What are spending reviews?

Spending reviews are:

  • a new and promising approach to further enhancing the effectiveness and targeting of government measures
  • an instrument for the continuous review of government functions, with a focus on the effective and efficient use of resources
  • evidence-based and not tied to particular outcomes. This approach guarantees that new knowledge will be generated and provides a basis for sound budget decisions.

Figure: What spending reviews are about: basic questions enlarge image
Source:  Federal Ministry of Finance

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Why did the federal government introduce spending reviews?

Traditionally, Germany’s budget system has focused mainly on input – in other words, the allocated money. This means that, for each budget item, the budget shows how much money can be spent on a task or programme. However, parliament and the general public are also interested in what impact the allocated money has and what is achieved with it. The OECD conducted a thorough review of the German federal budget system in 2014. 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, it also criticised the relatively low level of outcome orientation compared with other countries (see the 2014 OECD Budget Review of Germany).

Drawing on the experience of other countries, a small working group at the German Finance Ministry (BMF) developed a model for annual spending reviews at the federal level. The model was implemented beginning in 2015.

Since then, spending reviews have been an integral part of the government’s internal procedure for preparing the federal budget. They are used to reassess priorities and to review the effectiveness and efficiency of the measures and programmes that are financed with taxpayers’ money. This helps to improve the effectiveness of the allocated budget funds.

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How are spending reviews carried out?

Spending reviews are carried out jointly by the Finance Ministry and the ministries that are responsible for the issue in question. The reviews have a two-level organisational structure. The process is managed by a steering committee at the state secretary level. The steering committee appoints a separate working group for each spending review topic and defines their tasks. The working groups are comprised of staff from the Finance Ministry and the competent line ministries. They may also draw on the expertise of invited guests, such as representatives from Germany’s supreme audit institution or authorising agencies. Academics or other experts may also be invited to participate on a case-by-case basis.

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

The working groups review the impact of a measure, programme or policy area in an open process without a predetermined outcome. Their work is divided into three steps:

First, the working group surveys the relevant activities and policy frameworks as well as the government’s objectives in the policy area being examined. Particularly in the case of older, long-running programmes, it is important to analyse whether the objectives are still up-to-date.

Second, the working group uses suitable indicators to measure whether the objectives have been achieved. The working group can draw on data from various sources. In some cases, extensive data is available from the relevant ministries or implementing agencies. Data from the Federal Statistical Office or the academic community may also be used.

Third, the working group examines and assesses trends in the selected indicators over time. Key questions include: Are the measures effective? Can cause-and-effect relationships be identified between the measure and the outcomes? Is the cost of the measure proportionate to its benefits? Can the objectives also be achieved using fewer resources?

The working groups submit their reports to the steering committee. Dissenting opinions and proposals may also be included in the reports. The steering committee takes note of the working groups’ reports, forms its own opinion and submits proposals for decisions to the federal cabinet. On the basis of these proposals, the federal cabinet decides, as part of the budget preparation procedure, how the findings should be implemented in future.

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What spending reviews have been conducted to date?

The first review cycle took place in 2015/2016. The spending reviews focused on two smaller, narrowly defined funding programmes in the fields of intermodal transport and labour mobility among young people, in order to gain experience with the new instrument in cooperation with the relevant ministries (the Federal Ministry of Transport and Digital Infrastructure and the Federal Ministry of Labour and Social Affairs).

The second review cycle in 2016/2017 focused on funding programmes in the areas of energy and climate policy and housing policy. These cross-departmental areas have both political and fiscal significance in Germany. In total, six ministries were involved in these reviews including the Federal Ministry for Economic Affairs and Energy, the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety, the Federal Ministry of Education and Research, the Federal Ministry of Food and Agriculture and the Federal Ministry of Transport and Digital Infrastructure.

During the third review cycle in 2017/2018, another two spending reviews were conducted. One review examined the public procurement of standardised mass goods (with the involvement of the Federal Ministry for Economic Affairs and Energy, the Federal Ministry of Defence, the Federal Ministry of the Interior, Building and Community, the Federal Ministry of Food and Agriculture and the Federal Ministry of Labour and Social Affairs). For the first time, the focus was on a cross-cutting issue. The aim was to increase the efficiency of administrative action. During the review, recommendations were developed for all ministries.

The other review analysed the policy area of humanitarian aid and transitional assistance, including crisis prevention, crisis response, stabilisation and development cooperation (with the involvement of the Federal Foreign Office and the Federal Ministry for Economic Cooperation and Development).

In the fourth review cycle in 2018/2019, a spending review was conducted on another internal issue for the public administration, namely the management of accounts receivable. The Federal Ministry of Defence, the Federal Ministry of Justice and Consumer Protection and the Federal Ministry of Health were involved in this review.

The fifth review cycle in 2019/2020 analysed selected funding programmes in the areas of further education, labour market re-entry and business start-ups (with the involvement of the Federal Ministry for Economic Affairs and Energy, the Federal Ministry of Labour and Social Affairs, the Federal Ministry for Family Affairs, Senior Citizens, Women and Youth and the Federal Ministry of Education and Research).

All the spending reviews conducted to date have been successfully completed.

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Lessons learned: what opportunities do spending reviews offer?

Spending review working groups provide a safe space where participants can freely discuss and reflect on issues without any restrictions. This produces real added value, especially with regard to interministerial issues. Within this framework, policy areas can be analysed from a holistic perspective, beyond the narrow confines of individual funding schemes or measures, enabling the identification of overlaps and interactions. The working groups can focus, from a technical perspective and without restrictions, on the actual effects of the financial resources used. To do so, they make use of existing knowledge, including findings from evaluations and reports, for example. It is important that spending reviews focus on tangible results and avoid becoming overly academic in their analysis. The integration of spending reviews into the budget preparation procedure ensures results-driven work within a predetermined time frame.

Since it was introduced in 2015, the instrument of the spending review has proved its worth and has become well established as part of the government’s internal budget preparation procedure. Spending reviews play an important role in making the federal budget more outcome-oriented.

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Are the results published?

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

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