Ageing populations and the economic downturn pose severe challenges for the sustainability of public finances. As the costs of addressing these challenges rise more quickly than revenues, government solvency and economic growth are threatened. In addition, governments face reduced capacity to pay for current public services with today’s revenues, and may have to raise taxes or cut back services in the future.

Publicly available, comprehensive budget documentation can make it easier for the public to understand fiscal policies and government priorities. Budget disclosures can contribute to fiscal discipline, the effective allocation of resources and operational efficiency. They can enable governments to be held accountable for producing realistic and sustainable budgets, and for the social and economic impact of planned policy measures. Because the availability of information within the budget document does not necessarily assure its accuracy, citizens and legislators must use the information to hold the government accountable for achieving better budget outcomes.

In order to improve fiscal discipline, many countries have adopted medium-term budget and/or expenditure frameworks that typically span between three and five years, including the budgeted fiscal year. The medium-term perspective may include estimates of revenues and expenditures and/or targets or ceilings for spending. It signals the direction of policy and funding changes and gives actors time to adjust. It also helps identify room in the budget that can be allocated for new and existing programmes. Thus, it can enable decision makers to consider the cost of competing programmes before they make funding decisions, while increasing the predictability of funding during programme implementation. OECD member countries that are members of the European Union are required to report medium-term objectives; however, legislatures may or may not incorporate these when formulating the budget.

In the current economic environment in particular, OECD member countries are under pressure to improve government efficiency and effectiveness while controlling expenditures. While all OECD member countries are developing information to assess their government’s performance, there is a wide variation in the type of information produced and the extent of coverage. Formal performance information refers to both performance measures (outputs and/or outcomes) and evaluations. Objective performance information can contribute to better decisions on resource use and programme management. For example, performance information can help to identify programmes that are working and those that are not, enabling managers to improve poor-performing programmes. However, it is important to note that implementing a performance budgeting system requires good quality data.

In order to address changing and unforeseen circumstances, the executive, ministries and agencies may need to have some flexibility to be able to adapt spending during the implementation of the budget. Even with a sound budget formulation process, economic assumptions can change, input prices can fluctuate and evolving political priorities can call for the reallocation of budgeted resources. For example, many countries have recently adjusted spending midway through the budget year to address unforeseen circumstances related to the financial crisis.