Tools for spending review in Japan and Key performance indicator utilisation -- Toshiaki Hiromitsu, Japan

Tools for Spending Review in Japan and

Key Performance Indicator (KPI) utilization

Toshiaki Hiromitsu Director of Research Division

Budget Bureau

Ministry of Finance, JAPAN

26th November 2015 11th Annual Meeting of the OECD Senior Budget Officials Performance and Results Network

Outline of Presentation

I. Tools for Spending Review in Japan

a. National Audit

b. Policy Evaluation

c. Budget Execution Survey

d. Administrative Programs Review

(Reference) Relation to Budget Process

II. Key Performance Indicator (KPI) Utilization

III. Comments

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a. National Audit (External Audit) • Board of Audit (established in 1880), an independent body, audits state

accounts

• Examines legal compliance, efficiency, and effectiveness in project implementation

*In FY2014 report on the results of settlement audit, 570 projects amounting to 157 billion yen was pointed out.

b. Policy Evaluation (Self Assessment) • Ministries set organizational policy goals and assess achievements (since 2001-)

• Results are reflected in budget requests by line ministries

c. Budget Execution Surveys (Internal Audit) • MOF (Budget Bureau and regional agencies) conducts surveys on selected on-

going individual programs (since FY2002-)

• Examines necessity, effectiveness, and efficiency

• Results are reflected in budget requests by line ministries *In FY2014, 75 programs examined, of which 6 programs were abolished in whole or part. Reflected in the FY2015 budget (Expenditure cuts in the FY2015 budget: 37.9 billion yen.

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d. Administrative Programs Review (i)

Line ministries make self-evaluation on individual programs (all programs in the central government (over 5,000 programs)).

Experts outside the government evaluate about 1,000 programs in 5,000 programs intensively.

The discussions by experts are open to the public .

1st Phase: Experts outside the government discuss whether the budgets of

some programs were used properly in the previous year. The

results of the discussion are reflected in the budget request for the

next fiscal year. The discussion is open to the public.

2nd Phase: Programs further needed to be reviewed are discussed by experts outside

the government and officials in the government. Then, experts evaluate

whether programs are necessary or not in terms of its clarity and

effectiveness. The discussion is open to the public and the results are

reflected in the budget formulation for the next fiscal year.

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(Autumn Review) Every November

Every June

d. Administrative Programs Review (ii)

The results of administrative Programs Review in FY2014

About 100 billion yen was reduced at the budget formulation

process through the discussion at Autumn Review, compared to the

budget request process.

(Examples)

- Reduction in reward for nursing care FY2015 budget request: 2,756 billion yen ⇒ FY initial budget: 2,631 billion yen (minus 125 billion yen)

- Reduction in subsidies for the regional revitalization FY2015 budget request: 6 billion yen ⇒ FY initial budget: 3.8 billion yen (minus 2.2 billion yen)

- Reduction in the programs for developing human resources in

science area FY2015 budget request: 5 billion yen ⇒ FY initial budget: 0.1 billion yen (minus 4.9 billion yen)

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Budget process

Apr. Fiscal year starts

May

Jun.

Jul.

Aug.

Budget requests submitted to MOF

Sep.

Oct.

Nov.

Dec.Draft budget decided by Cabinet

Jan. Draft budget submitted to the Diet

Feb.

Mar.

Budget approved

Policy EvaluationBudget Execution

Surveys

Review of Administrative

ProgramsNational Audit

Reflect performance information in budget requests

Publication of Review Sheets

Budget formulation(MOF)

Set organizational policy goals

Assess achivement of organizational policy goals in the previous fiscal year

Publication of the results

Publication on expenditure cuts in the draft budget

reflecting the budget execution surveys

Use performance information in budget formulation

Budget Execution Surveys(MOF, Regional agencies)

Work on Review Sheets(line ministries)

For all projects;Interim publication of

review sheets and open

Through a whole year: Implementation of audits

* Settlement report by MOF also submitted

Meeting with MOF

Meeting with MOF

Meeting with MOF

Report on the results of settlement audit

to the Diet and the Cabinet

(Reference) Relation to Budget Process

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Use Performance information in budget formulation

Autumn Review by Administrative Promotion

Council (Open to the public)

• The commitments of the government

1) Primary Balance: to be in surplus by FY2020

2) Public debt (to GDP): to be steadily reduced beyond FY2020 over the medium- to long-term

• Mid-term review

In FY2018, progress will be assessed against the following benchmarks.

– PB deficit: approx. -1% of GDP in FY2018

– Size of expenditure: extending the recent 3-year trajectory of the expenditure* of the

Central Government towards FY2018, that is, the total rise of \1.6 trillion for the 3 years,

taking into account the economic and price development.

* excluding the expenditures for (i) national debt service and (ii) local allocation tax grants, etc.

– The government will consider additional measures in expenditure and revenue, if

needed, to achieve the FY2020 target. 6

The Fiscal Consolidation Plan ---- main points ---- (June 30, 2015)


Primary Balance of central and local governments (in percent of GDP)

▲ 6.6

▲ 5.7

▲ 4.4

▲ 3.0

▲ 2.5 ▲ 2.3

▲ 1.7 ▲ 1.4

▲ 1.0

▲ 2.5 ▲ 2.1 ▲ 2.2 ▲ 2.2

▲ 7

▲ 6

▲ 5

▲ 4

▲ 3

▲ 2

▲ 1

0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

In percent of GDP

FY

Notes: FY2010-2013: from “Annual Report on National Accounts,” FY2013-2020: from “Economic and Fiscal Projections for Medium to Long Term Analysis.” FY2015 primary deficits of central and local governments will be presented in “Annual Report on National Accounts” in December 2016.

■ Target to halve the primary deficit (-3.3%)

⇒Expected to be achieved

Target of Primary Surplus ■

-6.2 trillion yen

-11.9 trillion yen

“Baseline Case” (July 2015)

“Economic Revival Case” (July 2015)

Current plan period

Base year of target to halve the primary

deficit

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1． In order to implement the fiscal consolidation plan steadily, the reform process and KPI need to be embodied. The government is currently discussing about it. 2． Contents, scales, and timing need to be clarified about the major 8o items for the expenditure reform in the fiscal consolidation plan. 3． It is important to make the reform process easy to understand. “Visualization” of the reforms is required so that the public and private companies can implement the reforms properly.

≪Implementation of the fiscal consolidation plan≫

・Approximately 1% of the primary deficit to GDP ratio in FY2018, and

the primary surplus in FY2020 ・Basic principle for major expenditure reforms (80 items) - Social security area : 44 items - Area other than social security : 19 items - Local government administrative and fiscal reform : 17 items

・Clarify contents, scales, and timing of the reforms ・ Establish KPI in terms of macro and micro perspectives

・Clear commitment to the expenditure

control and economic growth ・Visualization of the reform process

・ Establishment of the evaluation and checking systems ・ Evaluate and check the progress every fiscal year ・ Develop the policies based on quantitative estimation and evidence

Fiscal consolidation plan

The reform process, KPI

Materialization of the reform process PDCA in the intensive reform period


【Social Security area】 Outpatient treatment: indicators measuring the difference in outpatient treatment fees among local regions Medicine, pharmaceutical: indicators measuring usage ratio of generic drugs Behavior of patients: number of patients suffering from lifestyle diseases, indicators measuring medical examination frequency

【Social Infrastructure Improvement】 Promotion of PPP/PFI： number of public-private joint committees in the central and local governments

【Education, Science, Technology】 R&D: Research investment from private companies to universities and public research institute

【Local government’s administrative reform】 IT and work restructuring: indicators measuring optimization, reduction in operational costs

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1. Clarify i) timing of reform implementation, ii) quantitative target, iii) organization in charge. 2. Quantitative benchmark which evaluates the effects for curving expenditures and strengthening growth is especially important.

Examples

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III. Comments

Compared with other countries, the scale of social security expenditures is placed at the middle level but the scale of tax revenue is placed at the lowest level.

In addition, the scale of expenditures not relating to social security is placed at the lowest level.

International Comparison of Fiscal Scales

32.8 31.2 30.3 28.0 26.8 26.8 26.7 26.6 25.6 25.4 25.3 24.8 24.0 24.0 23.8 23.0 23.0 23.0 22.1 20.4 20.3 18.5 17.7 17.7 17.2 16.4 16.0 14.5 7.9

0 20 40

1Denmark2France3Finland4Austria5Greece6Italy7Belgium8Sweden9Germany10Slovenia11Japan12Norway13United Kingdom14Portugal15Netherlands16Ireland17Luxembourg18Spain19Hungary20Czech Republic21Poland22Iceland23Estonia24Slovak Republic25United States26Turkey27Israel28Switzerland29Korea

23.0 22.0 21.9 21.7 21.7 21.7 21.6 21.2 20.9 20.5 19.9 19.7 19.3 19.3 19.2 19.1 18.5 18.5 18.4 18.4 18.3 18.1 18.1 18.0 17.6 16.6 16.5 15.5 14.8

0 20 40

1Hungary2Iceland3Belgium4Israel5Sweden6Slovenia7Denmark8Finland9Netherlands10France11Poland12Portugal13Estonia14Czech Republic15United States16Spain17Slovak Republic18Luxembourg19Austria20United Kingdom21Ireland22Greece23Norway24Korea25Turkey26Italy27Switzerland28Germany29Japan

General Government Expenditures

not Relating to Social Security

(as a percentage of GDP)

General Government Tax Revenue

(as a percentage of GDP)

General Government Social Security

Expenditures (as a percentage of GDP)

CY2011

Small and effective government?

Social security reform?

Revenue reform?

46.7 34.3 33.0 31.9 31.8 31.1 29.9 29.5 28.7 27.8 27.4 27.0 26.6 26.5 26.0 24.3 23.7 23.7 22.7 22.7 22.1 21.6 21.6 20.9 20.4 20.1 20.1 19.9 19.8 19.5 18.5 16.9 16.8 16.5

0 20 40 60

1Denmark2Sweden3Norway4Iceland5New Zealand6Finland7Belgium8Italy9United Kingdom10Austria11France12Israel13Luxembourg14Australia15Canada16Hungary17Netherlands18Portugal19Ireland20Germany21Slovenia22Switzerland23Greece24Poland25Estonia26Spain27Turkey28Chile29Korea30Czech Republic31United States32Mexico33Japan34Slovak Republic

Tools for spending review in Japan and Key performance indicator utilisation -- Toshiaki Hiromitsu, Japan

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