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14 June 2017

Spend­ing re­views in the fed­er­al bud­get

Starting in 2015, the federal government added annual spending reviews to its top-down method of preparing the federal budget. Spending reviews analyse revenues and expenditures in selected policy areas, with the aim of enhancing the content, impact and performance of budgeted programmes. They help to reprioritise allocated funds and to create fiscal space for new priorities. In this way, they improve the structure of the federal budget.

What are spending reviews?

Spending reviews are

  • a new and promising way to further improve performance by making federal policy measures more targeted and effective.
  • an instrument for the continuous review of government functions, with a particular focus on the effective and efficient use of resources.
  • based on evidence and results. This approach generates knowledge and provides a sound basis for sustainable budget decisions. 

Why did the federal government introduce spending reviews?

Starting in 2015, the federal government added annual spending reviews to its top-down method of preparing the federal budget. Spending reviews analyse revenues and expenditures in selected policy areas, with the aim of enhancing the content, impact and performance of budgeted programmes. They help to reprioritise allocated funds and to create fiscal space for new priorities. In this way, they improve the structure of the federal budget. 

Figure: What spending reviews are about: basic questions

How did the idea of spending reviews in Germany evolve?

Traditionally, Germany’s budget system has focused mainly on input. In other words: for each line item, the budget shows how much money can be spent on a task or programme. However, parliament and the general public may also be interested in how the funded programmes perform. In 2014, the OECD conducted a thorough review of the German federal budget system. Overall, it delivered a very positive assessment of the German budget system with its top-down method of preparing the budget. At the same time, however, the OECD argued that Germany’s budgets need to be more results-driven (see the OECD’s 2014 Budget Review for Germany).

Drawing on the experience of other countries, a working group at the Federal Ministry of Finance developed a strategy for annual spending reviews at the federal level. This strategy was put into action starting in 2015.

Since then, spending reviews have become an integral part of the government’s internal process for preparing the federal budget. They are used for the purpose of reassessing priorities and reviewing the effectiveness and efficiency of federally financed measures and programmes. This helps to improve the performance of allocated budget resources. 

How are spending reviews carried out?

Spending reviews are carried out jointly by the Federal Ministry of Finance and the relevant line ministries. The organisational structure of a spending review has two levels. First, the process is managed by a steering committee at the level of deputy ministers. Second, the steering committee appoints separate working groups for each spending review topic and assigns them their specific tasks. The working groups – which are comprised of staff from the Finance Ministry and the relevant line ministries – can also draw on the expertise of invited guests, such as representatives from the Federal Court of Auditors and budget authorisation authorities, as well scientists and other experts.

Figure: Spending reviews: organisational structure
Source:  Federal Ministry of Finance

In an open process without a predetermined outcome, the working groups review the effects of a measure, programme or policy field. Their work is divided into three steps:

First, the working group surveys the relevant activities, policy frameworks and government objectives in the specified policy area. In the case of older, long-running programs, it is particularly important to analyse whether objectives are still up-to-date.

Second, the working group uses suitable indicators to measure the achievement of policy objectives. The working group can draw on data from various sources. In some cases, extensive data is available from the line ministries or executing authorities. Data from the Federal Statistical Office or the scientific community may also be used.

Third, the working group assesses trends in the selected indicators over time. Key questions include: Is the policy measure effective? Can cause-and-effect relationships be identified between the financed policy measure and the outputs shown by the data? Are the policy measure’s costs and benefits in proportion? Can the targets be achieved at lower cost?

The working groups submit their reports to the steering committee. The reports may express contradictory opinions and proposals. The steering committee takes note of the reports, forms an opinion and submits proposals to the federal cabinet. On the basis of these proposals, the federal cabinet decides how the findings should be incorporated into the budget preparation process.

What spending reviews have been conducted to date?

The first review cycle took place in 2015/2016. In order to build experience with the new instrument, the spending reviews focused on two smaller, narrowly defined funding programmes: Kombinierter Verkehr (a funding scheme to support the construction of intermodal transport facilities) and MobiPro-EU (a funding scheme to support labour mobility and job training in Germany for young people from other EU member states). The reviews were carried out jointly with the respective line ministries: the Ministry of Transport and Digital Infrastructure and the Ministry of Labour and Social Affairs.

The second review cycle in 2016/2017 focused on funding programmes in the fields of energy and climate policy and housing policy, two areas have both political and fiscal significance in Germany. Six ministries were involved in these reviews: the Economic Affairs Ministry, Environment Ministry, Transport Ministry, Agriculture Ministry, Education Ministry and Finance Ministry.

Two spending reviews will also be conducted during the third review cycle in 2017/2018. The first review will examine the procurement of standardised mass goods (participating ministries: interior, economic affairs, environment, agriculture, labour and social affairs, defence, and finance). The second will look at humanitarian aid and transitional assistance, including crisis prevention, crisis response, stabilisation and development cooperation (participating ministries: Foreign Office, development, finance). Again, these are interdepartmental policy fields that have both fiscal and political significance in Germany, and the involved ministries all support the review.

Lessons learned: What opportunities do spending reviews offer?

Spending reviews provide a protected space where key policy issues can be reviewed in a process that is open and without a predetermined outcome. This can produce particular benefits when it comes to policy areas that affect more than just one ministry. Within this framework, policy areas can be analysed in their entirety, beyond the narrow confines of individual funding schemes or measures, thereby enabling the identification of overlaps and interdependent impacts. Working groups can focus on the actual effects of financial resources. To do so, they make use of existing knowledge, including the findings of evaluations and reports. Spending reviews focus on tangible results and try to avoid overly academic debates. The integration of spending reviews into the budgeting process fosters results-driven outcomes within a prescribed time frame.

Are the results published?

The working group findings are published in the Finance Ministry’s Financial Report, which is published every summer. They are then subsequently published on the Finance Ministry’s website. 

More information (including articles and final reports) on spending reviews in Germany is available here (in German only).

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