The interaction of fiscal rules, productivity and accounting - - PowerPoint PPT Presentation

Building Competence. Crossing Borders.

• Prof. Dr. Andreas Bergmann, Director Public Sector

andreas.bergmann@zhaw.ch

The interaction of fiscal rules, productivity and accounting standards

Blöndal’s speech at the 2016 Colloquium in Denver: For many years just a private sector concept (Source: Blöndal 2016)

• Private Sector: Outputs divided by inputs equals productivity changes
• Goods and services
• Market prices
• Individualized outputs
• Public Sector (Conventional): Outputs equals inputs; no productivity

changes

• Mainly services
• Heavy in intangibles
• Process-based
• Absence of price signals
• Collective outputs
• But public sector is a significant share of GDP

Productivity

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Ideas for discussion (Source: Blöndal 2016)

• Consensus on the benefits of accruals with regard to transparency and

accountability to the legislature and citizens

• But government struggle with making any meaningful use of this

information to improve decision-making and thus public sector productivity

• What are the key obstacles to reaping the benefits of accruals?

Productivity

3

Is public expenditure productive?

• Clasical economic literature focusses on macro-level productivity
• Aschauer (1989): Public sector investment in non-military infrastructure increases

productivity (=key justification of development assistance up to date!)

• Productivity is not limited to individual entities or government, but to an economy

as a whole

• Aschauer’s productivity gains (1989) may well benefit private businesses, e.g. through faster

transportation, less power outages etc.

Productivity

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Functions of Fiscal Policy

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Aggregate fiscal discipline

Efficiency and effectivness

Resource allocation

World Bank, 1998

… at least in developed countries … and nobody seems to notice …

Public Sector Investments on a decline

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Source: http://www.imf.org/external/np/fad/publicinvestment/ retrieved 5.4.2017

Efficiency

Public Sector Investment

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Source: IMF (2015)

OECD: Increasing productivity is imperative given the level of investments

Public Sector Investment

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Source: OECD (2016)

How to do it?

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Source: OECD (2016)

Objective: Increase productivity

Investment approach (NZ) De- centralization approach (OECD,CH) Process approach (IMF, Latam)

Helm’s speech at the 2016 Colloquium in Denver: The investment approach (Source: Helm 2016)

New Zealand’s Treasury: Investment approach

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Knowing what you’re getting for investments (and that you got them).

Helm’s speech at the 2016 Colloquium in Denver: The investment approach (Source: Helm 2016)

New Zealand’s Treasury: Investment approach

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To understand

• Cost to serve
• Impact
• Drivers of future

demand

• Outcomes
• Risks

Investment Panel & 4 year planning Investor Confidence Rating Treasury Living Standards Framework

Investor Confidence Rating

(Source: http://www.treasury.govt.nz/statesector/investmentmanagement/review/icr/icr-ataglance.pdf)

New Zealand’s Treasury: Investment approach

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Treasury Living Standards Framework

(Source: http://www.treasury.govt.nz/publications/research-policy/wp/2015/15-12/)

New Zealand’s Treasury: Investment approach

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PIMA and P-FRAM

• Both assessment tools
• PIMA: Focusses on public (government) investment process
• P-FRAM: Focusses on potential (future) cost and risks,

in particular but not exclusively of PPP

• Both are process oriented, in particular PIMA

IMF: The process approach

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Source: http://www.imf.org/external/np/fad/publicinvestment/ retrieved 5.4.2017

PIMA

IMF: The process approach

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Source: http://www.imf.org/external/np/fad/publicinvestment/ retrieved 5.4.2017

PIMA: Results

… management of PPP, monitoring of assets and fiscal rules seem to be rather weak at global level ….

IMF: The process approach

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Source: http://www.imf.org/external/np/fad/publicinvestment/ retrieved 5.4.2017

IMF: The process approach

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Source: IMF (2015)

PIMA: Results

… fiscal rules do not seem to have a particularly strong implication in the PIMA model. But Monitoring of the Assets (~asset register, accrual accounting) and Management of PPP does!

Institutional Strength is key

IMF: The process approach

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Source: IMF (2015)

Governments tend to be investing a lot into infrastructure

• Ecuador 2008-17: Raffael Correas government invested in 10 years approx. 85bn

USD, roughly equal to the annual GDP or 10% of GDP per annum

• Colombia: 2017 onwards, promised infrastructure investments as part of Peace

treaty with FARC rebels

• … similarly in Peru, Paraguay and other countries
• But how to do it in order to raise productivity?
• Push in use of accrual data, e.g. by President Correa
• Traditionally on accruals, but implementation of IPSAS comes

timely, as their classical accruals omited infrastructure assets

• Investment planning:
• By national planning offices/commissions
• considers outcomes, but is still to a certain degree politically driven

Latin America: Process approach

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Fiscal rules or targets define investment ceilings: Politics allocate to areas, but projects are selected on a decentralized level

• Federal level and (some) states: Classical fiscal rules limit spending,

but allow carry forwards over the business cycle

• Investments are part of the spending and therefore also subject to ceiling
• Local level is using targets: Self-financing of Investments, i.e. through

Cash Flow from Operation, should be about x (x is usually around 60%)

• Both investment ceilings/targets are then allocated politically to (very

high level) functions of government (think COFOG 1st level)

• Projects are selected by line ministries/agencies themselves

Switzerland: Ceiling and decentralized decision making

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Fiscal rules or targets define investment ceilings: Politics allocate to areas, but projects are selected on a decentralized level

• Efficiency and effectiveness is sometimes grossly violated:
• Example: 2017-21 Defence ceiling: Parliament increases ceiling despite the

lack of «feasible projects»

• Strong influence by parliament lobby groups/professions
• Arguably working well at project level
• Accruals are used:
• to determine depreciation and self-financing
• to track and manage investments (e.g. rescued bank assets, Bergmann

2014)

• IPSAS play a role since they take recognition and measurement out of

policitical discussion

Switzerland: Ceiling and decentralized decision making

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Political allocation: Professions of Swiss house of representatives members (n=200)

Switzerland: Ceiling and decentralized decision making

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Source: watson.ch (retrieved 2.4.2017) Lawyers Entrepreneurs Politicians Farmers Natural Scientists Economists Business People

… might lead to a bias even in respect of top level ceilings!

OECD: Many investments are at subnational level

• Objective endorsed by 2016 Council Meeting at Ministerial Level
• Linked to inclusiveness, in particular
• Subnational governments are key!
• But with proper governance in place (not fragmentation!)
• Devolution or delegation approach

OECD: Linking inclusiveness to productivity

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Source: OECD (2016)

Outlook on PFM Developments

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Cash Budget/ Accounts Regulation Data Management Financial Transparency

• Strat. Financial

Mgmt

Budgeting MTFP Transactions Control Authori- zation IT Tools Perfor- mance Contracts Productivity Investment Decisions Accounting Financial Statements Open access 1 2 3 4 5

Source: Syntesis of David LEBRYK (2016), Jon BLONDAL (2016), Paul HELM (2016) and the discussion at the 2016 Treasury Colloquium in Denver CO

Future?

Productivity is definitely on the agenda

• Standard based Accrual accounting helps in terms of asset/capital recognition
• Traditional fiscal rules do not link to productivity
• BUT how to do it is yet to be clarified
• Three approches:
• Investment approach (NZ)
• Process approach (IMF, Latam)
• Delegation approach (OECD, CH)

Conclusion

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Productivity is definitely on the agenda

• Personal experience and view: A mixture of all three!
• Investment approach:

+Criterion based decision making, learning orientation

• at least in some jurisdictions: inherent centralism
• Process approach:

+Getting processes right plus institutional building are both critical for success

• Not decision oriented
• Decentralized approach:

+Using expertise and empowerment

• Little to no control
• Combination of all three is possible!

Conclusion

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Aschauer, D.A. (1989). Is public expenditure productive? In: Journal of Monetary Economics, 23, 1. 177-200. Bergmann, A. (2012). The influence of the nature of government accounting and reporting in decision-making: Evidence from Switzerland. Public Money & Management, Vol. 32, No. 1. 15. Bergmann, A. (2014). The Global Financial Crisis Reveals Consolidation and Guarantees to Be Key Issues for Financial Sustainability. Journal of Public Budgeting, Accounting & Financial Management, 26, 1. 165-180. Blöndal, J. (2016). Accounting Reforms and Public Sector Productivity. Presentation at the 2016 International Colloquium on Financial Management. Cordery, C./Simpkins, K. (2016). Financial reporting standards for the public sector: New Zealand’s 21st century

• experience. Public Money & Management, Vol. 36, No. 3, 209-216.

Helm, P. (2016). Embedding an Investment Approach in New Zealand. Presentation at the 2016 International Colloquium on Financial Management. IMF (2012). Fiscal Transparency, Accountability, and Risk. IMF (2015). Making Public Sector Investment more Efficient. IMF Staff Paper, June 2015. Lebryk, D. (2016). The Evolution of Federal Financial Management in the US Government. Presentation at the 2016 Colloquium on Financial Management. OECD (2016). Improving Productivity and Inclusion at National and Subnational Levels: How can Effective Public Governance Help? GOV(2016)1. Vani, S. (2010). Prioritizing PFM reforms. World Bank blog (26 May).

References

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