Transition to service delivery on a contractual basis should be im plemented gradually and on condition of availability of several public and non public organizations, which engage in social service delivery.
During budget planning it is possible to organize tenders for the right to sign contracts for social service delivery between active on a given terri tory public institutions and private organizations. Starting price at such tenders, exceeding which makes such tenders invalid, should be calcu lated on the basis of budget capacity for the coming year norm of finan cial input of delivery of given type of services. In case social service placement on a competitive basis was not feasible, normative targeted financing should be implemented.
In order to create preconditions for strengthening competition be tween service providers under normative targeted financing and con tractual financing it is important to guarantee the consumer the right of choosing the service provider. This envisages abolishing of the practise of assigning a determined contingent of consumers to service provider.
Contract (assignment) on social service delivery must determine corre spondingly the price or norm of financial input and limit of services vol ume per consumer capita. In order to avoid uncontrollable public ex penditure growth one should envisage that the government guarantees the consumer completely free of charge service delivery only in case when their provider is an institution, which is financed from correspond ing budget or organization, which has a signed contract with the state on delivery of corresponding types of services. Distribution of public funds on service delivery between specific service providers should be exercised on the basis of the written in the contract service price (or norm of financial input on their delivery) and actual volume of service delivery (with possible advance payments in the volume, for example, not more than half of actually delivered costs according to the data for the passed reported period). In order to simplify control over the vol umes of services rendered by individual providers it is possible to fore see distribution of vouchers (certificates) to consumers for service pur chase. Payment to the service providers should be realized on the basis of quantity and nominal price of presented vouchers.
Normative targeted financing and contractual financing with the use of vouchers should be differentiated from subsidizing consumer. The latter arrangement consists in granting to citizens public funds of the partial compensation of the expenses incurred on purchase of social services. Targeted use of public funds in this case is guaranteed by way of their transfer to the service provider selected by consumer. However unlike normative targeted financing and contractual financing with the use of vouchers in case of subsidizing budget funds recipient becomes not the service provider but the consumer. This means that the con sumer and not the state enter into contractual relations with service provider. Correspondingly the state does not guarantee the consumer the price level or the service quality. State responsibilities are limited by payment to a citizen of fixed amount in case the purpose of his contract with service provider corresponds to the purposes of granting subsidy.
Taking into account feature of subsidizing customer this financing arrangement is applicable to services, which the state in principle con siders possible to render on condition of cost sharing with citizens and on condition of the lack of government control over the quality of ser vices.
In the process of drafting 2005 federal budget for the first time in Russia’s practice there was taken an attempt to apply performance based budgeting arrangement. All federal ministries and agencies using unified methodology drafted budget reports, in which they de scribed principal outcome of their performance for reported three year period, defined goals and objectives of their activity for medium term perspective as well as performance measures for performance evalua tion. A positive outcome obtained from drafting budget reports consists in the fact that the major share of expenses earmarked for the mainte nance of ministries and agencies now are divided according the so called departmental target programs, i.e. are linked with specific direc tions of activity of structural subdivisions and their expected outcome.
The Government Commission on improving public expenditure effi ciency examined reports drafted by the ministries. These reports were specified as a result of examinations and were included in the Consoli dated Report on the outcome and principal venues of RF Government activity. In order to create incentives aimed at improving budget plan ning quality the 2005 federal budget law envisages allocation of million rubles as additional financing of ministries, which presented best budget reports.
Simultaneously legal base was created designed to introduce in Russia’s budget process medium term target planning procedures and improving the budget reports scheme. At present this normative legal base contains: the Concept of budget process reform in the Russian Federation for 2004–2005 and Decree of reports on outcome and prin cipal directions of activity of the subjects of budget planning approved by the Decree of the RF Government on 22 May 2004, No. 249, Decree on development of prospective financial plan in the Russian Federation and draft federal law on the federal budget for the next fiscal year adopted by the Government Decree on 6 March 2005, No. 118. In addi tion the RF Ministry for Economic Development and Trade drafted Gov ernment Decree “On the Order of Preparing Consolidated Report on the Outcome and Principal Directions of Activity of the Government of the Russian Federation.” For example, Decree on the development of prospective financial plan in the Russian federation and draft federal law on the federal budget for the next fiscal year creates necessary preconditions for the implementation of performance based budgeting arrangements at the expense of introduction in the prospective fiscal year distribution be tween the subjects of budget planning of allocations aimed at meeting valid and newly assumes expenditure obligations for the three year pe riod. Any kind of departures from previously stated parameters of the projected fiscal plan taken in the process of budget shaping for the next year should be motivated. This fact prolongs the period of budget plan ning, guarantees succession of the state policy and accounts of previ ously assumed responsibilities in the process of budget shaping. It cre ates incentives for budget expenditure optimization. At the same time prospective fiscal plan is not adopted by lawmakers, which provides the necessary level of adaptability of the fiscal policy to the changes taking place in socio economic situation.
Draft Government Decree “On the Order of Preparing Consolidated Report on the Outcome and Principal Directions of Activity of the Gov ernment of the Russian Federation” is designed to contribute to the im provement of this document by way of specifying requirements set to its contents regarding risks evaluation and non achievement of the in tended goals and objectives, underlining of interdepartmental goals and objectives, which are possible to solve only together with other lev els of public authority.
In the future it is projected to spread performance based budgeting arrangements (including formalized performance measures) to the level o f structural subdivisions of government bodies and subordinate institutions. This demands development of budget process reform con cept operative at the intradepartmental level, including mechanism de signed to transform goals and objectives of the subjects of budget planning into goals and objectives of budget recipients. Moreover, in the framework of administrative reform it is envisaged to form a system, which will create incentives for civil servants built on the bases of per formance measures written into individual contracts and official regula tions. Initiation of an effective monitoring system is essential for follow ing up performance indicators of the subjects of budget planning and the budget network.
From the concept point of view there are no doubts about the need to introduce performance based budgeting into Russia’s budget proc ess. This creates preconditions for setting out objectives in the budget policy implementation. It also requires a more transparent comparison of costs with outcomes and adoption of more reasonable from the pub lic interests point of view decisions.
At the same time, analysis of drafting of the Government Consoli dated report and drafting of reports by the federal ministries, which highlighted outcomes and main directions of their activity allows to draw a conclusion about the need for a careful attitude to this new instrument of the budget process. Serious shortcomings, which are observed in the planning arrangement based on performance based budgeting lead to formal attitude of the ministries to drafting of the reports. (at least, a considerable part of them). This fact reduces effectiveness of the new instrument of budget process, which was designed as a means to in crease its effectiveness.
Theoretically, a requirement to the effect that goals and objectives set out by the subjects of the budget planning should correspond to quantitative performance measures in the circumstances of limited availability of statistical data resulted in distortion of logical sequence of planning. Performance measures, which logically should follow goals and objectives, actually came to the forefront. While drafting budget reports the ministries first of all evaluate what statistical indicators they can collect and only after that they “invent” goals and objectives, which can be measured by applying those statistical indicators. In order to resolve mentioned problem a prolonged transition period will be re quired. During that transition period performance measures arrange ments should be brought in line with the available statistical resources.
Before this is done performance measures requirements set out to the ministries should be more flexible.
The issue of dividing political and administrative criteria of the fed eral government apparatus performance measurement remains an ur gent one. On the one hand, in market economy government bodies dis pose of a limited number of instruments of influence on the socio economic processes. At the same time, interference of government bodies in life of economic subjects welcome. On the other hand, the federal government is traditionally held responsible for all what is hap pening in the country. This contradiction was most obviously reflected in budget reports drafted by industrial ministries. Those ministries did not have at their disposal an extensive budgetary network and powerful instruments of influence, which would allow them to achieve set out ob jectives. However, these ministries set out very ambitious objectives extending themselves to increasing production volumes of competitive type products by subordinate industries.
Ministries of the social block, which rely on a widespread network, also encounter a disproportion between the volume of authority and the set out objectives. For example, the Ministry of education and science set out objectives in the sphere of secondary education in spite of the fact that corresponding educational institutions are in jurisdiction of subnational governments and are financed from regional and local budgets.
The problem of interaction between different levels of government, which is important for achieving objectives of the federal policy, is pro nounced not only in the ministerial reports. The Governmental Consoli dated report should comprise a chapter “Regional Aspects of Achieving RF Governmental Objectives.” However, there is no understanding on the question of how the regions should be involved in the realization of the federal government’s strategy. We think that compulsory assign ment to regional and local governments of tasks linked with the achievement of federal government’s goals would have contradicted the logic of 2003–2004 reform dedicated to the division of powers be tween the Russian Federation, its constituent members and local self governments. We think that chapter of the Consolidated report dedi cated to the regional aspects of achievement of the federal govern ment’s goals can only be coordinated with the regional authorities joint programs in spheres of joint jurisdiction.
There are other smaller shortcomings, which exist in the methodol ogy developed for the preparation of the ministerial budget reports. For example, there is no methodology needed for evaluating effective regu latory and supervisory activity of the government bodies; the issue of expenditure types, which can be assigned to nonprogram ones; there is no order for coordinating performance measures of the subjects of budget planning, which are governed by the President of Russia; so far they did not manage to separate interdepartmental goals and objec tives, which require coordination of departmental target programs.
It is necessary to specify the relation of the consolidated budget re port and reports drafted by the subjects of budget planning, which highlight the outcomes and principal directions of their activity with pre viously adopted documents of medium term planning, in particular, with the program of socio economic development of the Russian Fed eration for medium term perspective and development strategies de signed for different industries. Coexistence of planning documents, which were developed on different methodological basis, but which were drafted for the same period of time, undermine the importance and status of each of them. We think that the Consolidated budget re port should replace the program of socio economic development of the Russian Federation for medium term perspective. This does not ex clude the existence of a separate document, which describes the de velopment program designed for a long term perspective (for example, ten years).
Analysis of the reports on performance measures and principal di rections of activity of the federal ministries and consolidated budget demonstrate that there is a need to improve methodology of their de velopment. We recommend initiating revision along the following direc tions:
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