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