Accrual Financial Reporting and Australian Fiscal Policy (Discussion Paper 84, November 2000)

Australian governments have recently moved from cash accounting to accrual accounting. In doing so they have made simultaneous use of two rival accrual accounting frameworks: AAS 31 and GFS. AAS 31 and GFS operating result measures differ significantly. To date, the AAS 31 framework has enjoyed primacy. This paper evaluates these two frameworks, and suggests that GFS is superior. Accrual accounting has been accompanied at the national government level by the introduction of a new key fiscal policy measure: the ‘fiscal balance’. This paper explains and evaluates this new fiscal measure. It concludes that, given the present fiscal policy of the Australian government, fiscal balance is a superior fiscal policy measure to the 'cash' budget balance measure which it replaced. However, from the alternative ‘golden rule’ policy standpoint, fiscal balance is not a 1meaningful fiscal policy measurealthough its stock counterpart, net financial liabilities, is

Best Practice in Performance Budgeting

This paper seeks to identify the best practice principles for performance budgeting. It describes and analyses the principle mechanisms by which performance budgeting systems attempt to link results and resources. These mechanisms are evaluated, drawing amongst other things upon analysis of the underlying relationship between results and resources. The potential scope for the integration of performance management and budgeting is considered.

THE OUTPUT CONCEPT AND PUBLIC SECTOR SERVICES

Units of output are sometimes defined in terms of the achievement of some pre-defined outcome (for example, a specified level of educational achievement), or alternatively in terms of some quality standard interpreted as a ‘conformance to specifications’ activity test. For most public-sector outputs, these definitions of a unit of output are flawed and may have undesirable behavioral consequences. Output measures cannot, in general, do double duty as outcome measures. Outcomes need to be measured separately. Moreover, the activity content of many types of outputs may legitimately vary both over time (as a result of qualitative rationing arising from the budget constraint), and also between clients (as a result of tailoring to varying client needs). Only for a sub-set of services is it appropriate to define a unit of output as complete only when either a specified proximate outcome has been achieved, or alternatively when a pre-defined minimum set of activities has been carried out.

Output-Driven Funding and Budgeting Systems in the Public Sector

Output-driven funding systems are systems in which payments made to service-delivery agencies by government are an explicit function of quantities of outputs delivered by those agencies. This paper considers the feasibility of such systems for the funding tax-financed public services. It focuses upon the implications of key characteristics of public sector outputs, and specifically upon the prevalence of heterogeneous outputs, the predominance of services (as opposed to physical goods), and the presence of many ‘contingent capacity services’.

Accrual Financial Reporting In the Australian Public Sector: An Economic Perspective

Australian governments have recently moved from cash accounting to accrual accounting. This paper discusses a number of issues pertaining to key accrual fiscal measures. Governments have adopted Australian Accounting Standard 31 as their principle accounting framework, relegating the Australian Bureau of Statistics’ alternative GFS accrual framework to a secondary role. AAS and GFS differ in key respects in the derivation of the operating result. This paper suggests that the ABS framework is superior, and should have been adopted by government. Rather than welcoming the shift to accrual accounting as a good opportunity to shift the focus of medium-term fiscal policy away a narrow preoccupation with ‘cash’ balanced budgets and debt, governments have chosen to maintain policy continuity. This has led them to define new ‘headline’ fiscal measures which are either identical, or quite close, to the cash budget balance. This Commonwealth’s new ‘fiscal balance’ headline measure is discussed.

Measuring compliance with the Golden Rule

The golden rule of public finance is based upon the notion that intergenerational equity requires that the cost of public expenditures be spread over time in a manner that reflects the intertemporal distribution of the benefits generated by those expenditures. This is often translated into a rule that the budget be structurally balanced in accrual accounting terms. This article considers the form of accrual accounting that is most suited to the task of measuring the consistency of fiscal policy with the golden rule. It recommends a combination of the real capital maintenance approach (also known as ‘current purchasing power accounting’) and annuity depreciation. Such an approach differs from ‘current cost accounting’, which has dominated public sector models of accrual accounting in recent years. The meaning of balance-sheet measures is also considered, and it is concluded that the golden rule is more appropriately expressed as an accrual balanced budget requirement than as a requirement for the maintenance of constant net worth.

Accrual Output Budgeting in Australia

This paper examines the system of ‘accrual output budgeting’ which was introduced by most Australian governments at the end of the 1990s. It explains the key features of the system, and its roots in ‘market’ models. Key difficulties with the model are identified: including the unsuitability of many publicly-funded outputs to funding on a rice-per-unit-of-output basis and the information problems which arise in determining the ‘efficient’ price of outputs.budgeting, market, price, output heterogeneity

The Australian Budgeting System: On the Cusp of Change

Australia in the late 1990 adopted a purchaser-provider model of performance budgeting – so-called “accrual output budgeting” – which attracted considerable international interest. By 2003, however, the system was in headlong retreat. This paper examines the key difficulties experienced by this system, and links these to the system changes now being made. It speculates on the possible future of performance budgeting in Australia. It draws on extensive interviews and examination of budgetary process documentation in a number of Australian jurisdictions.

Tightening the Results/Funding Link in Performance Budgeting Systems

Influential contemporary performance budgeting models have sought to tighten the link between results and budgets. This paper considers three approaches – budget-linked performance targets, budgeting based upon output or outcome costs, and budgetary performance incentives – and assesses their potential to enhance the results/funding link. It is possible to develop real links between performance targets and budgets, although generally not of a formularized nature. Criticisms of performance targets, based particularly on the imperfections nature of performance indicators, tend to be somewhat exaggerated. Considerably more use can be made of output cost information in budgeting – although there are important imitations arising from the nature of some outputs, and from the prevalence of qualitative rationing. Initiatives designed to ensure that agency performance is systematically considered when deciding agency budget allocations are highly desirable. The idea of additional funding as a reward for good performance needs, however, to be approached cautiously and selectively.