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AIMS OF THE WORKSHOP ANDAN INTRODUCTION TO THE

AUSTRALIAN MTEF AND PBB

REFORMS

Presented by Pat McMahon

Budget Advisor,

Australian Department of Finance and Deregulation

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Aims of the workshop sessions are to:

Gain a better understanding of the power of MTEF

and PBB and a clear understanding of the differencesto the traditional approach;

Examine some practical examples of how MTEF and

PBB could be applied in some pilot agencies; and

Start addressing the practicalities involved in movingto a mature MTEF and PBB beyond the pilot.

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MTEF/PBB are tools for PublicExpenditure Management

Public Expenditure Management is concerned with:

planning, management, control and accountability of publicfinancial resources

from the point at which those resources enter the public domain to

the point at which they leave

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Graphic of the milestones in Australian financial management

reform

1985

Program budgets Accrual-based outcome budgets

New Financial Management & Audit Acts

Budget Estimatesand Framework

Review

Charter of Budget Honesty Act

Accrual accounting, whole-of-government financial reports

2005200019951990

Operating Cost Flexibility

Medium Term Financial Estimates

Program Evaluation Plans

NationalCommission

of Audit

Financial Management Improvement Program

StrategicReviewInitiative

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Which should come first, PBB orMTEF?

Australia did both together:

MTEF allows better planning and allocation. Once an MTEF was in place the requirements for

performance & accountability by CEOs began.

The basic features of MTEF have stayed the same since

the 1980s.The performance & accountabilityrequirements have increased throughout the period

since.

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What worked well in Australia & why?

What has gone well?

MTEF involving firm forward estimates & PBB involving defining

Running costs and devolution of responsibility Followed by accrual reporting & then accrual budgeting

Why has it gone well?

The adoption of firm forward estimates linked to the budget was a

source of greater predictability to Governments & line managers

it gave the capacity to better plan & manage

Predictability created the climate and expectation for performance

Finance provided leadership: It drove reform from mid 1980s.

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The focus of the rest of this workshop

PBB

1. The Australian performance framework and its phases;

2. Setting up a performance system in Indonesia

MTEF

3. The features of the Australian MTEF and practical examples on howIndonesia can progress towards adopting an MTEF.

PLANNING MTEF & PBB REFORMS FOR NEXT FIVE YEARS

4. Plan the necessary steps to achieve improved management, controland accountability through an MTEF and PBB over the mediumterm (e.g. next 5 years)