Spending reviews are critical re-assessments of existing public expenditures and the policies they are based on in order to improve efficiency, effectiveness and affordability. They have become a standard tool for fiscal consolidation and freeing up funds in many OECD countries after the global economic crisis. The document outlines the rationale for spending reviews, implementation challenges, and provides examples from countries like Canada, the Netherlands, and Ireland.

1. Spending Reviews
9th Annual Meeting of MENA Senior Budget Officials
Kuwait, 12 October 2016
Jón Ragnar Blöndal
Head, Budgeting and Public Expenditures

2. Agenda
2
1. Definition and Rationale
2. Implementation Issues
3. Country Examples

3. Spending Reviews – What?
A critical re-assessment of existing expenditures,
and of the policies they are based upon, in light of
the principles of efficiency, effectiveness, economy
and/or affordability

4. Spending Reviews – Why?
• Baseline expenditure is usually largely
fixed: 80-90%
• Harder for governments to identify “fiscal
space”
• Requirement to live within fiscal limits
• Are previous decisions still the best
decisions? New priorities
• Scope for efficiency, modernisation, reform
and innovation
• Move from “incremental” to a more “zero-
based” approach

5. Growth in Spending Reviews
• Before the global economic crisis
– The Netherlands, Denmark; few others
• After the crisis
– Over half of OECD member countries report that
they have conducted, or are planning, spending
reviews
• Becoming a standard tool for fiscal
consolidation and creating fiscal space

6. Containing Public Expenditure –
Where to Start?
Public pay
Social welfare
Other
FUNCTIONAL
BREAKDOWN 1

7. Health
Education
Other
FUNCTIONAL
BREAKDOWN 2
Containing Public Expenditure –
Where to Start?

8. Defence
Agriculture
Other
FUNCTIONAL
BREAKDOWN 3
Containing Public Expenditure –
Where to Start?

9. “FIXED” VERSUS
“FLEXIBLE” AREAS
Containing Public Expenditure –
Where to Start?
Constitutional
Legal - fixed
Legal - annual
Contractual commitments
Administrative commitments
Political commitment
Sensitive
Discretionary

10. Spending Reviews as a Decision Tool
• No technocratic substitute for hard
decisions
• But hard decisions need to be well-
informed
• What is needed:
– solid, evidential basis for assessing and prioritising
public expenditure in each area
– standardised analytical approach
– principles to guide and focus the analysis - IMPACTS
– clear recommendations
– political buy-in for the process
– direct linkage to the budget process

11. Designing a Spending Review –
Basic Choices
Who?
• Outsiders OR
In-house experts
• Central
AND/OR line
ministry
• Steering
committee
• Balance between
political and
administrative
viewpoints
What?
• All spending OR
Sector focus OR
Specific areas
• Efficiency
AND/OR
strategic
priorities
• Programmes OR
Ministries
• Streamlining of
agencies
How?
• Expenditure
baseline analysis
• Savings targets
AND/OR
ceilings
• Public / civic
engagement
• Performance-
focused analysis
• Policy options
OR prescriptions

12. Focusing a Spending Review –
Strategic Choices
Impacts on people?
• Income
distribution
• Access to
healthcare
• Access to housing
• Access to
education
• Gender impacts
• Ethnic impacts
• Environmental
Impacts on
growth?
• Public investment
• Prioritising
education
• Structural
economic reforms
• Labour market
reforms
• “Red tape”
reduction
• Liberalisation of
professions
Impacts on
public sector?
• Staff numbers
• Staff efficiency
and work
practices
• Outsourcing
• Shared services
• E-Government
• Budgetary reform

13. OECD Country Example: CANADA
• Programme Review (mid-1990s) aimed at fiscal
consolidation/reining in high debt and deficits
– Agency reviews
– Tough agency specific targets set by MoF
– “War of Attrition” – not a sustainable model?
• Strategic Review (2007- )
– Encourages “churn” – delving into the baseline of expenditure
– Create additional fiscal space for new spending priorities
– Permitted “reinvestment proposals”
• Strategic and Operating Review (2011-2012)
– Comprehensive
– Additional focus on operating efficiencies

14. OECD Country Example: NETHERLANDS
• Context:
– Coalition Agreements
– Fixed four year expenditure ceilings
• Specific sectors (except 2010 Comprehensive Review)
• Processes set by MoF; agreed by Cabinet
• Joint review process: taskforces within spending
ministry + MoF staff
– required to develop options capable of delivering at least a 20 percent
reduction over four years
• Options are presented to political leadership for
decision
– Cross-party agreement for system of spending reviews
– Central to election debate on budgetary savings measures and
subsequent Coalition Agreement on expenditure ceilings

15. OECD Country Example: IRELAND
• Context:
– Major fiscal shock from 2008 – huge consolidation requirements
– End of long “boom”: high public expectations of budgets
• 2008: Expert-led exercise
– Comprehensive: programmes, staff numbers, reform agenda
– Not binding on government
– Very useful in stimulating public debate and attitudes
• 2011: Civil service-led exercise
– New priorities for a new government
– Built on institutional learning from previous exercise
– Designed into overall review / evaluation architecture
• 2014: Civil service exercise – “low key”
– generating policy options for ministers
– linked with multi-year spending ceilings

16. Some Lessons from International
Experience
• Each spending review is different – even within
countries
– linked to political, economic, social factors
• Often starts as ad hoc response to shocks, stresses
• Maintaining the impetus of spending review
– role of fiscal rules, fiscal framework
– demands of “fiscal space” for national development goals
– integrate into multi-annual budgetary framework
• Improving performance information
– Limited use of formal performance indicators or evaluation
– Much available evaluation not very useful (Management/policy
improvement focus)
– Quality not always good
– Requirement is more relevant information; not more evaluation

17. 17
OECD Journal on Budgeting
www.oecd.org/gov/budgeting
jon.blondal@oecd.org