A better budgeting approach in the public sector

Abstract

As countries develop and incomes begin to rise, public spending tends to shift towards infrastructure maintenance and social programs. The traditional public finance system in Malta does not support these changing needs. The challenge to public financial management in Malta today is not the same as that faced in the previous years. Today the challenge is more in terms of strategic allocation of resources and equity of public spending, and greater efficiency in the use of public resources. The main objectives of this study is to evaluate the shift from a traditional budgetary process into a 'better budgeting' approach that advocates an outcome budgeting process and multi-year budgetary model in order to allocate government's resources more efficiently, effectively and economically. Literature widely suggests that there is no single approach to performance budgeting that can succeed in all countries. The challenge to shift from incremental budgeting towards results based budgeting is proving to be long and difficult. A great deal of the annual budget process remains incremental and inputs still play a key role in most countries. It is difficult to measure the success of government initiatives to introduce a coherent approach to budgeting and performance appraisal to achieve specific budgetary objectives. However the qualitative data available from case study reports indicate that successful implementation of such reforms could lead to benefits including increased transparency, improving allocative efficiency and strengthening fiscal discipline. From results obtained in the local research it emerged that currently there seems to be a lack of understanding of how local Public Service Budgeting operates. The budget process focuses on a short-term perspective and is riveted on inputs. Moreover line ministries do not have sufficient autonomy. Following examples from other economies new budgeting reforms such as the introduction of macroeconomic forecasts of governments' future revenue, expenditure, deficit and surplus and debt, fiscal management, top-down budgeting, performance management systems and integrated financial management information system need to be launched. These could be incorporated in a Medium-Term Expenditure Framework (MTEF) leading to improve allocation of public resources and bolster fiscal discipline.