Review of International Practices for Determining Medium-Term Resource Needs of Spending Agencies

This paper reviews international
practices for ‘bottom-up costing’ for medium-term
expenditure frameworks. Medium-term expenditure frameworks
are important because they incorporate the multi-annual
nature of the fiscal policy into the budget process,
mitigating its short-term bias. They also allow for the
incorporation of the effects of policy decisions and provide
for a comprehensive fiscal sustainability picture. However,
there are significant gaps in current understanding of how
costing and cost information is implemented within
medium-term expenditure frameworks. The objective of this
paper is to assemble information on practices used in
Australia, Austria, Canada, and the Netherlands to determine
program costs as part of medium-term expenditure planning,
and to provide preliminary observations on the strengths and
weaknesses of current arrangements. The overall findings are
that current costing practices fall short of the declared
objectives of medium-term expenditure frameworks. The report
makes some specific observations on the status of costing
practices within the surveyed jurisdictions, namely that:
(i) although there is no typical medium-term expenditure
frameworks, some features tend to be more compatible with a
greater role for bottom-up costing; (ii) where costing
practices are specified, they are generally expected to be
used across the entire budget, but in practice the focus is
on new or expanded programs; (iii) the capacity to
distinguish existing and new programs is important in
utilizing cost information; (iv) the distinction between
conventional program costing and forecasting helps to
explain differences in costing approaches; and (v) where
they are specified, costing methodologies are recommended
but not mandated.