Spending better with activity-based budgeting and performance goals?

In December 2010, several heads of state from within the European Union sent a letter to Mr Barroso stating that “[t]he challenge for the European Union in the coming years will not be to spend more, but to spend better.” In his presentation of the Commission’s draft for the new MFF in June 2011, Mr Barroso reacted to this demand by asking to make budgetary decisions “not through traditional headings driven by bureaucracy and constituency but in terms of facts and goals […] to make the most out of every Euro spent.” In fact, following the fall of the Santer Commission, the EC entered into a whole set of financial management reforms aiming to achieve just that – namely to better align funds with political priorities and to increase accountability. Roughly ten years later, these reforms still have to deliver on their promises and the current pressure to cut and innovate might provide the momentum to make them work.

The EU’s financial management reforms go back to the 90s, when the Commission started several exercises of screening funds, activities and staff (SEM, DECODE, MAP). The Kinnock reforms of the early 2000s were a mix of elements from these exercises, various accountability measures demanded by the Parliament and other tools adapted from Anglo-Saxon reformers. They included the introduction of activity-based management and activity-based budgeting (ABM/ABB), activity reports signed by Commissioners and the reform of internal audit as well as the introduction of accrual accounting. As Mr. Barroso alluded to in his speech, the main idea behind most of these reforms is a clear cascade from political objectives, to resources dedicated for the activities to achieve them, and down to performance indicators to control the achievement. But the reality on the ground is still very different.

First of all, even though the Commission rearranged the budget along activities in 2003/2004, this classification strictly followed the organizational structure of the administration and hardly affected the number of budget lines. Furthermore, objectives and goals for the activities are still not part of the budgetary debate but are presented in separate activity statements, where the Commission sometimes, but not very consistently, provides reasons for reallocation. Most importantly though, the new structure of the budget was not aligned to the MFF and each heading of the MFF now contains various activities and many single activities are spread across several MFF headings. Consequently, negotiations with the budget authority, both in the EP and the Council, revolve around margins under the MFF headings, “don’t penetrate very deeply into the world of ABB objectives, performance indicators and measured results” (EP, 2007:3), and budgetary amendments haven’t changed much since 1996.

A second reason for the low utilization of facts and results in the budgetary debate with Parliament and Council is a lack of analytical capacity and political will to learn from the past rather than discussing the future. Each year, the Commission produces tenth of thousands of pages of activity statements, management plans, activity reports without consistent and conclusive summaries. As most parliamentarians spend at most one term (5 years) in budget or budgetary control they can hardly follow through the whole cycle from decision making, through implementation to accounting and policy learning and back to decision making. The EP could partly address this problem by strengthening the role of specialized committees in the process of policy learning in the budgetary process and by improving the work of the monitoring groups of the budget committee. Parliaments in other countries have also reacted to information overload by strengthening parliamentary budget secretariats and by accessing the administration’s planning tools. In the EU both solutions have failed so far due to a lack of political interest by the Parliament and resistance from the Commission.

Thirdly, the reports from the Court of Auditors play an important role for the yearly discharge procedure. If they would include more activity-specific and timely assessments of results and the Court would spend more resources on auditing performance rather than regularity and legality, this could build the ground for cultural change within the budgetary authority. The performance reports now mandatory through Article 318 of the Lisbon Treaty may provide interesting ground for this change.

Finally, the most important contribution to better expenditure will have to come from the Commission that strengthened its autonomy and the coordination of priority-setting, budgetary decisions and human resources. It should be very careful to use performance measurement primarily as a tool for internal planning and learning. As long as its managers perceive it mainly as an avenue for accountability and control they will not take the bold steps and risks necessary to achieve them. While the Commission has been rather successful in limiting its staff growth to about 10% at a time when all other European institutions grew at least 30%, it has done so by a 1% global staff taxation rather than a genuine reprioritization. Furthermore it still dedicates nearly half of its staff on administrative support, coordination, and financial control.

Overall the call for better expenditure and stronger focus on implementation and results made by both the heads of state and Mr. Barroso, demands for a cultural change in budgetary decision making. This change has to start from the Commission but can be reinforced by more performance oriented audits from the Court of Auditors, by better analytical capacity within the two arms of the budgetary authority and by a closer alignment between MFF, activity-based management and the budgetary process. But even with all these efforts, international experience shows that success would not be granted. Political realities limit the space for negotiations on implementation details and other issues such as saving the Euro, reforming the EU’s own resources or limiting payments to 1% of GDP despite increasing RALs might both overrule or reinforce the need to make intelligent savings.

 

 

 

About ctrautvetter

Christoph Trautvetter recently graduated with a masters degree in public policy from the Hertie School of Governance. In his thesis he examined the impact of the EU`s financial management reforms on the budget procedure in th European Parliament. He has previously worked for the EP both in the EPP-ED` budget secretariat and as a personal advisor for the discharge procedure. As an intern for the former GTZ in Zambia and for the German ministry of finance he has accompanied two more, very different efforts of financial management reform.