and Inclusion in Canada 88

Box 6.3. Distributional analysis of tax and spending 89

Box 6.4. Audit of disaggregated data in Ireland 90

Box 6.5. Institutionalising evaluation in Australia, Japan and the United States 92

Box 6.6. Irish Government Economic and Evaluation Service 93

Box 6.7. Online evaluation portal in Norway 95

Box 7.1. Different forms of expenditure by the Federal Government of Canada 98

Box 7.2. Tax expenditure in selected OECD countries 99

Box 7.3. Tax expenditure measurement and treatment in the budget 103

Box 7.4. Budgeting for loan and loan guarantees in the United States 107

Box 8.1. Creation of the General Directorates of Financial Services in Greece 116

Box 8.2. The rotation of budget analysts in Finland, the Netherlands and Slovenia 126

Box 8.3. The Government Finance Profession in New Zealand 127

Box 9.1. Examples of published rules and guidance on budgeting 140

Box 9.2. What is accrual accounting? 143

Box 9.3. Considerations for strengthening fiscal reporting 145

Box 9.4. Fiscal portals in Italy and Korea 147

Box 10.1. Budget oversight reforms in Sweden 155

Box 10.2. Outcome-focused budget discussions in Austria 156

Box 10.3. The role of budget committees in Germany 159

Box 10.4. Costing legislative bills in Korea 161

Box 10.5. National Economic Dialogue in Ireland 168

Box 10.6. Pre-budget consultations in Canada 169

Annex Tables 8

Table A A.1. Fiscal objectives and rules for major budget aggregates, by type and policy status 171

Table A B.1. Overview of surveys in this report: country coverage 174

Annex Figures 7

Figure A C.1. 2024 OECD Fiscal Advocacy Index: Dimensions, sub-dimensions and weights 178