1. Public Financial Management
Public Expenditure Management :
Comparatives Analysis
(New Zealand and Australia)
Presented By :
Mohd Amar Bin Aziz (811821)
Raja Abumanshur Matridi (810083)
2. Public Expenditure Management
• Public Expenditure Management (PEM) is one instrument of government
policy. Public expenditure management is a basic means of government policy
distributing and utilizing sources productively, effectively and sensitively
(Allen, Richard & Tommasi, 2001, p.19).
• Public Expenditure Management (PEM) which can be defined as efficient,
effective and sensitive allocation of resources is a basic instrument of
government policy. “Public Expenditure Management Reform” which mostly
involves institutional and administrative regulations and gradually becomes
widespread in many countries has approximated public sector at a large extent
(Cicek, 2008).
• Public Expenditure Management (PEM) is a central instrument of economic
and development policy. The three over-all goals of PEM are fiscal discipline,
strategic resource allocation and good operational management. Effective
PEM is also a key component in good governance, which rests upon what the
Asia Development Bank has termed the 'four pillars' of accountability,
transparency, predictability and participation (Asia Development Bank Institute, 1999).
3. Public Expenditure Management
Aggregate
Fiscal
Discipline
These 3 level
budgetary outcomes
are embedded in Allocation
institutional Efficiency
arrangements
Operational /
Technical
Efficiency
4. Institutional Arrangements
• The institutional arrangements refer to the delegation, distribution, or sharing of
power related to growth management decision-making and implementation
authority. On the Government-Governance scale to the left Government power
represents planning as the exclusive domain of a state or regional public agency;
Governance reflects relative degrees of delegated or shared power with smaller
units of government and/or non profit and private entities (Washington Office of
Community Development, 2000).
• Institutional arrangements are interpreted as different (in)formal regimes and
coalitions for collective action and inter-agent coordination, ranging from public-
private cooperation and contracting schemes, organizational networking to policy
arrangements (Geels, 2004; Klein & Teisman, 2000).
• Institutions are commonly defined as the ‘rules of the game’, including norms,
beliefs, values, habits and behaviour (Menard, 2000).
5. Aggregate Fiscal Discipline
• Allowing budgets to be set consistent with a
realistic macroeconomic framework and a
sustainable fiscal program, and brought in on
target (International Monetary Fund, 2008).
6. Allocation Efficiency
• requiring that resource allocations reflect the
policies and priorities of the government’s
program (International Monetary Fund, 2008).
7. Operating Efficiency
• requiring that resources are utilized efficiently
and effectively towards to the purpose for
which they have been allocated (International
Monetary Fund, 2008).
8. New Zealand’s reforms
Mechanism used (Campos & Pradhan, 1997):
• State Owned Enterprise (SOE) Act (1986)
- Provide competitiveness
• The State Sector Act (1988)
- Abolished the permanent tenure
• Public Finance Act (1989)
- Enhanced transparency
- Improved Accountability
• The Fiscal Responsibility Act (1993)
- Enhanced transparency and Accountability
9. New Zealand’s reforms
State Owned Enterprise (SOE) Act (1986);
The State Sector Act (1988);
The Fiscal Responsibility Act (1993)
Public Finance Act (1989)
Aggregate fiscal discipline Operating/technical efficiency
Strategic Result Areas (SRAs)
Key Results Areas (KRAs)
Allocation Efficiency
10. Australia’s reforms
• Australia has instituted a medium term expenditure framework
that consist of six main interrelated elements (Campos & Pradhan, 1997):
- First, a cornerstone of the Australian reforms has been a system of
Forward Estimates;
- Second, mechanisms for macroeconomic planning reconcile the
forward estimates with the target deficit to identify the scope for
new spending and savings;
11. Australia’s reforms
- Third, decision making mechanisms were instituted at a political level
through the "Trilaterals“ and the Expenditure Review Committee (ERC) of
the cabinet to decide upon competing priorities for spending and savings
to achieve the net fiscal targets.
- Fourth, a system of portfolio budgeting was introduced.
- Fifth, the development of the running costs system further devolved
authority within departments or portfolios.
- Finally, while portfolio budgeting and the running cost system devolved
authority to line agencies, program management and budgeting was
introduced to focus attention on outcomes.
12. Similarities PEM between two regions
• Transparency
• Considerable devolution
• Contestability
• Binding commitment to aggregate fiscal
discipline
13. Comparatives
Outcomes / Countries New Zealand Australia
Aggregate Fiscal Discipline The Fiscal Responsibility 2. Mechanisms for
Act (1993) macroeconomic planning
Allocation Efficiency Strategic Result Areas 1. System of Forward
(SRAs); Estimates;
Key Result Areas (KRAs) 3. "Trilaterals“ and the
Expenditure Review
Committee (ERC)
Operating Efficiency State Owned Enterprise 4. System of Portfolio
(SOE) Act (1986); budgeting;
The State Sector Act 5. The running costs
(1988); system;
Public Finance Act (1989) 6. portfolio budgeting and
the running cost system
devolved authority
State Budget Deficit Deficit
CPI 1 7
14. Strengths & Weaknesses
Attributes / Countries New Zealand Australia
Strength Privatizing large chunks Budget process on
of public sectors; strategic priorities;
Management contract
Weakness Not focus on allocative Looser system of
efficiency accountability
