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Presented by Pat McMahon Budget Advisor, Australian Department of Finance and Deregulation

Aims of the next two sessions are to:
1. Gain a better understanding what an MTEF is and the differences to the traditional approach; 2. Draw out the key institutions and systems necessary to support an MTEF; and 3. Examine practical examples of how an MTEF could be applied in some pilot agencies.

Three Features of an MTEF
1. Budgeting for more than one year - The forward years’ estimates represent a continuation of government policies; 2. The only adjustments allowed being i) price or cost changes beyond the control of managers, ii) government decisions, and iii) demand variations in demand driven programs; and 3. MTEF does not mean that appropriations are for multiple years. In Australia appropriations are for one year only.

Benefits of a “True” MTEF (A multiyear Budget)
MTEF not linked to Budget x x x x x MTEF linked to Budget     

More useful to Cabinet for strategic allocation decisions More accuracy in the estimates and more reliable fiscal settings More certainty for line ministries to plan Less work in building budgets (no more zero budgeting) A "True" MTEF

Feature 1. Budgeting for more than one year 2008-09 Budget

Feature 2. Forward Estimates are linked to the Budget (no zero based budgeting each year)
Reconciliation of 2007 -08 Budget, 2007 -08 MYEFO, 2007 PEFO and 2008-09 Budget underlying cash balance estimates

a. b.

Excludes the public debt net interest effect of policy measures. Excludes expected Future Fund earnings.

Some examples of “other” variations (from Budget Paper No.1 2008-09)
• “a $318 million reduction in estimated expenses for Parenting Payment reflecting an increase in the number of people no longer eligible for the payment due to higher reported incomes” • “a $178 million reduction in estimated expenses for Pharmaceuticals and Pharmaceutical Services driven by a lower than expected growth in usage of a range of drugs on the Pharmaceutical Benefits Scheme” • “a $128 million reduction in estimated expenses for Family Tax Benefit driven by a decrease in customer numbers due to higher reported incomes”

Feature 3. Multi-year budgeting but annual appropriations!

Feature 3. Multi-year Budget and Annual Appropriations under an MTEF
Continuing Policy New Policy Process
MTEF – Current (already implemented) 20yrs Long Term Development Plan
Government’s Agenda/Plan yet to be Medium Term Development Plan - to implemented be implemented



4 5 yrs

Medium Term Development Government’s Agenda Plan/Strategic Plan /Strategic Plan
Government New Policy/Ministry New Policy

Review of Continuing Policy using PBB
Activity Program Output Outcome Changes to Continuing Policy from PBB

MTEF –Revised YEAR’s APPROPRIATION –5 Years ONE New State Budget Plan
Continuing Policy In Budget year over 5 years New Policy over 5 New Policy in Budget year years Total over 5 years Total Appropriation

Five institutional “Building Blocks” underlying the Australian MTEF
A. Cabinet process that records decisions on a multi-year basis; B. Parameters – Economic (e.g. prices) and program specific adjustments for factors beyond the control of governments; C. Defining programs and operating cost frameworks (“running costs” vs “non running costs”) (relates strongly to the usefulness of PBB and aligns MTEF and PBB); D. Costing system requiring Department of Finance agreement; and E. Authoritative Financial Management Information System.

Building Block A. Example of a Budget Decision by Government
Humanitarian migration program — additional 500 places for Iraqis in 2008-09

Expense ($m)
Department of Education, Employment and Workplace Relations Department of Immigration and Citizenship Department of Families, Housing, Community Services and Indigenous Affairs Department of the Treasury Department of Health and Ageing Medicare Australia Total Related revenue ($m) Australian Taxation Office Australian Customs Service Total







3.9 3.8

4.3 2.8

4.2 0.6

4.3 0.1


1.4 0.8 0.4 .. 10.3

2.2 0.8 0.9 .. 11.0

2.2 0.8 0.9 .. 8.8

2.3 0.9 0.9 .. 8.5


1.0 .. 1.0

1.1 .. 1.1

1.2 .. 1.2

1.3 .. 1.3

Building Block B. Parameters for economic and program specific variables
• Parameters are the economic or program specific variables over which managers & governments have no control which influence the price or cost of an output. • Arrangements are required to generate and apply the parameter forecasts to forward estimates – It is very important that such adjustments occur in the Forward Estimates otherwise the funding provided will not be sufficient to allow the delivery of programs as intended by the Government

Examples of some economic parameters from 2008-09 Budget Papers

Examples that highlight some program specific parameters (from 2008-09 Budget Papers)
• “a $207 million increase in estimated expenses for Medicare Services reflecting increases in demand for a range of medical services including services provided by general practitioners, pathology services and diagnostic imaging services” and “ a $240 million increase in estimated expenses for interest rate subsidies available under Exceptional Circumstances assistance, primarily due to a higher than expected take-up by eligible farmers.”

Generating the forecasts of economic parameters & program specific variables
Economic parameters • Economic parameters are based on the forecasts of the Joint Economic Forecasting Group. • The economic parameters are updated at regular intervals, usually three or four times a year. Program specific parameters • Models agreed between the Department of Finance and the line ministries are usually used to generate the forward estimates of complex and large programs.

Building Block C. Aligning MTEF & PBB and setting a framework for “operating cost flexibility”


Processes / activities

Outputs/ programs


Departmental (running) costs
Subsidy Payment to oil refiners. Affordable Fuel for Indonesia citizens n

Salaries Program Management Good and Services Program Management s Property Expenses Program Management Office Expenditure Program Management Administered costs (nonrunning costs) Subsidy Payment by set Subsidy Government

Subsidy Payment to oil refiners

Affordable Fuel for Indonesian citizens

Building Block D. Accurate & independent costings
• The Government requires that agencies must agree their costings with the Department of Finance. Note: – Department of Finance agreeing to the costs does not mean it supports the policy merits of the new policy proposal. – By fully analysing the costings, the Department of Finance often improves its understanding of the policy and its merit.

Building Block E. A central budgeting system to control variations to the forward estimates
• The authoritative record of estimates is the central budgeting system managed by the Department of Finance. • Changes cannot be made without authority i.e.
– – – – Government decisions; Economic parameters; Program specific parameters; and Other (rarely used, but could include changes due to accounting standards etc)

Summary of what is an MTEF and how it differs to the traditional models
• Estimates of revenues and expenditures of policies agreed by the Government for future years • linked to the Budget (i.e. no more zero based budgeting). Variations can only be for a few reasons, i.e. generally:
– Government decisions – Parameter adjustments

• MTEF can be readily linked to a multi-year national plan

Graphical Representation of a Budget process under an MTEF in Indonesia
Continuing Policy
MTEF– Current (already implemented) 20 yrs Long Term Development P lan

New Policy Process
Long Term Development Planto be – implemented Medium Term Development Plan - to be implemented


National Vision

5 yrs

Medium Term Development P lan/Strategic P lan
Government New P olicy/Ministry New P olicy

Review of Continuing Policy using PBB
Activity P rogram Output Outcome Changes to Continuing P olicy from P BB


MTEF– Revised
Continuing P olicy over 5 years

New State Budget Plan 5 Years –
New P olicy over 5 years Total over 5 years

Hypothetical example of “continuing” and “new policy” – Family Planning Five year National Plan
• The National Plan states an aspirational target for Family Planning Services to cover 25 million families. Existing 4 year Budget Plan • Previous decisions allocated funds to cover only 10 million families. Fiscal space allows for new spending on priorities not yet implemented • Government calls for new policy submissions within limits available. New Policy in the Budget • Government allocates funds for an additional 5 million families. The new forward estimates provide funding for 15 million families. Appropriation for Family Planning assistance to 15 million families.

    Planning Target MTEF - Existing Policy New Policy (Addition) 2009 25,000,000 10,000,000 0 2010

NUMBER OF FAMILIES 2011 25,000,000 10,000,000 5,000,000 2012 25,000,000 10,000,000 5,000,000 2013 25,000,000 10,000,000 5,000,000 25,000,000 10,000,000 5,000,000

N ber of F m um a ilies 20,000,000 15,000,000 10,000,000 5,000,000 0 2009 2010 2011 2012 Revised MTEF 2013 MTEF - Ex istingPolicy

Any Questions? Discussion!