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10 April 2024

Spending reviews in the federal budget

The German government conducts spending reviews to help ensure that taxpayers’ money is used effectively and efficiently to achieve the intended results of the measures and programmes contained in the federal budget.

Performance budgeting: target- and outcome-driven budget management

One of the stated objectives of the government’s coalition agreement is to make Germany’s budget management more focused on targets and outcomes – in other words, to strengthen performance budgeting. The government uses existing performance budgeting instruments to achieve this, including effectiveness requirements (section 7 of the Federal Budget Code (Bundeshaushaltsordnung)), subsidy policy guidelines and spending reviews. In the current legislative term, the aim is for the policy objectives of all funding and expenditure programmes to be translated into clearly defined, measurable and impact-based indicators and provided with fixed evaluation deadlines. This should already be done at the political decision-making stage. There are to be regular and comprehensive effectiveness evaluations in the form of standardised controlling in order to assess the effectiveness and efficiency of measures, with the aim of creating additional fiscal space.

Spending reviews are an important part of these effectiveness evaluations.

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Evaluating effectiveness with the help of spending reviews

Spending reviews are subject-specific budget analyses that complement the government’s internal top-down budget preparation process. The aim is to improve performance budgeting – that is, to place a greater focus on the performance of the federal budget.

Spending reviews examine existing measures, funding programmes, statutory benefits or horizontal tasks of the public administration, focusing in particular on the following questions:

  • What are the aims of the revenues or expenditures?
  • To what extent are these aims being achieved (effectiveness)?
  • Are they being achieved in a cost-effective manner (efficiency)?

Spending reviews are a way of making evidence-based improvements and creating fiscal space for new measures. To ensure that the approach is evidence-based, the spending reviews draw on available data and facts.

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The spending review process

A review cycle lasts several months and can take up to one year.  At the start of each cycle, the federal cabinet decides on the subject of the spending review and which ministries will be involved. Then, a steering committee is formed at the state secretary level to manage the process. The members of the steering committee are appointed by the ministries involved.

The steering committee then appoints a working group and defines its mandate, procedural principles and time frame. The steering committee usually meets three times over the course of the review cycle.

The working group is comprised of officials from the German Finance Ministry and from the federal ministries responsible for the relevant policy area. It is chaired by the head of directorate at the Finance Ministry who is responsible for spending reviews, with the support of the Finance Ministry’s coordinating office for spending reviews. The working group may also draw on the expertise of invited guests, such as representatives from the Bundesrechnungshof (Germany’s supreme audit institution), researchers or other experts.

Approximately eight to ten working group meetings are held over the course of the review cycle. The working group examines the impact of a measure, programme or policy area in an open process without a predetermined outcome. Its work is divided into three steps:

First, it surveys the relevant activities and policy frameworks as well as the federal government’s objectives. Second, it uses suitable indicators to measure whether the objectives are being achieved. Third, it assesses trends in the selected indicators over time.

After about four or five meetings (roughly halfway through the review cycle), the working group submits an interim report to the steering committee. The steering committee discusses the report and defines the working group’s mandate in more detail if necessary.

After another four or five meetings, the working group presents its final report to the steering committee. Dissenting opinions and alternative proposals may also be included in the report. The steering committee then discusses and decides on the findings and recommendations by mutual agreement.

Finally, the federal cabinet adopts the final report and the recommendations, thus completing the spending review. The results are implemented by the federal ministries responsible for the relevant policy areas.

Figure: The spending review process BildVergroessern
Source:  Federal Ministry of Finance

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What is the subject of the current spending review?

On 10 April 2024, the federal cabinet decided to conduct the 12th spending review on how to implement the recommendations on improving performance budgeting – in other words, how to make Germany’s federal budget more target- and results-driven. The cabinet instructed the Finance Ministry to carry out this spending review together with other federal ministries. The spending review should incorporate the proposals developed during the 11th spending review on improving performance budgeting in the federal budget and, where already possible, implement them in specific products or pilot them in suitable projects. For longer-term implementation tasks, detailed strategies and requirements should already be developed and responsible units should initiate their implementation.

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What spending reviews have been conducted to date?

During the 2022–2024 review cycle, the Federal Ministry of Finance (BMF), the Federal Ministry for Economic Affairs and Climate Action (BMWK) and the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV) drew up recommendations for the further development of performance budgeting and pushed forward the content-related and technical implementation of the results of the 10th spending review on “embedding sustainable development goals in the federal budget.” The final report, which included recommendations for action, was adopted by the federal cabinet on 10 April 2024.

Working group final report: “Improving performance budgeting in the federal budget, with a particular focus on sustainability” (in German only)

The 2021–2022 spending review, which was conducted by the Federal Ministry of Finance (BMF), the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV) and the Federal Ministry for Economic Cooperation and Development (BMZ), focused on ways to embed sustainable development goals in the federal budget. The final report, which included recommendations for action, was adopted by the federal cabinet on 14 December 2022.

Working group final report: “Embedding sustainable development goals in the federal budget” (in German only)

The spending review conducted in 2020–2021 analysed how personnel budgets can be used to give federal ministries more flexibility without impinging on the Bundestag’s budgetary powers. The ministries involved were the Federal Ministry of Finance (BMF), the Federal Ministry of the Interior and Community (BMI) and the Federal Ministry of Defence (BMVg).

Working group final report: “Personnel budget” (in German only) [pdf, 803KB]

In the 2019–2020 cycle, selected funding measures in the area of further education, labour market re-entry and business start-ups were analysed by the Federal Ministry of Finance (BMF), the Federal Ministry for Economic Affairs and Climate Action (BMWK), the Federal Ministry of Labour and Social Affairs (BMAS), the Federal Ministry for Family Affairs, Senior Citizens, Women and Youth (BMFSFJ) and the Federal Ministry of Education and Research (BMBF).

Working group final report: “Further education, labour market re-entry and business start-ups” (in German only) [pdf, 361KB]

The review cycle in 2018–2019 focused on an internal issue for the public administration: the management of accounts receivable. This spending review was conducted by the Federal Ministry of Finance (BMF), the Federal Ministry of Justice (BMJ), the Federal Ministry of Defence (BMVg) and the Federal Ministry of Health (BMG).

Working group final report: “Management of accounts receivable” (in German only) [pdf, 331KB]

Two spending reviews were conducted in the 2017–2018 cycle. One focused on the public procurement of standardised mass goods and was conducted by the Federal Ministry of Finance (BMF), the Federal Ministry for Economic Affairs and Climate Action (BMWK), the Federal Ministry of Defence (BMVg), the Federal Ministry of the Interior and Community (BMI), the Federal Ministry of Food and Agriculture (BMEL) and the Federal Ministry of Labour and Social Affairs (BMAS). This was the first time that a spending review examined a cross-departmental issue with the aim of increasing the efficiency of the public administration. The review produced recommendations 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. This review involved the Federal Ministry of Finance (BMF), the Federal Foreign Office (AA) and the Federal Ministry for Economic Cooperation and Development (BMZ).

The second cycle after the introduction of spending reviews focused on funding programmes in the areas of (a) energy and climate policy and (b) housing policy. These cross-departmental areas have major political and fiscal significance in Germany. Six ministries were involved overall: the Federal Ministry of Finance (BMF), the Federal Ministry for Economic Affairs and Climate Action (BMWK), the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV), the Federal Ministry of Education and Research (BMBF), the Federal Ministry of Food and Agriculture (BMEL) and the Federal Ministry for Digital and Transport (BMDV).

In order to gain experience with the new instrument, the spending reviews in the 2015–2016 cycle focused on two smaller, narrowly defined funding programmes. The spending review on intermodal transport was conducted by the Federal Ministry of Finance (BMF) and the Federal Ministry for Digital and Transport (BMDV), while the spending review on labour mobility among young people was carried out by the Federal Ministry of Finance (BMF) and the Federal Ministry of Labour and Social Affairs (BMAS).

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Why did the German government introduce spending reviews?

Traditionally, the German government’s budget system has focused mainly on financial input. The success of policies has often been measured by the amounts allocated in the budget and the money actually spent. However, this approach tends to leave it unclear whether the desired outcomes have actually been accomplished. It is becoming increasingly important for the parliament and the general public to know how the government’s objectives are being achieved with the public money that is spent. There needs to be a greater focus on this, not least to ensure that scarce resources are used efficiently.

In 2014, the OECD conducted an in-depth review of Germany’s 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, it also criticised the relatively low level of performance budgeting compared with other countries ( see the article on the OECD Budget Review in the December 2014 issue of the monthly report (in German only) [pdf, 919KB] ).

To improve performance budgeting, a small working group at the German Finance Ministry developed a model for annual spending reviews at the federal level, drawing on the experience of other countries. 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.

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Publications about spending reviews