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Pitfalls and benefits of using multi-year budgeting

16 July 2018

News and media


Man and woman working out budgets with spreadsheet and calculator

Many countries use multi-year budgeting to improve fiscal accountability and program delivery, but securing these benefits requires a high level of sophistication and transparency around costs.

ANZSOG’s Associate Professor Michael Di Francesco is an expert on public financial management and has explored the issue in the most recent edition of the European Public Mosaic Open Journal on Public Service (EPuM).

Professor Di Francesco’s article Key practices in multi-year budgeting: the medium-term budget framework deals with the key concepts underpinning medium-term budget framework (MTBF) design and implementation, and the critical role of program specification and costing in the multi-year forecasting process.

MTBFs work to better recognise the fiscal impact of policies by integrating the annual budget formulation cycle with the medium-term (three-to-five years) of the policy planning process. Ideally, they reconcile the cost of existing and new activities with the resources available over the medium term.

They are used in a variety of ways by governments to improve fiscal discipline over a longer period, allocative efficiency between programs, and the technical efficiency of aprograms themselves.

Australia’s forward estimates process is a longstanding example of an indicative MTBF that tries to predict what budgets will look over four years. Other nations, such as the Netherlands and Austria use a binding budget ceiling which acts as a limit on new programs.

The World Bank’s ‘key institutional determinants’ for the success of MTBFs focus on whether a jurisdiction has a commitment to the new approach to budgeting, the organisational adaptability, technical capacity and institutions to do it successfully, as well as whether they have sound budgetary systems and properly-sequenced financial management reforms.

Professor Di Francesco’s article cautions that, while MTBFs can be used to achieve policy goals, ideally estimates within an MTBF should be based on the actual cost of existing government programs: “the effectiveness of ‘forecasting’ (top-down) or ‘programmatic’ (bottom-up) is dependent on the accuracy of spending forecasts which in turn rely on the feasibility of program structures.” 

EPuM is an open access English-language journal published by the Public Administration School of Catalonia (EAPC) in Spain to contribute to the international debate on the management of public services and innovation in public administration.